Cash Flow in an Up and Down Economy

Cash flow: for some it is the thing they can never figure out; for others it flows like well water.

How do you set up cash flow? How do you keep cash flow coming in? What properties can bring in cash flow?  Cash flow can be set up through single-family homes, multiple unit properties and commercial properties. The focus for this article is on commercial property storage units.

Storage unit facilities come in varying sizes and layouts, from a small, single row of units to a multi-acre facility that has indoor and outdoor storage capabilities.

Storage units are able to survive in high and low economic times because of people’s need to acquire “stuff.”  In good times, people need a place to store the extra stuff they have. In lean times, downsizing happens so people store the stuff they cannot part with.  As a storage facility owner this is all great news, along with the fact that I will not need to unclog any toilets or worry about the eviction process.  If someone does not pay for their storage unit, the unit will be locked and the unit owner will typically be given a 30 to 45 day notice. After that the unit will be put up for auction.  At the auction, the unit will be opened and people can look, but not go in the unit itself. The unit goes to the highest bidder. Typically the unit needs to be emptied by the end of the business day.

Now, when evaluating cash flow from existing storage units, there are multiple considerations to make:

-What is the current occupancy rate? How do the prices compare to close by competition?

-What is the mix of size of units in the area? How many units are available in competing facilities?

-What type of storage is being offered: outside, RV, inside, climate controlled, small vehicle?

-Are there mixed-use facilities in the area: car wash attached, mobile home or RV park adjacent, vehicle rental facility or moving supply store?

-How long has the facility been in operation?

-How close are the nearest competitors?

This is a short list of things to check on a cash flowing commercial property, specifically a storage facility. As with any type of commercial property in a city, we want to make sure the city is still happy to have the facility operating within city limits. Talk to the planning and zoning commission to find out what the city’s 5-year plan is and how they see your facility playing into it.

I have seen facilities that went back and forth with the city for five years on what was needed and how the facility should look before the building was approved —it took four phases. But because planning was completed before the second phase of development, the facility was fully rented during phase one.  Understanding what your objective with your property is for the next five years will help you plan ahead and help your cash flow, even in a down market.