Yellow Letter campaign for storage facilities

I recently was asked if there was a "special sauce" for sending yellow letters (marketing letters asking to buy someone's facility) to self storage facilities.  Residential home wholesalers who buy houses report having better success for certain types of distressed homeowners.  I find self storage has less "strategy" in the letters.  At the end of the day, most motivation is based on age of the owner and wanting to get a silly good price.  Seeing that we are investors and are looking for a decent deal, I'm not sure we're actually marketing to the folks wanting a silly good price anyway.  So in the end, the real leads are going to come from the folks that are ready to exit self storage facility ownership.  Here is the rest of my response: (Much of the resource information is from the Self Storage Academy's curriculum and can't explicitly be shared.  However, I'm happy to discuss the concepts and topics.)

Letter looks fine.  I don't think there is a need to overthink it.  In the end it's your letter and it should say what you want it to say.  Scott's example letters are templates that have worked over the years.  His group has sent out tons of letters and the examples I've given you are a culmination of the work he's done.  I certainly don't think a person needs to reinvent the wheel, that's for sure.  

With that said, this IS Scott's secret sauce.  Frankly, we want you to be as successful as possible.  I'd say it'd be a good idea to review the Deal Finder Program Session #2 about "How to Build you Contact Marketing Letter".  I've watched this probably 4 times in the past 2 months and there's no reason to diverge from that methodology.  Scott is pushing this method for a reason....it's been working.  Here are a couple notes for you:

-Building a database (where to find lists and leads) - 11:30 (@12:30 he says that you can go to the Library and use Reference USA for free - use SIC Code 2225 for SS)

-Another successful letter used in a student's campaign @ 20:18 in. This letter was resulting in 6-7% response rates rather than the traditional 4-5%.  

-Another good bit of content to review in the video is @27:00 regarding the call script.  I sent you a screen shot of that section but there is further details to be listened to if you tune in to the video

-The video also highlights that you should start off by sending these letters out in your own market.  Frankly, I couldn't agree more.  If you were in a super hot market where RE prices were pretty inflated, I'd probably start by looking elsewhere but it seems to me that X City, AK is a great place to start.  There is a decent amount of population and there probably isn't a ton of pressure on the current owners to sell up to this point.  At the end of the day, hot markets typically just compress the CAP rates which isn't entirely great for your investment.  

As an example, I'm have awesome luck in Western Wisconsin just outside the Twin Cities metro.  Obviously I'd love to own within the Metro but prices are not favorable.  Western WI is in the path of progress (eventually) and I can find 9-10% CAP rates.  Also, property taxes are less, labor costs less, and building restrictions are less.  Nothing wrong with any of this.  The real key is the you have the square foot to population ratio within a 3 mile radius of less than 7 SF/Person.  That's the key.  You also have to do some due diligence in that maybe you have a situation where there's only 4 SF/person but you have 50% occupancy throughout the area (not just the facility in question).  Something is up.  This could be the situation in which local income is too low to sustain a facility.  I'll have to review that guideline and get back to you but it's in the neighborhood of $40k/person.  Or you have a situation where the area is very blighted and can't support a facility.  You're going to spot these facilities from a mile away.  This is the part where a little scrubbing of your list is a good idea.  

Let's say you know West Suburb is a total dive and North Suburb is a decent, blue collar area.  You would probably want to scratch the West Suburb facility off your list and probably continue to send out the letter in North Suburb. (Sorry if I completely missed the ball here but I was just trying to use some areas that were local to you in my example).  

I am not an expert with wholesaling, but I listen to tons of podcasts and whatnot regarding the practice.  At a minimum, I would consider myself well versed.  There are some intricacies to wholesaling residential properties.  But you also have to consider those people are selling for a lot different reason.  They are typically under duress of some sort.  It's quite unlikely that you will find a SS owner who's under duress.  I think something like less than 0.3% of all SS facilities went into foreclosure even during the great recession.  That means that the folks that are calling you that are motivated are motivated because they are retiring or they are investors who pumped up their properties a little and want to move on to something else.  There are some mismanaged facilities out there too but most of those fall into the "owners are ready to retire" category too.  As you see with the residential stuff, you'll get contacted by those who want to sell for way too much but I'm also confident a few solid opportunities will come knocking too.  

