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SELF STORAGE BLUEPRINT

FOR SUCCESS

“Commercial Real Estate’s Cinderella Asset Class!”

Copyright © 2012 by Scott Meyers, CSSM©

All Rights Reserved

Written By Scott Meyers, CSSM©

No part of this book may be reproduced in any form nor used for teaching

purposes without the express written permission of the Author.

This publication is designed to provide accurate information with regard to

the subject matter covered. It is sold with the understanding that the publisher is

not engaged in rendering legal, accounting, or other professional advice. If legal

advice or other expert assistance is required, the services of a competent

professional person should be sought.

____________________________________________________________________________________________________________ ©2012 by Self Storage Profits, INC. (SSP) All rights Reserved. Reproduction in any form without the express written consent of SSP is prohibited.

Visit us on the web at www.SelfStorageInvesting.com

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TABLE OF CONTENTS

Introduction –

The Top 10 Reasons Why Self Storage is the Hottest Sector in Commercial Real

Estate

CHAPTER 1: Industry Overview

Definition of Self Storage

The History of Self Storage

Self Storage Tenants (Clients)

The Current State of the Market

CHAPTER 2: Investment Opportunities In self storage

20 Reasons to invest in Self Storage Now!

Debunking the Myths

CHAPTER 3: The Future of Self Storage

Reasons for Increased Demand

Advancements in Technology

More Products & Services

Focus on Customer Service

Industry Consolidation

Increased Competition

Increased Values

CHAPTER 4: To Buy or to Build

The Advantages of Buying

The Advantages of Building

Chapter 5: Case Study - Brownsburg Crossing

Loan Proposal

Business Plan

About The Author

Glossary of Terms



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Introduction

The Top 10 Reasons why Self Storage is the Hottest sector in Commercial

Real Estate.

As you will read in my home study course, “The Complete Guide to

Finding, Evaluating, and Purchasing Self Storage Facilities”,

http://www.selfstorageinvesting.com/comboeasy, I began my career by building

a large portfolio of single family and multi-family properties. I spent the first 10

years in real estate investment fighting with tenants and toilets and it almost

drove me into the insane asylum and the bankruptcy court! Chasing tenants that

wouldn’t pay, trying to stay ahead of rising taxes, insurance, and utility bills, and

the ongoing, unexpected maintenance calls, almost forced me out of the

business. So I began to ask myself, what area of real estate could I invest in that

could utilize the talents and experience I have gained, without all the hassles of

tenants and toilets? Well, after weighing all options, and after speaking with

many of my mentors in the industry, I ultimately chose Self Storage as the area I

wanted to pour my efforts into and secure my future.

So after 11 years of amassing a large portfolio of single family and multi-

family apartment complexes, I began to sell them all off, and begin investing in

self storage facilities. And as most people say once they have found their true

calling, I wish I would have done it sooner! The self storage business isn’t without

its fair share of challenges however and I certainly wouldn’t call it easy. But my

http://www.selfstorageinvesting.com/comboeasy



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life has changed dramatically the day I sold my last apartment complex with all

those tenants and toilets and traded them for self storage units filled with

nothing but……. STUFF!

Now, I will share with you the top 10 reasons why I decided to sell all my

houses and apartments to invest in ONLY self storage:

10. Endless Opportunities – If you already own a plot of land in a GOOD

location, you can build. Now I don’t want to oversimplify the process

because there are a great deal of zoning and Approval hurdles you may

have to jump over, but this is a real estate business that is much easier to

get into compared to most others. Also, contrary to popular belief, the

large, public operators in the industry only account for about 12% of the

estimated 64,000 facilities in this country worth $22 Billion in 2007. That

means there is a huge opportunity to pursue roughly 56,000 facilities

that are owned by “mom and pop” investors that are already established

and cash flowing, and were developed specifically to sell off to investors

once they were stabilized!

9. Sky Rocketing Demand For Storage – We have an insatiable appetite for

storage in this country, with over 2,000,000 units having been added since

2000. But probably the most exciting prospect for the industry is the

aging of the baby boomers. There are roughly 77 million baby boomers in

this country as of 2009, and they account for approximately $2 trillion in

spending power. A recent poll by the Self Storage Association of a

sampling of Baby Boomers revealed that upon retirement, 50% planned

to travel, 40% planned to move, and 10% planned to start a new job.



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What do people do when they move? That’s right, they store stuff.

Downsizing, buying a second home, or even a like swap in houses

necessitates a need for storage. One economist recently compared the

opportunity in this industry to sitting on the oil industry in the 1950’s

or sitting on Silicon Valley in the 1990’s!

8. Multiple ways to increase Value and Profit Centers – I have had a great

deal of success in creating value with properties once I acquired them, but

found the opportunities greater with self storage. There’s only so much

you can do to a house, or with apartments that truly adds value, or

commands a higher rent. But with Self Storage, you can take a vanilla

facility and create multiple additional income streams such as:

a. Retail centers that sell locks, boxes, moving supplies

b. A Truck Rental service through a 3rd party, or in-house

c. A business center that charges for computer usage, copies, and

fax

d. Ebay® Add-it centers where customers can pay you to sell their

“stuff”

e. A pack and ship business, and approximately 30 more profit

centers that we have identified, and continues to grow.

These additional services can contribute as much as 10-15% of the total

income a facility brings in on a monthly basis.

7. LOW, LOW, Operating Costs – With my apartments, I was responsible for

paying the utility costs for many of the common areas and vacant units,

and in some properties, the gas and water was on 1 meter, and was



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included in the rent. I was forced to pay for my tenants’ wasteful use of

gas and water. When the cost and/or taxes on these utilities increased,

guess who paid for it; ME! You simply can’t pass those increases along to

the tenants without them going down the street to a competing property.

With Self Storage, however, the expenses are minimal to begin with. You

will pay for lights in the parking lot, and utilities for the office, but those

can be monitored, and increases can be easily absorbed. This makes

budgeting for utilities and other variable costs a breeze compared to

properties with tenants and toilets. As a result, self storage operating

costs are typically much less than office, retail, and apartment buildings,

which lowers the overall break-even occupancy.

6. Low Rent and Collection Losses – 48 of the 50 states have a lien law with

regard to self storage collections procedures, and the other 3 provide for

steps that an owner can take to collect past due rent. Each state’s law

differs slightly, but most give the self storage facility owner the ability to

perform the following steps when a tenant’s rent is past due:

a. Remove the tenant’s gate code from the system, locking them

out of both the facility and their unit.

b. Place another lock on the unit to keep them from entering it.

This is what we call over locking the unit.

c. Auction their goods if payment has not been received, typically

within 90 days after they were given notice.

Each state requires that the tenant be given notice that they are past due,

and most require proof that notices were sent by certified mail or some



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other traceable format. Each state also specifies specific timing for each

one of these actions, and also requires that proper notice is given to the

tenant, and to the public by way of the local newspaper that their unit is

being auctioned off. The laws also specify what an owner can and can’t do

with regard to the tenant’s belongs, and most require that the entire unit

is auctioned off as a whole to avoid any liability. Either way, this far better

than a landlord’s recourse when going through the legal process of

evicting and collecting back rent from tenants in the single family and

multi-family apartment world.

5. HIGH Cash Flow (They Don’t Call them Cash Cows for Nothing!) –

Rental rates for self storage facilities are similar to other real estate

product types; however, lower development and operating costs create

higher profits and a greater return for investors. In addition, leases are

month to month, which provides the ability to raise rents in conjunction

with market demand. Self storage tenants won’t typically rent a truck, call

their friends, and waste a Saturday morning to move their stuff down the

street just because their rent increased by $3 per month. But if you raise

rents once or twice a year by 3-5%, multiplied by several hundred units,

with no increase in expenses, you begin to see why industry experts so

often refer to self storage facilities as the proverbial “Cash Cows”. By

contrast, if you were to raise your rents in your single family or apartment

portfolio by 3-5% once or twice per year, you would have a mass exodus

on your hands!



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4. Low Risk – Self storage space is rented on a month-to-month basis to

hundreds of different customers, most of which are individuals and small

businesses. With self storage, no single move-out is going to cause a

major drop in rental income. Compare this with other forms of

commercial real estate, where a Flagship tenant or multiple high paying

tenants can really spell disaster. In addition, self storage has the ability to

absorb economic fluctuations better than other real estate investments.

For example, when the economy is good, people buy more therefore they

need extra space to store their extra stuff. And when the economy is

down, individuals and businesses may downsize their house or business

space, and therefore turn to self storage as a cost effective place to store

their belongings. As a result, self storage has the lowest failure rate

(8%) and subsequently lowest loan default rate of any real estate

product type (compare to apartments which have a 58% loan failure

rate!)

3. Leverage or Other People’s Money (OPM) – Given the fact that self

storage has the lowest loan default rate of any real estate product type,

lenders are now making 80% - 90% LTV loans on established, well-

constructed, and well managed facilities with strong track records. In

addition, there are several private investors that are funneling millions of

dollars into the market to partner with self storage developers and

investors due to the industry’s tendency to outperform the stock market

and other real estate investments. And given the reasons I just discussed,

and the industry’s track record, it is much easier to convince your wealthy



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friends and family members to become investment partners in a self

storage facility than it is with other real estate product types.

2. No Tenants – The number of times you will be in contact with the typical

Self Storage Customer is very minimal over the duration of their tenancy.

According to the Self Storage Association, 95% of self storage customers

do not return to their unit until the day they move out of the facility.

Therefore, the industry norm for hiring a manager is based on a 1 to 400

ratio, or 1 manager to manage every 400 units. There are also several

owners who are taking advantage of new technologies that have become

available in the self storage industry, most notably, kiosks. These

machines resemble an ATM and are typically installed at the front gate and

allows a customer to rent a unit, pay with a credit card, and even dispense

a lock, all without ever coming in contact with the manager! In contrast,

the widely accepted rule of thumb for managing single family and multi-

family properties is a 1 to 100 ratio, or 1 manager for every 100 units.

