How Off-Market Deals Benefit Investors

If you’ve ever sold or bought a home, you already know that there’s often a “middleman” involved in real estate transactions. With residential properties, both buyers and sellers typically work with real estate agents. These agents will do everything from listing the home on the market to holding open houses and, ultimately, negotiating a deal. 

For commercial real estate sales, like self-storage facilities, it’s common for sellers to work with a broker. While a broker can help negotiate the highest sale price, the relationship tends to be transactional and not necessarily in the buyer’s best interest (the higher the sale price, the better the broker is paid).

Alternatively, those interested in purchasing a self-storage facility without involving a broker may benefit from an off-market deal. There’s an old real estate adage, “You make your money when you buy.” When pursuing off-market deals, buyers have a better chance of doing just that. Working directly with the seller typically means obtaining the property at a better price or for more favorable terms, especially since the buyer doesn’t have to pay upwards of 5% in commission to a broker. 

Here’s a deeper look at how else off-market deals benefit self-storage investors.

How Off-Market Deals Work

Before publicly listing a facility for sale, it’s common for sellers to first bring the property to market privately. This is common when a seller has connections with other fellow facility owners, operators, or investors they think may be interested in the property. By turning to their network first, they are more likely to find a buyer they’re comfortable selling to and can leave out the “middleman” (or broker).

The benefit for buyers is that they deal directly with the property owner, rather than a broker who’s trying to drive the price as high as possible. If there are no takers on the private market, the facility is listed publicly and the broker creates an auction environment (meaning the highest bidder wins). By comparison, we’ve seen successful off-market deals where the seller didn’t go with the highest offer, but rather chose to work with the buyer who they knew would be best for their business.

In addition, there is a higher likelihood of buyers being able to obtain seller financing in an off-market deal than one that’s been put on the market. In today’s high-interest rate environment, obtaining financing directly from the seller can be a big advantage for investors.

Seller financing typically involves interest-only payments, which means more cash flow for investors. Generally speaking, this type of financing does not have loan covenants, which presents another notable advantage for investors. In a traditional bank loan, loan covenants are certain conditions or restrictions that borrowers must meet. Should these covenants be breached, the lender may require a capital call or other financial remedy in order to cure the covenant breach. When investors pursue seller financing, loan covenants aren’t usually enacted.

The Benefit of Working With an Experienced Sponsor

When you work with an experienced real estate syndicator, like Belrose Storage Group, there’s an entire team of professionals dedicated to finding off-market self-storage facility deals.

Why is this important? Because the market is fragmented. Around 70% of facilities are controlled by small, private owners.[1] In other words, mom-and-pop shops are much more common in this industry than large corporations.  

When a small business owner goes to sell their business, it’s likely that the sale will fund a major life expense like retirement. So many of these owners spent decades building their business, and they care deeply about what happens to it once the sale is final.

Creating a Relationship-Driven Deal

As we mentioned earlier, many market deals are transactional in nature. But when a sponsor like Belrose facilitates an off-market deal, we put a great amount of thought and care into it.

We help the sellers feel comfortable with their decision to retire, even educating them on future tax implications and getting their books in order. Our dedication to finding the right deals for our investors allows us to lock in an acquisition at a great price while helping these mom-and-pop owners feel confident in their decision to sell.

Interested in Investing in Self-Storage?

If you’re an investor looking to purchase your first facility, you may not have the connections yet to take part in an off-market deal. But that doesn’t mean you can’t experience the advantages of buying a facility off-market. When you work with a sponsor, like Belrose, we already have the personal connections with a vast network of property owners and investors in place. Even better, we do all the “heavy lifting” that goes into purchasing a facility that you would otherwise be responsible for managing on your own.

Throughout the many off-market deals we’ve completed, our team has garnered a reputation for being good stewards of these properties and, most importantly, reputable buyers. If you’d like to learn about our next acquisition and investment opportunity, reach out to our team today.  

Sources:

[1] 5 Reasons Why Self-Storage Investors Are on the Right Track