I want to add one more thing on the location question (and I'd be happy to talk some more about this when we have our call next week) - I think you should campaign the X City and surrounding areas first and see what comes through the door.  Remember, you also need to try contacting owners via phone and local brokers in case someone's holding onto a pocket listing (although these are fewer and farther between due to SS facilities being on the "radar" nowadays) or so they can bring a deal to you first if they come across something.  After you've done what you can do in X City, then we can start talking about other markets.  But like I said, we want those tertiary markets because they hold the best deals.  Hell, Scott has been killing it just buying stuff around the Indy area (and not IN the Indy metro).  

BTW, I love where your head is going here.  You're thinking about the long term game of keeping properties coming in the door.  Remember, we don't need 4 of these a month, we need 2 within 12 months.  You guys seem like go-getters, which I love, so I think you'll probably do better than that, but I'm just trying to give you some context that this is more about playing the long game.  

Buying Self Storage on a Master Lease Option style of transaction

During a coaching call with a mentee, we discussed a property that has a super low occupancy - approximately 15%.  The owner owned the property free and clear and was an experienced investor/developer (hence he wasn't going to give the farm away).  He said he's base the property's sale price based on a ProForma rather than existing numbers.  Initially, my mentee wrote the property off as just slightly better than a scam.  

I had one suggestion if she was going to consider a property such as this - a Master Lease Option.  An MLO is basically an overarching lease on the business and property and you run the entire thing and the owner collects payments from you.  The key is that you work out a monthly lease payment that is equal to or less than existing rents MINUS the expenses.  It basically offers the seller the same monthly payments that they are currently getting and the upside goes to you, the lessee.  The benefit to the owner is that he can charge you for the Option to buy (typically $2-10K) the property in the future at a higher than market value.  

In this the case the market value of the property with a 15% occupancy doesn't even cover costs to construct.  I get why he wouldn't want to sell at that valuation.  However, you can't say the property could be 100% rented and therefore the valuation is based on 100% occupancy, either.  So maybe you can come to some middle ground on the Option Value that makes sense and that could actually be financed through a bank once you get the property stabilized and cashflowing nicely.  

The key is that a bank will want between 10-30% down, and income has to cover the debt service at a ratio of 1.2:1 or better.  So you'll have to do some soul searching on what an achievable occupancy rate is and price the property accordingly.  The idea is not to lease the property through the end of the lease (typically 3-5 years - I suggest 5 years or more), it is to increase occupancy such that a bank will finance the property for you.  Well, unless the lease is cheaper than the bank financing.  In that case you'll have to consider both options.  

Your risks as a buyer: The property IS stabilized at 15% and you're doing all the work for no profit.  Or you go backwards and lose tenants and you have to pay in to the owner each month.  Frankly, I'd say at 15% occ, you're pretty safe!  You also risk putting an option price on the property that is too expensive and you can't actually achieve it.  Let's say you can't get the property over 50% occupied and therefore the option price can't be financed by a bank.  Well, the good news is that you only put down a few thousand dollars for the option and hopefully now that you're at 50% occ, you're making cashflow on the property each month over the lease payment.  

I would say with a 15% occupancy rate, you probably can't go backwards.  However, you would want to check nearby facilities for their pricing and occupancy (there were a number of facilities nearby which probably hurts the upside of this property).  But you can set super low prices and put out flags and offer concessions to get people to rent from you to get occupancy up.  

The risk for the seller: The lessee deferrs a bunch of maintenance and leaves the facility in worse condition than they took it over.  Again, hopefully they got a decent price on the "Option" such that they could cover most to all of the issues that could arise.  The other risk is that they might sell it for under market rates.  But that would also require the seller to do a better job of managing the facility (which it sounds like he's not interested in).  

This one feels like a win-win on a MLO if they can come to terms on an option price and an option payment as well as a lease payment.