Quite simply, single family and multi-family tenant commands a greater

amount of babysitting. You have to chase them for rent, answer their

maintenance calls, respond to complaints about dogs, kids, their

neighbors, broken down cars, noise, bugs, etc., and spend an incredible

amount of time writing letters and responding to each one of these issues

or for every time someone is in violation of their lease, or the house rules.

In addition, the eviction and collection cost each month is very time

consuming, with little results. By comparison, I have never taken a phone



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call from the patio furniture in unit 105 complaining that the lawnmowers

in unit 106 were playing their music too loud!

1. No Toilets – The typical self storage facility is constructed from steel, or

concrete, has a steel roof, metal doors, gravel or asphalt drives, and most

likely, a stainless steel fence. Some may have a small office on site with a

computer, phone, and 1 bathroom; that’s it! Steel walls and roofs last for

decades without any maintenance. Door springs need to be replaced from

time to time, and every 10 years or so you may have to add more gravel,

or resurface the lot, but can be easily budgeted for, and most fences last

20-25 years without the need for any maintenance. And of course, the

enemy of all landlords, toilets, or any other indoor plumbing for that

matter, is non existent in a self storage facility. And unless you have

climate controlled units, there are no furnaces, air-conditioners, or water

heaters to maintain. When a tenant moves out, you don’t have to

clean, paint, or replace the carpet; simply take a broom or blower,

and sweep it out!

There are many other reasons I prefer self storage to other real estate product

types as we’ll discuss throughout this home study course. I have thoroughly

enjoyed the business, and I am thankful for the opportunity to pass this

knowledge on to others that may be interested in the industry. In addition, I

consider myself a life long student in the business, and I believe in perpetual

improvement.



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CHAPTER 1

Industry Overview

What is Self Storage?

Self Storage Association Definition: Self Storage facilities are real property

designed and used for the purpose of renting or leasing individual storage spaces to

tenants who are to have access to such space for the purpose of storing and

removing personal property. They offer rental on a month-to-month basis of

individual spaces where customers provide their own lock and have sole access to

their space. Today’s typical storage facility may comprise several one or two-

story buildings on two to 6 acres of land, or a multiple-story building, containing

a carefully designed unit mix of spaces. The units typically range in size from 5X5

to 10X30 feet with 30,000 to 120,000 total rentable square feet of space. Self

storage facilities frequently feature large roll-up doors and drive up access to

outside spaces and offer outside parking for storage of boats and recreational

vehicles, which often can’t be stored in residential communities. Today’s facilities

normally have the following features:



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Contain 10,000 to over 100,000 rentable sq. ft.

Offer a wide range of unit sizes

Are well lighted

Are paved vs. graveled

Have storage units divided by steel, movable panels

May have some or all of their spaces climate controlled

Contain high-tech security systems, including electronic access, cameras,

and digital video recording.

Have perimeters that are walled or fenced with Security Gates

May or may not have a resident manager

Have single or multi-story buildings

Provide carts and Dollies for use by its customers

May contain movable storage modules

Sell storage and moving related supplies

Provide ancillary retail services and products.

From the real estate perspective, self storage:

Meets the needs of several consumer groups (residential & commercial)

Uses simplified structures

Makes efficient use of land, especially odd shaped parcels in less desirable

locations

Has short construction time, thereby providing little traffic disruption

Uses very little energy!



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HISTORY

The conventional concept of personal storage began in England when

British banks were asked to safeguard valuables for clients embarking on

extended voyages. Overcrowded vaults quickly forced them to seek storage lofts

from drayage companies (the first moving companies). The first mini-warehouses

for household and personal items were built. The two story structures were built

with packing on the lower floor and private storage rooms on the second. Except

for expansion into multi-story buildings, things remained the same for decades,

until the 1950’s when costs rose. This led to construction of palletized

warehouses which were designed to handle crated customer goods that could be

stacked three levels high.

Access to household/personal goods was restricted and it was expensive,

since customers had to make appointments to obtain items and pay each time

for the service (stored property could only be reached by forklifts which were

operated by staff) and business hours were limited and normally did not include

weekends.

Initial development of self storage facilities in the US occurred primarily in

the Western United States and the Sunbelt states. Contributing factors were: a

transient population moving to new jobs and better climate, retirement

condominiums, apartment and townhouse residences, slab construction, etc.

Many facilities were developed prior to 1979, with 1978 generally acknowledged

as one of the greatest growth years in the industry. As the decade of the 1980’s



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began, increased self storage construction activity occurred along the Eastern

coast of the United States, with increased interest in Canada, Europe, Australia

and other countries of the free world.

SELF STORAGE TENANTS

It’s been said that self storage is used by people and businesses in transition,

but that’s only part of the picture. Self storage is used by a wide range of

consumers with different needs that may include:

Homeowners and businesses in need of temporary space for overflow of

property or inventory

Those in the process of relocating

Property stored in relation to an estate in transition due to death,

litigation, restoration, etc.

Businesses in need of space for general control of inventory, records,

supplies and equipment

Businesses that are expanding or contracting

Businesses storing seasonal displays

College students storing books, desks, etc. during summer

Military personnel in need of low cost space or are on temporary duty

Seasonal visitors with household items and sports equipment

The advantage of using rental storage space is increased flexibility, low cost,

convenience, and value.

Self storage space is generally rented on a month-to-month basis and

does not commit customers to long term leases. Tenants may typically leave

whenever they want and rent only the space they need. A recent study shows



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that the average length of tenancy for a typical customer is 11 months, and 24

months for the average commercial tenant. The cost of self storage space is lower

than office or retail space, saving users money. On average, self storage is

roughly 60% less than the cost of most office on a per square foot basis. Self

storage users can often find facilities in their local area and they receive

additional service value because self storage managers are trained to counsel

consumers on how to store items more efficiently in less space, thereby reducing

the cost.

Self storage is a useful management resource for small businesses, since

businesses can easily obtain more space as they grow without committing to

expensive long term leases. Furthermore, it provides businesses with a means to

cut costs, should they need to downsize. Self storage is also useful for college

students and seasonal visitors who may rent space for a season, and for military

personnel who go on temporary tours of duty, but intend to return to the area,

and for those who can’t afford to rent more living space.

TODAY’S MARKET

Estimates of the overall number of self storage facilities operating in the

United States varies greatly but most industry veterans estimate that there are

somewhere between 65,000 to 70,000 facilities as of the date this eBook.

As the population becomes more familiar with self storage, the demand

for off-site storage has expanded to accommodate the growing needs of the

business community by storing files, medical records, excess inventory,

equipment, etc. In some areas business storage accounts for 30% or more of the

total tenancy of a facility. Easy access, convenient office hours, short term rental



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agreements, and no long term commitment to pay for space which may not be

needed in the future, make the self storage facility extremely attractive to the

retail customer, contractor, home based businesses, manufacturer’s, and

pharmaceutical representatives, etc.

The industry still remains relatively unsophisticated and highly fragmented.

Today, roughly 80-88% of all self-storage facilities are owned by small

independent “mom and pop” operators. In addition, there is a considerable

amount of medium to large players undergoing consolidation, although it is

becoming more difficult for the larger buyers to accomplish since most owners

realize what a great low maintenance high-cash business it is, and therefore are

reluctant to sell. As a result, the top 50 companies control approximately 25

percent of the square footage in the industry.

As demand for space has grown and the self storage industry has evolved,

consumers have become more familiar with the property type (92% of the

households in the U.S. were familiar with the concept, according to a survey

sponsored by the Self Storage Association in 1989). Inasmuch, local and regional

competition ranges from a handful of properties to scores in a given trade area.

Accordingly, customers may choose where they will store and from many

different options, with unit size and the choice of climate or non-climate

controlled space being the base options. Today consumers have the ability to

compare and choose from among a variety of self storage property styles and

customer services to meet specific storage needs.



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Competition in the self storage market is increasing. Maximum success for

investors/operators depends on the ability to meet customer needs with

convenience and value.

To satisfy customers, today’s self storage must look to locate in retail

corridors, light commercial or even high density residential neighborhoods, in

addition to traditional industrial and heavy commercial areas. Newer facilities

emphasize architectural aesthetics in construction and are designed to blend in

with the retail or residential nature of the areas they serve. Landscaping has also

become a prime consideration, as well as the interaction of storage development

with adjacent planned tracts of offices, retail stores and business parks, in order

that incubator space is available to support public planning. All of this is done

with the aim of creating a clean, stable, secure upscale image that supports the

perception, and the reality of trust among current and prospective customers.

CHAPTER 2

Investment Opportunities In self storage

Like all other real estate investments, self storage shares the same attractive

qualities as residential rentals, apartments, retail strip centers, office buildings,



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and industrial properties. Those include leverage (borrowed money), tax

advantages, passive income, personal control (being your own boss), and

appreciation. However, self storage offers a number of benefits that I feel make

it such an attractive investment. Those include the following:

1. We are becoming a more transient society, moving around more and

creating a greater need to store our stuff, thus the demand for self storage

is increasing.

2. Americans tend to accumulate a great deal of possessions, and we don’t

want to “weed out” those things we don’t use or are sentimental or have

nostalgic value, which in turn, creates more demand.

3. Most new communities will not allow us to store our boats, jet skis, RV’s,

or even multiple cars on the street or in front of our homes.

4. Many retirees downsize their homes which require additional storage

space that their smaller homes don’t provide.

5. More and more Americans are buying second homes which increase the

demand for storage space.

6. College students utilize storage space when moving back home for the

summer.

7. Many businesses are downsizing and operating out of smaller offices that

necessitate a need for storage space.

8. Many small distributors will utilize self storage to operate their business

from.

9. Pharmaceutical reps will use climate controlled storage for samples and

inventory.



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10. The eBay® phenomenon has created a huge demand for space.

11. Other home based businesses are also creating demand for off-site

storage.

12. Lower Development costs – self-storage facilities development costs are

often 30 to 50 percent less than office, retail, and apartment buildings.

13. Lower Operating Costs – Operating costs for self-storage facilities are

substantially less than office, retail, and apartment buildings. As a result,

self storage owners are more isolated from large increases in utility and

other variable costs that occur in the open market.

14. Lower development and operating costs make break-even occupancy

ranges lower than other forms of real estate.

15. Occupancy is generally more stable and therefore predictable as there are

typically a greater number of units in which to “spread the risk” than in

other forms of real estate.

16. Month-to-month leases mean that rental rates can be adjusted easily.

When occupancy increases, I will adjust rates to compensate for the

demand.

17. Demand for self-storage is not dependent upon the economy. When the

economy is good, people buy more and store more. When the economy

slows, people downsize, and require a cheaper alternative to store their

extra belongings.

18. Low management overhead as customers typically only need the manager

to move in or move out, compared to office or apartment complexes that



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requires a high number of customer contacts and constant and ongoing

interaction.

19. A well-run, stabilized self storage in a good location is very desirable to

other investors and institutions, making self storage a very liquid

investment.

20. It’s No Wonder Self Storage has the lowest loan default rate of all

commercial real estate property types!

DEBUNKING THE MYTHS

Now that we’ve discussed all the reasons that make self storage a fantastic

investment, we should take some time to break down a few of the myths that

have been floating around with regard to the industry. Like many other

industries, self storage has been evolving for several decades now, and many of

the general assumptions by outsiders surrounding this business simply do not

apply. Some of the common myths are as follows:

1. “If you build it, they will come”.

In the early years, this was somewhat true. But in today’s competitive landscape

an owner/investor must perform very careful analysis and/or feasibility studies to

determine whether a potential development site or an existing facility is a wise

investment. In addition, there are many areas that are, or are becoming overbuilt,

which drastically changes the projected lease up and overall occupancy potential

for a facility.

2. “Self-storage is an easy business”.

This may have been somewhat true in the past as well, but like any business, if it

were easy, everybody would be doing it. Far too many real estate investors treat



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their business as a hobby rather than what it truly is; an asset with many moving

parts that must be managed from day to day as opposed to a stock or a mutual

fund that you purchase and only infrequently check on its performance. Today’s

self storage arena is very competitive, and successful owners are always thinking

of ways to increase income, decrease expenses, and strive for operational

efficiencies across all facets of their operation.

3. “All self storage properties are cash cows”

As we discussed earlier, self storage facilities have the lowest default rate of all

property types, but it doesn’t mean that owners don’t default and that many

others are struggling. Generally this is due to poor planning before acquiring or

developing a facility. An owner/investor must perform thorough due diligence

when it comes to competition, population growth, land costs, construction costs,

market rental rates, and the management of the facility before purchasing or

developing a facility. If you do not have the time nor the expertise, feasibility

study should be conducted by an experienced individual within the industry to

avoid buyers or developers remorse.

4. “This is a cheap business to get into”

Again, this may have been somewhat true in the past, but not any longer.

Today’s customer is demanding a higher quality facility than what the industry

provided in the beginning. Today’s facilities possess a higher quality

construction, are fully paved, fully fenced with security gates, typically have state

of the art digital video surveillance and recording systems, and are considerably

larger than in the past, which necessitates an office with a part-time or full-time

manager. Land costs are higher as most developers prefer to locate in high



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traffic locations as opposed to the hard to find or industrial park sites of

yesteryear. In addition, construction materials have been on the rise recently due

to fast developing foreign nations which affect development costs, and good

existing facilities are being sold at record high prices as the word is out on what a

great investment self storage has become.

Chapter 3

The future of Self Storage

The Future of Self Storage

As we look to the future of self storage, it’s very clear that the future looks

bright. There are a few trends afoot backed by solid industry data that justify my

positive outlook on this high growth industry. These trends are as follows:

Increasing Demand

The U.S. Population is predicted to reach 400 million by the year 2050. All

indicators show that Americans continue to be a highly mobile society with a

high propensity to accumulate “stuff”. This means that as of the time of this



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publication, we stand to add 150 million potential customers to our prospect list

who are searching for somewhere to store their belongings.

High Tech Facilities

As our customers become more selective in where to store their

belongings, owners of older facilities will need to make necessary improvements

to remain competitive. This will ultimately result in more sophisticated and

higher tech facilities offering more user friendly layouts, larger offices, flexible

unit mixes, kiosks, high security, and more climate control units. In addition, we

can expect to see self storage investors competing for the premier parcels

located in the high traffic retail areas of town. As a result, municipalities are

beginning to require that these facilities have a retail component in order to

increase the amount of sales tax generated and paid to those local governments.

They are also requiring that the facilities have a certain “look and feel” that blend

in with the surrounding businesses. Nicer fencing, or split block security walls,

paved drives, certain architectural features, and an attractive landscape package

will be mandatory and made part of the architectural permit prior to construction,

and strictly monitored for compliance.

More Products and Services

As self storage moves closer to Main Street, we will begin to see an

increase in the number of customized services available for its customers. We

have already seen some partnerships being formed that provide complementary

products and services. Of course the most common example is truck rental, but

we are now seeing pack and ship businesses, EBAY® add-it stores, Kinko’s®, or



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co-locating with retail stores such as Starbucks® or Subway® on the ground

floor with storage above in multi-story facilities.

Focus on Customer Service

As more and more people frequent our self storage facilities, they will

begin to expect more from our facilities and the face behind the counter. These

sophisticated customers are demanding excellence and consumer loyalty will

quickly go out the door, along with their stuff, if they have a bad experience.

Conversely, when customers are satisfied with the service they receive, they will

stay, and hopefully will tell their friends about the good experience they have

had. This provides an excellent opportunity for us to exceed their expectations,

and provide a substantially better experience than our less educated, less

professional competitors in our chosen markets. My goal is to be my

customer’s LAST storage provider by never giving them a reason to look

anywhere else, for any reason!

Industry Consolidation

As the larger public companies and REIT’s are pressured by Wall Street to

produce results, we will surely see more consolidation of the mid to large size

companies. Those same mid to large companies can’t meet their growth

deadlines by developing their own facilities from the ground up. The 3 years it

takes to choose a plot of land, apply for zoning, permits, and then build and

stabilize a property simply isn’t fast enough for them to meet their goals. Don’t

misunderstand me however, the mid to large companies ARE still active

developers, but their appetite for growth will fuel a surge in acquisitions and

mergers for years to come.



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Increased Competition

As all eyes are now on Self Storage, we are sure to see a number of new

entrants into this facet of commercial real estate. Unfortunately, this will lead to

overbuilding in some areas as many newer developers will ignore the feasibility

criteria for developing a facility in a given market. Therefore, it will be imperative

for owners and developers to work more efficiently to attract and retain

customers in this new environment.

Increase in Value

In the future, the upward value trend in self storage will continue for a

number of reasons:

1. Predictably low interest rates will push cap rates low, and net larger

profits for those who choose to sell.

2. For that reason, self storage continues to rise in popularity as one of

the commercial real estate assets of choice, and will ultimately attract

more investors.

3. There are still a number of individuals and investment firms that are

stinging from the recent stock market corrections. These investors are

now searching for a more stable investment that they can “touch and

feel” as opposed to investing in a company that they have never heard

of, run by people they have never met, in an industry they know

nothing about.

4. There is a lot of money chasing a few deals. Many investors have

created a great deal of value in their existing portfolios, and they are

selling off these properties and are looking for places to spend their



26

1031 tax deferred exchange dollars without paying taxes. Self storage

has continued to be a great investment to exchange into and more and

more investors are choosing to park their dollars here before their tax

deferred status expires.

As the saying goes, the only thing we know for sure is that things are

going to change. I do subscribe to that line of thinking, but I also believe that

self storage will remain a reasonably predictable, stable, low maintenance, high

cash flow investment for professional investors for years to come.

CHAPTER 4

TO BUY OR TO BUILD

The Advantages of Buying versus Building

There are several advantages to buying rather than building a self-storage

facility. These advantages include:

1. Quick Entry

Quite simply, buying an existing facility will get you into the business

faster. Bypassing the development process will allow you to take over an existing



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operation without the time and hassle of building and creating the business from

scratch.

2. Predictability

Buying an existing self-storage facility gives you a historical track record

based on past operational performance. This will provide indicator to the future

success of the facility all things considered.

3. Ease of Financing

Typically, financing an existing facility with a proven history of net operating

income is much easier than construction financing which is highly speculative.

There is a wide variety of products available to finance existing facilities in today’s

market. Financial institutions have a large appetite for well performing self-

storage facilities and therefore are offering high loan to value loans at very

desirable interest rates.

The advantages of Developing versus Buying include:

1. Not buying someone else’s problems

When buying an existing facility, you may be buying someone else’s problems

that can prove expensive to fix. Be certain to have a licensed inspector perform a

physical inspection of any facility you may be interested in purchasing, and be

sure to verify all income and expense reports to determine the true Net

Operating Income of the property to avoid any surprises.

2. Choice Site Selection

Developers are free to choose a location far from competitors and be first in

an area that is experiencing a high rate of development. As in most businesses, if

you are first to market, you can grab onto the customers in that area, and in self-



28

storage, customers typically don’t move their stuff just because another

competitor comes to town.

3. Low start-up Cost

The cost to buy land and develop a facility is usually significantly lower than

the price of acquiring an existing facility, looking strictly at a cost per square foot

basis.

4. Preferred Product

A developer can build a state of the art facility to meet market demand. It is

much easier and more cost effective to build a facility with all the new industry

“bells and whistles” than it is to retro-fit an older, tired facility with electronic

gates, paved driveways, digital video surveillance systems, newer door/locking

systems, business centers, kiosks, or adding a retail center and office.

5. Potential for Higher profits

If you do your homework and choose a good site, and build a marketable

facility from both a user and a potential buyer’s perspective, you could reap a

windfall of profits upon stabilization and ultimately the sale of your facility. Of

course there are no guarantees, but history has shown that developing, and

managing a facility to stabilization and then selling has proven to be considerably

more profitable than buying and selling an existing facility.

Chapter 5 – Case Study – Brownsburg Crossing

Creating your Business Plan

Once I have an accepted offer, the clock starts ticking. We have several

3rd party reports which must be completed, and most importantly, we have to



29

obtain a loan commitment within the specified timeframe spelled out in our

purchase agreement. In an effort to ensure I am granted loan approval, it is

critical that I submit a business plan that outlines everything a lender needs to

know about me as a borrower, my business, and the project at hand.

Now for many people, the thought of creating a business plan is akin to

the fear of public speaking. However, it does not have to be such an unpleasant

task, especially since we already have the information. Our personal financial

statement, the project due diligence and the market analysis comprise just about

all of the information needed. All we need to do is to organize this information

into a coherent document. Our business plan is an opportunity to present

ourselves and the deal in the best possible light. It is designed to give the

lender an in-depth look at yourself as a borrower including your past

successes, the reasons why this project is so strong, and the reasons it

will succeed in this market. This will all be supported by facts from your

research and due diligence.

Reasons for a Business Plan

A written business plan speaks louder than any thing you say or do when

applying for the loan. In addition, a written plan may be the only information the

loan committee or board can refer to when looking at your deal. The business

plan speaks for you when you are not present. It is extremely important to

create a professional, organized, document proving that you have done your

homework and can manage the risk that is inherent in all facilities.

There are several software packages and numerous resources available

to assist you in preparing a business plan. Some are very good, but few are

tailored specifically to real estate. I suggest you follow the format I have provided

in this home study course for several reasons. Most business plan templates are

just that; templates. They are designed using generic terms for operating a

multitude of small businesses. However, a business plan and subsequent loan



30

request for real estate requires many different elements. You may find that the

effort involved in adapting a template is more work than writing a plan from

scratch following the model I have presented.

In addition, I recommend writing your own plan because of the knowledge

you will gain in the process of doing so. By assembling the information again

and presenting it in a clear format, you gain an even better understanding of the

project that allows you to explain it in detail when the time arrives. This creates a

perception of confidence in the lender’s eyes during conversations regarding you

and the facility, and anything that reduces risk on the lender’s part is a positive

step in the right direction. Lenders see hundreds of proposals each year; some

are good, others are not. A thorough plan makes their job much easier when

pitching your deal to the board. I strive to ensure that my business plan and loan

proposal are one of, if not the best proposals they will ever see. Some of the

smaller community banks I have relationships with only approve so many

loans per year, and I want to make sure that my proposals make it to the

top of the list in the month that the committee or board meets to review and

approve requests. And so far, I haven’t lost yet!

I must remind myself that perception is a reality for the lenders. They do

everything possible to avoid risk, but they know that every deal involves a certain

amount. Their approach is to look at every deal as if it was a loser and must be

proven to be a winner. My Personal financial statement is designed to project

stability, and my loan proposal is presented in the exact same manner. A good

loan proposal will convey the message that I have the necessary resources and

abilities to succeed in the project being proposed. This is critical to obtaining

loan approval and funding for the facility.

Elements of a Business Plan

The ability to professionally package and present my proposals, I believe,

has been a major advantage in getting my deals funded. My plans spell out



31

very succinctly what I am going to do, when I am going to do it, and how I

plan to do it. In my opinion, there are seven critical elements that should be

included in any business plan and subsequently, your loan application:

7 Essential Elements of a Loan Application

1. Projected Financial Statement

2. Amount of Funds Requested

3. Requested loan terms and Length

4. Source of Repayment and collateralization

5. History of and nature of the Business

6. Repayment of the loan (including plan B should things go awry)

7. Timeframe for approval

I try to summarize those first 7 questions on the first 2 pages of my

business plan to make it easy for the lender to get a quick snapshot of what I’m

attempting to achieve. Remember, you are relying on your loan officer to present

this request for you to the loan committee, so make it as all-inclusive, yet as

simple as possible for him to do in your absence. Your ability to prepare your

loan officer for this task will be the key element in gaining loan approval for your

new facility.

Do not, I repeat, DO NOT send him or her in to the committee or the

board with a disorganized, unprofessional mess of papers, and don’t leave

it up to him or her to explain why you should be approved for the loan. I

spell this out myself in my business plan which highlights my experience, past

successes, and my confidence in the project being proposed. They should come

to the conclusion that if they don’t fund this loan for me, then the competition

certainly will.



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Plan Format

My plan is written as a combination business plan and loan application

that focuses primarily on the subject property I want to acquire. It includes a

summary of my past experience and successes, my present portfolio of real

estate, and pertinent financial data, but the primary focus is on the deal.

The reasoning behind my format is that a self storage facility is not a

business that requires many employees, vast amounts of inventory, or major

amounts of machinery to manufacture, distribute, or sell a product. With self

storage, the emphasis is on the care of a single asset, and the plan is a

representation of my ideas for the efficient and effective management of the

facility. I’m not downplaying my ability as a borrower, but in commercial real

estate, the lender tends to look more to the performance of the asset than the

borrower.

Below is a sample outline of a loan proposal and business plan. A good

plan is professional, grammatically correct, free from spelling errors, logically

organized, and most importantly, thorough. We will discuss these elements in

the pages that follow.

1. Summary Page

a. Borrower name and the entity that will hold title to the facility

b. Property Legal Description

c. Purpose of the loan

d. Loan amount and terms requested

e. Loan Ratio, or Loan To Value (LTV) requested

f. Collateral and source(s) of repayment

g. Financial Summary

2. Market Summary and Analysis

a. Area map including facility, and photos of the facility



33

b. Demographics: Population, growth, employment, & income

c. Market Trends

3. Neighborhood Analysis

a. Location Description in relation to customer base

b. Market position

c. Competition

4. Property Description

a. Site plan and analysis

b. Aerial and or Satellite Photo (GoogleEarth.com)

c. Property Photos

d. Property Description and Rent Roll

e. Improvement plans

f. Management Summary

g. Marketing Plan

5. Financial Data

a. 3-year historical financial performance (if possible)

b. 3-year projection of operations

c. Basis for these assumptions

d. Source and use of Funds requested

6. Borrower data

a. Ownership structure and Entity

b. Background and experience of principal

c. Personal Financial Statement of borrower

7. Exhibits

a. Building and site plans

b. Survey

c. Sample Lease



34

I will now discuss each section in detail and provide examples of the

information that should be included for the lender:

Summary Page

A single page summary of the proposal presents the property and the loan

request in Table Form. The summary contains all pertinent facts about the

proposed facility and serves as an introduction to the project. It also serves as a

quick reference for deal points so that anyone looking for the pertinent data does

not have to search through the whole proposal to find an answer.

My layout is simple and concise. The headings address the pertinent

questions of identifying the borrower, the property, and the purpose of the loan,

the amount of funds needed and the terms for repayment, and the security and

the source of repayment. Requested lending ratios are listed as well. Typically,

the LTV and debt coverage ratios are the first calculations any lender performs

when evaluating a loan request. I make it easy to find and discuss. I also

highlight the operations and furnish supporting documentation for further

consideration.

The summary supplies the answers to the most pertinent details of the

project. The rest of my proposal will support the highlights with facts, figures,

and further clarification.

Loan Request Summary

Project: Brownsburg Crossing Self Storage

1234, Secure Way, Brownsburg, IN 41111

Description: 143 Unit, 25,200 s.f. self storage facility on 4.1 acres

Borrower: Alcatraz Storage, LLC, Scott Meyers, Managing

Member

Purpose of Loan: To fund the purchase of the existing facility and

$15,000 in site improvements.

Loan Amount $1,375,000



35

Terms Requested: Fixed Rate Permanent loan at 80% LTV amortized

over 30 years at current market rate, with no pre-

payment penalty.

Collateral: 1st Mortgage on subject property with assignment of

Rents and security deposits

Value: Estimated Appraisal value of $1,750,000

Source of Repayment: Proceeds from the Net Operating Income of the

facility

Projected Stabilized Income: Year 1 Year 2 Year 3

Income $218,484 $218,526 $220,134

Expense $ 43,568 $ 43,124 $ 43,078

NOI $174,916 $175,402 $177,056

Maps

Following the summary page and prior to the market analysis, I will insert

maps that depict the location from both a regional, street level, and satellite

basis. A local lender will invariably know the neighborhood and immediately be

able to zero in on the location, creating a familiar feel right away



36

Maps are readily available and free at websites such as mapquest.com

and mapsonus.com. Satellite Maps are available at Googleearth.com which

adds just another degree of professionalism and credibility to your plan.

A local map showing the property relative to area neighborhoods and

services adds detail to the discussion regarding market position. For example, I

show the location of the project in relation to any multi-family apartments, high

density neighborhoods, and proximity to other retail related services when

possible. I also try to stress visibility if the facility is located on a major road with

high traffic counts.

Area Description

Most lenders already possess this data in lengthy form, so I prefer to use

bullet points to highlight the major points. This also lets them know that I have

done my homework and that I have a good grasp of the market I am planning to

invest in. I will draw this from the demographic reports available at

www.ESRI.com, and a sample of what I include in my plan is as follows:

Brownsburg, IN, Hendricks County

72 square miles

125,789 residents

13 miles west of Indianapolis city center

Highly accessible with a major highway, I-74, running through the city with

an exit ½ mile from the subject facility.



37

Indianapolis International Airport is located just 15 minutes away in

neighboring Marion County.

Major Employers include Hart Publishers, St. Vincent Hospital, and

several Motor sport related Industrial complexes.

Strong employment statistics: 2006 unemployment rate below 4%

Average household income: $52,154

Population growth trend +3.5% per year

Market Position

The information regarding the market should make the case for the

project’s viability. Again, I use bullet points to highlight the appropriate

information. I typically use Information from the website of the local planning

office, economic development department, and/or the local chamber of

commerce. Also, be sure to credit the source or use your own words when doing

so: Don’t cut and paste from the website. Most likely, the lender and the

committee members will be familiar with the local area’s literature, but it doesn’t

hurt to re-state, and once again, it stresses your credibility in doing your

homework.

Brownsburg Crossing Self Storage

25,200 square foot self storage facility

Located off Dale Schrier Dr. near the intersection of S.R. 267 and 56th

Streets. Also visible from I-74 on the North Side.

Traffic count of 25,000 vehicles per day along 56th st.

Less than one mile north of downtown Brownsburg off S.R. 267.

Central to community facilities in a popular retail area.

17,543 households within three miles

Average Annual Household income = $52,154

Steady population increase of 3.5% over past 5 years

Two competing self storage facilities nearby averaging 85% occupancy



38

Located directly across from the Brownsburg Crossing Apartments, a 560

unit apartment complex

Significant barriers to entry for new competition due to the City of

Brownsburg’s reluctance to award zoning, and the rising cost of

developable parcels.

The list should focus on factors that accurately reflect growth and stability in

the area where the facility is located. The goal is to establish that the market

exists to support the facility and my projections for future viability. Location in

relation to high density neighborhoods and apartment complexes along with

employment centers and other high traffic generators such as retail are key

indicators that the project will sustain itself. If the market is not doing so well, I

am sure to include information with regard to how our management efficiencies

will allow the facility to achieve above average occupancy.

I am also careful not to ignore the likelihood of new competition. Local

planning departments can provide information regarding proposed construction

projects. If there are significant barriers to entry for new competition, then I will

mention that fact and stress the point. However, I don’t want to give the

impression that although the lack of available land and difficult zoning actually

benefits the existing facilities, but declining populations or high unemployment

creates problems for all facilities.

Competition

The competition includes information for the subject facility and the

pertinent information for each direct competing facility. The following is an

example from the information gathered through The Self Storage Demand

Estimator we discussed earlier, as sample of which is included in the Appendix

and on the forms CD:

Competitive Supply within 5 Mile Radius

Facility Square Feet # of Units $Rent/Square Ft.



39

Access Self Storage 56,000 445 $1.58

Best Self Storage 34,000 298 $1.41

AAA Self Storage 28,000 159 $1.78

U-Save Self Storage 19,000 141 $1.39

You can include further detail from the SSA Self Storage Demand

Estimator with regard to demand and supply and an estimate of overall

occupancy, but it may not be required. The point I am trying to make is that once

again, I am demonstrating that the competition has been evaluated and the

project is properly positioned. I will then summarize my opinion of the market

position with regard to the subject facility and state my conclusions regarding

future demand.

Property Description

This section details the actual physical features of the facility and includes

photos, site plans, surveys, and perhaps charts. Any deferred maintenance

and/or planned improvements are discussed along with a brief discussion of how

I plan to manage the facility after acquisition. The site plan shows the buildings

and improvements to the property, along with a unit breakdown if possible. I also

try to supply an existing survey if I can obtain one from the seller. I will include

the satellite photo as well, and discuss the site’s topography, ingress/egress,

parking, visibility, utilities and any special features such as a retail center,

business office, kiosk, billboards, signage, cell tower, landscaping, etc. that may

be worth noting.

Photos provide an excellent illustration of the facility. An aerial photo

along with the satellite depiction from www.GoogleEarth.com or from

www.terraserver.com can show proximity to neighborhoods, multi-family

apartment complexes and the competition as discussed above.

http://www.terraserver.com/



40

If you are using a customer provided aerial, be sure to include the date

and note any significant changes that have been made since taken.

Facility Photos should include both interior and exterior views. If using a

digital camera and editing software, you can add captions or short descriptions

directly printed on the photo.

I also include a current rent roll summary which shows the unit mix and

corresponding Rental Rates Like the one listed below:



41



42

I will also discuss the facility’s general condition and occupancy history

along with how I plan to improve the property by increasing occupancy,

decreasing expenses, and whether I plan to construct additional buildings, install

a kiosk, security system, fencing, electronic gate, etc. and the associated costs of

each.

Management

Your plan for managing the facility is crucial to getting any loan

approval. If you plan to manage the facility yourself, describe your history and

experience in a format similar to a resume. If this is your first large property with

multiple tenants, highlight your previous experience managing multiple smaller

properties. And if you are new to the industry, focus on your people skills,

organizational acumen, construction or remodeling experience, and all prior

experience in real estate whether you have been a realtor, mortgage broker,

appraiser, surveyor, or property manager; all can be talents you bring to the

table.

I always discuss my experience and expertise in leasing, collections,

maintenance, and my specialty, operations. I will also list the 3rd party vendors or

contractors I frequently use to handle my lawn/landscaping, painting, door and

spring repair, general maintenance, parking lot sealing/striping, and my property

management software vendor. I will also identify who will be on-site to show

prospective tenants, prepare the leases, take the service calls, and tend to the

day to day operations of the facility, and the proposed hours of operation. If I

plan to use a self serve kiosk for 24 hour leasing and rental payments, I will also

list that here, and include a brochure of our kiosk vendor in the appendix or

attached in the body of the plan as reference along with their website address. In

addition, if I plan to use a call center, I will note the name of the vendor and the

hours I plan to utilize their services in addition to their brochure and website

address.



43

Marketing

Depending upon the location of the facility, the current status of its

marketing efforts, and the nature of any planned expansion, a detailed marketing

plan may be required. The plan may include plans for new or additional signage,

a name change, the yellow page and phone book ads, and perhaps some

sample copy of your ads and brochures that will be available in the leasing office

and distributed to the community. I also include the cost for updating any

existing websites, or for designing one from scratch. For most facilities, a

projection of an annual budget based on ad costs would be a good start. If this is

a turnaround facility, or if I plan to add a significant number of new units, or

specialized storage such as climate control, RV condos, or record storage, I may

plan to expand my marketing efforts to advertise the newly repositioned facility.

Financial Data

The financials are where the proverbial rubber meets the road. This

will determine in the lender’s eyes, as it already has in yours, that the project is

viable. This is the section that will be referenced the most, so I am certain that it

is accurate, and does not conflict with any other financials already presented, or

in any other place in the loan request.

Most lenders like to see three years of operating history, and would also

like to see projections for the following three years after purchase. I am always

certain to explain any abnormalities in the financials should there be any drastic

increases or decreases in income or expenses from the previous 3 years. I

always pay close attention and include as much financial information as possible.

Don’t forget your audience here; these folks want to see as much financial detail

as possible which also includes narrative that tells the whole story. Not only are

the lenders impressed with my preparation, but being thorough gives me

confidence in the deal for my own peace of mind.



44

An example of an operating history for a self storage facility, which

includes a pro forma for future years in the last column, is listed below

20XX 20XX

INCOME Amount Amount Amount

Gross Rents : $198,078 $201,768 $218,484

Parking : $0 $0 $0

Truck Rental $345 $437 $452

Revenues : $198,423 $202,205 $218,936

Vacancy : $0 $0

Lease Variance : $0 $0 $0

Concessions : $0 $0 $0

Effective Gross : $198,423 $202,205 $218,936

EXPENSES

Real Estate Tax : $15,600 $15,600 $15,600

Insurance : $4,800 $4,899 $4,800

Management : $14,536 $13,890 $10,400

Utilities : $10,897 $9,267 $9,360

Payroll & Benefits : $0 $0 $0

Contract Services : $398 $412 $512

General & Admin : $983 $467 $785

Repair & Maintnce: $3,456 $3,789 $2,400

Advertising : $974 $956 $1,008

Trash: $412 $412 $399

Other : $0 $0 $0

TOTAL EXPENSES : $52,056 $49,692 $45,264

NOI $146,367 $152,513 $173,672

Replacement

Reserve: $0 $0 $0

Cash Flow $146,367 $152,513 $173,672



45

If rental increases are based on the completion of improvements, be

careful to account for the increased rents. The cash flow will increase over time,

but not all in one year as the leases are almost always staggered, with an

average tenancy running approximately 7 months. I am always certain to be

realistic, both for the lender as well as myself when stating the projections for

future years.

I always check all financial reports as well as all my statements two to

three times for accuracy in reporting. If I make changes to the statements, I am

always certain to change the statements in the text accordingly.

Source and Use of Funds

A statement of source and use details the disbursement of the loan funds

and my equity as borrower. It includes all closing costs including loan origination

fees, attorney fees (if any), recording costs, escrows for survey, appraisal,

environmental report, and any improvement costs. These figures are estimates

and may change as the details of the purchase come together. Below is a

sample source and use statement for the acquisition of a self storage facility:

Source and Use of Funds

Brownsburg Self Storage – 650 N. Dale Schrier Drive, Brownsburg, IN

Borrower – Alcatraz Storage, LLC, by Scott Meyers

Funds Available

Loan Principal Amount $1,360,000

Borrower’s Funds $ 457,050

Total Funds Available $1,817,050

Acquisition Costs

Purchase Price $1,800,000

Closing Costs

Legal Fees $1,000



46

Survey $2,300

Appraisal $3,600

Recording costs $250

Loan Fees $9,900

Total Closing Costs $17,050

Total Acquisition Costs $1,817,050

Balance of Funds Available $0

This is final evidence of thinking the deal through. Addressing the

transaction cost in an orderly fashion demonstrates that I have performed the

necessary homework to establish the overall feasibility of the deal. If the facility

plan includes loan proceeds to fund any improvements or expansion, I will

include a line item schedule of funds requested.

Borrower/Entity Structure

Every lender needs to know who the borrower is. I always set up a

separate legal entity, typically an LLC, to hold title to each facility I

purchase. I will include details of the ownership structure including percentage

of ownership and a copy of the articles of incorporation, approved by the state of

Indiana, and a copy of my operating agreement. In addition, I will list my tax

attorney, and legal counsel for reference.

Background of Principals

The final section of my loan proposal includes a very lengthy “hero file”

where I detail my past experience and investment successes. It is a separate,

spiral bound booklet that lists in detail a breakdown of the deals I’ve done in the

past, highlighting the profits on the sale of each property. I will also include a list

of current facilities in my portfolio, focusing on the increase in Net Operating

Income of each facility after I acquired the facility and implemented my best

business practices in operations and management. I also include a resume

outlining my formal education and industry training, designations, and a list of my



47

awards and recognition. I round out the resume with notes on my family and

extra curricular hobbies and interests. I am a firm believer in adding a

personal touch to my plan which helps to find common ground with my

lenders and the committees that will ultimately review my request.

Exhibits

I include as much information in the package as will help to sell the

project. At times, I may overdo it, but I would rather err on the side of producing

more than enough information for the lender to make a decision, rather than omit

what they may be looking for. Tax returns, detailed vendor contracts, proposals

for improvements, etc. should be referenced as “available for review upon

request, but not included with this proposal”.

Packaging

I prefer to copy the package on 3-ring paper, and include in a binder with

tabs for reference. Any one of the large office supply stores can assist you with

this document at minimal cost. Remember, our goal is to have our loan

proposal moved to the top of the heap when all the loans are proposed at

the monthly loan committee meeting, and ultimately, given preferential

consideration for being so professional and complete. Make it generic in

nature, but include a formal cover to the bank and lender you are making the

request to. There have been a few occasions where the lender wasn’t able to

fund the loan for some reason, in which case I would retrieve the package and

forward it to another bank to start the process over.

In Summary, when I have taken the time to prepare a thorough business

plan and loan request, it has been given the attention and priority it deserves.

And subsequently, I have had a great deal of success in getting my deals funded,

and grow my business in ways others have failed.



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To learn more about the country’s hottest business, from the nation’s

leading industry expert, please visit Scott on the web at

www.SelfStorageInvesting.com and to purchase the Self Storage Investor’s

Must Have Home Study System, “The Complete Guide to Finding,

Evaluating, and Purchasing Self Storage Facilities”, and to see the next date

and location of the Industry leading 3 day boot camp “The Self Storage

Academy”® held in Indianapolis at Scott’s facilities, and coming to a city

near you!

A Word From the Author:

“Thanks for spending some time reading about the nation’s hottest and simplest

real estate investing strategy! Although I’m biased, I invite you to visit my

website to view the testimonials from all my students and student/partners whom

I have helped to become real estate millionaires, without all the hassles of tenants

and toilets. Having endured a near bankruptcy experience managing over 500

tenants and toilets, I realized that after surviving, and now thriving in real estate

with self storage, my purpose in life was to go out and share my story and

business by teaching other investors that there definitely is a better way to invest

in real estate – a safer way with a greater opportunity to create huge amounts of

wealth, and how to do it much quicker. Since then, I have devoted a large part of

my efforts through the creation of my home study systems, 3-day Self Storage

Academy, and the dozens of 1 day seminars, webinars, and speaking

engagements at the industry’s largest shows, where I reveal all my secrets and

share my business with those wanting to take advantage of what I learned over

http://www.selfstorageinvesting.com/



49

the years. I invite you to do the same by visiting me at

www.SelfStorageInvesting.com, the industry’s largest educational company

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another day slugging it out with tenants and toilets, or in another weekly meeting

with your boss, go there now and sign up for my free e-zine, or join the

www.SelfStorageInsiders.com, free for the first month, and see what everybody in

real estate is talking about, but that hardly anybody is doing! So Go, DO IT NOW!

About the Author

Scott Meyers, CSSM© has been the president of Alcatraz Storage™ and its

affiliated companies since 1993. Scott began his real estate career by purchasing,

rehabbing, and selling a single family house with no money out of his own

pocket. He took that knowledge and built on it to eventually buy, rehab, and sell

over 75 single family homes in the Indianapolis area valued at over $6,000,000.

He quickly graduated into the into the commercial real estate arena by

purchasing, rehabbing, and selling over 200 Apartment units in 4 separate

developments valued at over $7,000,000. Scott currently owns and manages

Facilities from his home state of Indiana, all the way down to Texas. Scott

received his Certified Self Storage Management Designation (CSSM) through the

National Self Storage Association in September of 2007. Scott was also selected

by The Indianapolis Business Journal for its annual 40 under 40 list of up and

coming Indiana business owners in 2007 for his accomplishments in mentoring

small businesses through his small business incubator, and the many successes

he has enjoyed in his own business, Alcatraz Storage™. Scott was the past


http://www.selfstorageinsiders.com/



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President of the Central Indiana Real Estate Investors Association (CIREIA), and

the co-founder of the Indiana Real Estate Investors Association (IREIA). Scott

also spent several years as an instructor of the Landlord 101 course through the

University of Indianapolis in partnership with The Central Indiana Real Estate

Investors Association teaching investors the best business practices in managing

rental real estate. Scott received his Certified Apartment Manager (CAM) through

the National Apartment Association in 2004 and was a member from 2001-2006.

Scott has also been a member of the Indiana Chapter of the Young

Entrepreneur’s organization (YEO) since 2000 and has held an Indiana real estate

license since 1998 and has brokered hundreds of deals worth over $12 million

dollars. Scott is also a Crown Financial Ministries instructor and Budget

Counselor, and directs the financial ministries at the church he and his family

attend. Scott attended the University of Michigan and worked 8 years in the

telecommunications and software industries before starting he founded his own

real estate companies.

To find out more about Scott or how to begin investing in Self Storage, You can

contact Scott by going to www.SelfStorageInvesting.com.

Glossary of Terms

GLOSSARY OF TERMS

Absorption rate The amount of space of a particular property type that is leased compared to the amount of that same type of space available for lease within a certain geographic area over a given period. Abstract of title The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent




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conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate. Acceleration clause The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant. Acceptance The offeree’s consent to enter into a contract and to be bound by the terms of the offer. Legally, acceptance is not complete until communicated to the offeror. Access Right The right of ingress and egress to and from property. Access Control System An electronic security system that allows the customer to get in and out of the facility gate. Accrual Basis Accounting The method of accounting that involves entering amounts of income when they are earned and amounts of expense when they are incurred-even though the cash may not be received or paid. Accrued items On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property. Acknowledgment A formal declaration made before a duly authorized officer, usually a notary public, by a person who has signed a document. Acre A measure of land equal to 43,560 square feet, 4,840 square yards, 4,047 square meters, 160 square rods or .4047 hectares. Actual Cash Value (ACV) Insurance that pays a claim based on the purchase price of the item, usually allowing for depreciation because of age and use. Actual Eviction The legal process that results in the tenant’s being physically removed from the leased premises. Actual Notice Express information or fact: that which is known: direct knowledge. Addendum An addition to a written document. Addenda is the plural.



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Adjustable-rate mortgage (ARM) A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index. Ad valorem tax A tax levied according to value, generally used to refer to real estate tax. Also called the general tax. Adverse possession The actual, open, notorious, hostile and continuous possession of another’s land under a claim of title. Possession for a statutory period may be a means of acquiring title. Affidavit of Title A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor (1) identifies himself or herself and indicates marital status, (2) certifies that since the examination of the title on the date of the contracts no defects have occurred in the title and (3) certifies that he or she is in possession of the property. Agency The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions. Agent One who acts or has the power to for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent. Air lot a designated airspace over a piece of land. An air lot, like surface property, may be transferred. Air rights The right to use the open space above a property, usually allowing the surface to be used for another purpose. Alienation The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession. Alienation Clause The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. In effect this clause prevents the borrower from assigning the debt without the lender’s approval. Amenity An aspect of a property that enhances its value.



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American Land Title Association (ALTA) policy A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan. Amortized Loan A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan. Ancillary Products Additional products that can be sold at the facility for additional income such as locks, packing and moving supplies, truck rental, mail boxes, overnight shipping; etc. Ancillary Income In addition to the rental income, most facilities will have additional income from products or services other than rent such as merchandise sales, late fees, default fees, truck rentals, etc. Annual Percentage rate (APR) The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act. Antitrust Laws Laws designed to preserve the free enterprise of the open marketplace by making illegal, certain private conspiracies and combinations formed to minimize competition. Application A form used to record pertinent information concerning a prospective mortgagor and the proposed security. Apportionment A prorated division and distribution of prepaid or accrued taxes, prepaid insurance premiums, prepaid rents and other income and expenses. Apportionment usually occurs when a property is sold, and is the manner of determining the amounts due to and from the party. Appraisal An estimate of the quantity, quality or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value. Appreciation An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent; opposite of depreciation. Appurtenance A right, privilege, or improvement belonging to, and passing with, the land.



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Appurtenant easement An easement that is annexed to the ownership of one parcel and allows the owner the use of the neighbor’s land. Asbestos A mineral once used in insulation and other materials that can cause respiratory diseases. Assemblage The combining of two or more adjoining lots into one larger tract to increase their total value. Assessment The imposition of a tax, charge or levy, usually according to established rates. Assignment The transfer in writing of interest in a bond, mortgage, lease or other instrument. Assumption of Mortgage Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments. Attachment The act of taking a person’s property into legal custody by writ or other judicial order to hold it available for application to that person’s debt to a creditor. Auction An auction is the process of selling the customer’s stored goods to the highest bidder. Auction Recovery Ratio This number is the percentage of money received from an auction versus the amount that was owed by the customer. To calculate this number, take the amount owed divided by the amount received at auction. Audit The official examination and verification of bookkeeping accounts for the purpose of providing the accuracy of the figures and adequacy of accounting controls. For Self Storage A review of the storage facility’s records and physical occupancy. Audits are performed to ascertain the validity and reliability of information, and also provide an assessment of a company’s internal control. Automated Underwriting Computer systems that permit lenders to expedite the loan approval process and reduce lending costs. Automatic Extension A clause in a listing agreement that states that the agreement will continue automatically for a certain period of time after its expiration date. In many states, use of this clause is discouraged or prohibited.



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Automatic Stay In bankruptcy law, an automatic stay is a measure which halts all actions by creditors to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, 11 U.S.C. section 362, the stay begins at the moment the bankruptcy petition is filed. Secured creditors may, however, petition the bankruptcy court for relief from the automatic stay upon a showing of good cause. Bailment Describes a legal relationship in common law where physical possession of personal property is transferred from one person (the bailor) to another person (the bailee) who subsequently holds possession of the property. Balance The appraisal principle that states that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as the land. Balance sheet A statement of financial condition of a business organization showing assets, liabilities, capital, and including net worth as of a given date. Balloon Payment A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized. Bankruptcy A state of financial insolvency of an individual or organization; the inability to pay debts. Base Line The main imaginary line running east and west and crossing a principal meridian at a definite point, used by surveyors for reference in locating and describing land under the rectangular survey system of legal description Basis The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis. Basis Point One one-hundredth of one percent. Used to describe the amount of change in yield in many debt instruments, including mortgages. Bench mark A permanent reference mark or point established for use by surveyors in measuring differences in elevation.



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Beneficiary The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. A lender in a deed of trust loan transaction. Binder An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser’s good faith and intent to complete the transaction. Blanket loan A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt. Bollard A steel pipe placed near building corners, gate operators, and utility meters to protect from vehicles. Bollard covers Are prefabricated sleeves that slip over the steel bollards to reduce the painting maintenance necessary to preserve their appearance. Book Cost The actual cost of assets purchased or acquired. Book Value The capitalized cost of an asset less depreciation taken for accounting purposes based upon the method used for the computation of depreciation over the useful life of the asset. Also, the actual value of an asset after the deduction of depreciation and all liabilities is the net book value. Boot Money or property given to make up any difference in value or equity between two properties in an exchange. Breach of Contract violation of any terms or conditions in a contract without legal excuse: for example, failure to make a payment when it is due. Break-Even Point In residential or commercial property, the figure at which occupancy income is equal to all required expenses and debt service. Broker One who acts as an intermediary on behalf of others for a fee or commission. Brokerage The bringing together of parties interested in making a real estate transaction. Budget An estimation of income and expenses over a specific time period for a particular property, project, or institution.



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Buffer Zone A strip of land, usually used as a park or designated for a similar use, separating land dedicated to one use from land dedicated to another use. Building Code An ordinance that specifies minimum standards of construction for buildings to protect public safety and health. Building Permit Written governmental permission for the construction, alteration or demolition of an improvement, showing compliance with building codes and zoning ordinances. Bundle of legal rights The concept of land ownership that includes ownership of all legal rights to the land-for example, possession, control within the law and enjoyment. Buydown A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time. Call Provision In the mortgage or deed of trust, a clause giving the mortgagee or beneficiary the right to accelerate payment of the mortgage debt in full on a certain date or on the happening of specified conditions. Capital Budget An estimate of costs of major improvements or replacements; generally a long-range plan for improvements to a property. Capital Gain Profit earned from the sale of an asset. Capitalization A mathematical process for estimating the value of a property using a proper rate of return on the investment and the annual net operating income expected to be produced by the property. The formula is expressed as Income = Value Rate Capitalization Rate The rate of return a property will produce on the owner’s investment. Capital Improvement A structural addition or betterment to real property that increases its useful life; the use of capital for a betterment that did not exist before.



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Carrying Charges Costs incurred by a developer or builder. Principally, interest on land and construction loans and property taxes to cover expenses until the point of sale. Cash Flow The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. Cash-basis-Accounting The method of accounting that recognizes income and expenses when money is actually received or paid. Cash-on-Cash Return The rate of return on an investment measured by the cash returned to the investor based on the investor’s cash investment without regard to income tax savings or the use of borrowed funds. Caveat Emptor A Latin phrase meaning “Let the buyer beware”. Certificate of Sale The document generally given to the purchaser at a tax foreclosure sale. A certificate of sale does not convey title: normally it is an instrument certifying that the holder received title to the property after the redemption period passed and that the holder paid the property taxes for that interim period. Certificate of Title A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records. Chain of Title The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title. Change Order A change in the original plan of construction by a building owner or the general contractor. Chart of accounts Numerical designation of each asset, liability and capital account. Chattel Personal Property Clear Title Title not encumbered or burdened with defects. Climate Controlled Generally, climate control keeps temperatures below 90 degrees in summer and above 40 degrees in the winter. Humidity is kept below 60 percent to prevent mold and mildew.



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Closing Statement A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction. Close ratio The percentage of the number of people whi inquired about storage versus the number of storage spaces actually rented. Cloud on Title Any document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title. Code of Ethics A written system of standards for ethical conduct. Code out of Gate When an employee or the software automatically deactivates the customer gate code access into the storage facility. Coinsurance clause A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage generally equal to at least 80 percent of the property’s actual replacement cost. Collateral Property pledged as security for a debt, such as the real estate securing a mortgage. Commingling The illegal act by a real estate broker of placing client or customer funds with personal funds. By law brokers are required to maintain a separate trust or escrow account for other parties’ funds held temporarily by the broker. Commitment An agreement between a lender and a borrower to loan money at a future date subject to compliance with stated conditions. Commission Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property. Common Law The body of law based on custom, usage and court decisions. Comparables Properties used in an appraisal report that are substantially equivalent to the subject property. Competition The appraisal principle that states that excess profits generate competition.



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Competitive Market Analysis (CMA) A comparison of the prices of recently sold properties that are similar to a listing seller’s property in terms of location, style and amenities. Completion Bond A bond furnished by a contractor to guarantee completion of construction. Concession An economic incentive granted by an owner to encourage the leasing of space or the renewal of a lease. Condemnation A judicial or administrative proceeding to exercise the power of eminent domain, through which a government agency takes private property for public use and compensates the owner. Conditional use permit Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area. Condominium A multiple-unit structure in which the units and pro rata shares of the common areas are owned individually; a unit in a condominium property. Conformity The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value. Consideration (1) that received by the grantor in exchange for his or her deed. (2) Something of value that induces a person to enter into a contract. Constructive Notice Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property. Containerized Storage Individual storage containers that are picked up and delivered to the customer. Contingency A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding. Contract A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a



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remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed. Contribution The appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value. Conventional loan A loan that requires no insurance or guarantee. Conversion In development terms the term refers to an existing building that has been converted into a storage facility. Conversion Ratio The average number of prospects who visit a rental property compared to the number who sign a lease. Conveyance A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring. Co-ownership Title ownership held by two or more persons. Corporation An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures. Corrective maintenance Ordinary repairs that must be made to a building and its equipment on a day-to-day basis. Cost Approach The process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation. Cost recovery An Internal Revenue Service term for depreciation. Counteroffer A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror. Coupon rate The annual interest rate on a debt instrument. More generally, the annual interest rate on any indebtedness .



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Covenant A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases and contracts for deed. Covenant of quiet enjoyment The covenant implied by law by which a landlord guarantees that a tenant may take possession of leased premises and that the landlord will not interfere in the tenant’s possession or use of the property. Covered parking Storage spaces designed to accommodate vehicle parking and to protect the customer’s vehicle. Credit On a closing statement, an amount entered in a person’s favor-either an amount the party has paid or an amount for which the party must be reimbursed. Credit Rating A rating given a person or company to establish credit worthiness based upon present financial condition, experience and past credit history. Credit Report A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness. Curb Appeal General cleanliness, neatness, and attractiveness of a building as exemplified by the appearance of the exterior and grounds and the general level of housekeeping. Cylinder Lock A locking system in which a cylinder must rotate in order to open the lock. The cylinder may be held in place by a variety of locking mechanisms. Debenture An unsecured debt instrument backed only by the general credit standing and earning capacity of the issuer. Debit On a closing statement, an amount charged; that is, an amount that the debited party must pay. Debt coverage ratio The ratio of effective annual net income to annual debt service. Debt Service Regular payments of the principal and interest on a loan. Decedent A person who has died.



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Declaration A legal document that creates a condominium. The document describes the condominium, defines the method of determining each unit owner’s share of the common elements, and outlines the responsibilities of the owners and the association. Dedication The volunteer transfer of private property by its owner to the public for some private use, such as for streets or schools. Deductible In insurance, a specified amount the insured party must pay before the insurer pays on a claim. Deed A written instrument that, when executed and delivered, conveys title to or an interest in real estate. Deed in lieu of foreclosure A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure. Deed in trust An instrument that grants a trustee under a land trust full power to sell. Mortgage and subdivide a parcel of real estate. The beneficiary controls the trustee’s use of these powers under the provisions of the trust agreement. Deed Restrictions Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions. Default The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due. Defeasance clause A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan. Defect of record Any encumbrance on a title that is made a part of the public record. Some recorded defects are judgments, mortgages, other liens, or easements. Defeasible fee estate An estate in which the holder has a fee simple title that may be divested upon the occurrence or nonoccurrence of a specified event. Deferred Maintenance Ordinary maintenance of a building that, because it has not been performed, negatively affects the use, occupancy, and value of the property.



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Deficiency judgment A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full. Delinquent The status of a mortgage with a payment past due. Demand The amount of goods people are willing and able to buy at a given price; often coupled with supply. Demised premises That portion of a property covered by a lease agreement, usually defined by the walls and other structures that separate one tenant’s space from that of another. Demographic profile A compilation of social and economic statistics for a specific population, usually within a geographic area. Density zoning Zoning ordinances that restrict the maximum average number of houses per acre that may be built within a particular area, generally a subdivision. Deposit (1) A sum of money given to bind a sale of real estate, or (2) a sum of money given to assure payment or an advance of funds in the processing of a loan. Also known as earnest money. Depreciation (1) In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence. (2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property. Developer One who attempts to put land to its most profitable use through the construction of improvements. Devise A gift of real property by will. The donor is the devisor, and the recipient is the devisee. Digital Video Recorder A complete state of the art digital video system will typically include quality closed circuit digital cameras connected to a digital video recorder system (DVR). This setup allows for password-protected viewing of live and recorded video at the DVR and/or from a PC or PDA connected to the Internet or to a LAN.



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Disc locks A high security round lock that is designed with a small shank that makes it difficult to cut-off with bolt cutters. Discount point A unit of measurement used for various loan charges; one point equals 1 percent of the amount of the loan. Dispossess To obtain physical possession of property by due process of law. Doctrine of Strict Compliance To the self storage employee, this term means that it is important to adhere to your state’s lien law. Legally, there is very little room for any error made in the lien process, and the procedure should always comply with the statutory requirements set forth by the law. Dollar Delinquency rate this rate is calculated by taking the total dollars delinquent divided by the projected rent. A target range of 15-20% is considered normal. Dominant tenement A property that includes in its ownership the appurtenant right to use an easement over another person’s property for a specific purpose. Dual agency Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states. Due Diligence After selecting the potential site or facility, the investor needs to ascertain accurate information regarding the physical asset, financial performance, tenant base and future prospects for the subject property. Due diligence helps the investors accomplish those tasks. Due diligence can provide in-depth data and insights for these areas and mitigate the risk for the investment. Due-on-sale clause A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property. Duress Unlawful constraint or action exercised upon a person whereby the person is forced to perform an act against his or her will. A contract entered into under duress is voidable. Earnest money Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.



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Easement A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land. Easement by condemnation An easement created by the government or government agency that has exercised its right under eminent domain. Easement by necessity An easement allowed by law as necessary for the full enjoyment of a parcel of real estate; for example, a right of ingress and egress over a grantor’s land. Easement by prescription An easement acquired by continuous, open and hostile use of the property for the period of time prescribed by state law. Easement in gross an easement that is not created for the benefit of any land owned by the owner of the easement but that attaches personally to the easement owner. Economic life The number of years during which an improvement will add value to the land. Economic Occupancy To calculate the economic occupancy of a facility, add all forms of rent collected and divide by the Gross Potential of all rented units at the advertised prices. Normal variance is 4 to 6% Economic Value The valuation of real property based on its earning capabilities. Effective Gross income The total amount of income actually collected during a reporting period; the gross receipts of a property. Gross potential rental income less vacancy and collection losses plus miscellaneous or unscheduled income. Egress To go out. It is used with the word ingress to describe the right to access land. Emblements Growing crops, such as grapes and corn, that are produced annually through labor and industry; also called fructus industriales. Eminent domain The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.



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Employee Someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and social security taxes from the compensation of employees. Employment contract A document evidencing formal employment between employer and employee or between principal and agent. In the real estate business this generally takes the form of a management agreement or state required employee/employer documents. Enabling Acts State legislation that confers zoning powers on municipal governments. Encapsulation A method of controlling environmental contamination by sealing off a dangerous substance. Encroachment A building or some portion of it-a wall or fence for instance-that extends beyond the land of the owner and illegally intrudes on some land of an adjoining owner or a street or alley. Encumbrance Anything-such as a mortgage, tax, or judgment lien, an easement, a restriction on the use of the land or an outstanding dower right-that may diminish the value or use and enjoyment of a property. Endorsement An attachment to an insurance policy that provides or excludes a specific coverage for a specific portion or element of a property; also called a rider. Environmental Protection Agency (EPA) The agency of the U.S. government established to enforce laws that preserve and protect the environment. Equal Credit Opportunity Act (ECOA) The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age or marital status. Equal Employment Opportunity Commission (EEOC) A U.S. governmental body created under Title VII of the Civil Rights Act of 1964 to end discrimination in the workplace. Equalization The raising or lowering of assessed values for tax purposes in a particular county or taxing district to make them equal to assessments in other counties or districts.



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Equitable right of redemption The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges. Equitable title The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name. Equity The interest or value that an owner has in property over and above any indebtedness. Equity of redemption The common law right to redeem property before the foreclosure sale. In some states, the mortgagor has a statutory right to redeem property after a foreclosure sale. Erosion The gradual wearing away of land by water, wind and general weather conditions; the diminishing of property by the elements. Escalation Clause In a lease, a provision for increases in rent based on increases in operating costs, sometimes based on a standard index such as the Consumer Price Index to account for inflation. Escheat The reversion of property to the state or county, as provided by state law, in cases where a decedent dies intestate without heirs capable of inheriting, or when the property is abandoned. Escrow The closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions. Escrow account The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction. Escrow instructions A document that sets forth the duties of the escrow agent, as well as the requirements and obligations of the parties, when a transaction is closed through an escrow. Estate The ownership interest that an individual has in real property. The sum total of all the real and personal property owned by an individual at time of death. Estate taxes Federal taxes on a decedent’s real and personal property.



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Estoppel Method of creating an agency relationship in which someone states incorrectly that another person is his or her agent, and a third person relies on that representation. Estoppel certificate A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest. Ethics The system of moral principles and rules that becomes standards for professional conduct. Eviction A legal process to oust a person from possession of real estate. Evidence of title Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer’s opinion, title insurance or a Torrens registration certificate. Exception In legal descriptions, that portion of land to be deleted or excluded. Exchange A transaction in which all or part of the consideration is the transfer of like-kind property (such as real estate for real estate). Exculpatory clause A clause in a contract holding one party harmless in the event of some default. For example, the provision in a note that the debtor will not be held personally liable in the event of a default. Executed Contract A contract in which all parties have fulfilled their promises and thus performed the contract. Execution The signing and delivery of an instrument. Also a legal order directing an official to enforce a judgment against the property of a debtor. Express agreement An oral or written contract in which the parties state the contract’s terms and express their intentions in words. Extension Continuation past original maturity date: continuation of a commitment. External Depreciation Reduction in a property’s value caused by outside factors (those that are off the property). Facility A self storage property.



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Facility Manager A type of real estate manager who, when employed directly by a corporation that owns real estate incidental to its primary business, may be responsible for acquisition and disposition in addition to physical upkeep of the property, record keeping, and reporting on its management, although acquisition and disposition are likely to be handled separately by a corporate asset manager. More broadly, the responsibilities involve coordinating the physical workplace with the people and purpose of the organization. Fair Credit Reporting Act (FCRA) A federal law that gives people the right to see and correct their credit records at credit reporting bureaus. It also requires real estate managers to inform rental applicants if a credit bureau is contracted to investigate their credit, advise them in writing if a lease is denied because of a poor credit report, and identify the source of credit information that resulted in their being denied a lease. Fair Labor Standards Act (FLSA) The federal law that establishes minimum wages per hour and maximum hours of work. It also provides that certain employees who work in excess of forty hours per week are to be paid one and one-half times their regular hourly wage. Fair Market value The price paid, or one that might be anticipated as necessarily payable, by a willing and informed buyer to a willing and informed seller (neither of whom is under any compulsion to act), if the object sold has been reasonably exposed to the market. Feasibility Study A study or analysis that determines whether a real estate project, proposed or existing, successfully meets desired objectives. Federal Reserve System The country’s central banking system, which is responsible for the nation’s monetary policy by regulating the supply of money and interest rates. Fee simple absolute The maximum possible estate or right of ownership of real property, continuing forever. Feudal system A system of ownership usually associated with pre-colonial England, in which the king or other sovereign is the source of all rights. The right to possess real property was granted by the sovereign to an individual as a life estate only. Upon the death of the individual, title passed back to the sovereign, not to the decedent’s heirs.



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Fidelity Bond A surety issued by a third party that protects one individual against financial loss that might result from dishonest acts of another specific individual. Fiduciary One in whom trust and confidence is placed; a reference to a broker employed under the terms of a listing contract or buyer agency agreement. Fiduciary relationship A relationship of trust and confidence, as between trustee and beneficiary, attorney and client or principal and agent. Fiscal policy The government’s policy in regard to taxation and spending programs. The balance between these two areas determines the amount of money the government will withdraw from or feed into the economy, which can counter economic peaks and slumps. Fiscal year Any 12-month period used for financial reporting and preparation of balance sheets, profit and loss statements and other financial summations. Fixture An item of personal property that has been converted to real property by being permanently affixed to the realty. Flex space Single-story commercial structures that can be configured to accommodate a single tenant or multiple tenants or with varying proportions of office and warehouse or manufacturing space according to individual tenants’ needs. Foreclosure A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage. Forfeiture The loss of money or anything of value due to a failure to perform. Fortress style construction This is a single sided exterior access building that is primarily used along a property line. Fraud Deception intended to cause a person to give up property or a lawful right.



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Freehold estate An estate in land in which ownership is for an indeterminate length of time, in contrast to a leasehold estate. Frontage The property line abutting the most important adjacent property, usually a street, lake, river or ocean. Functional obsolescence A loss of value due to an improvement to real estate arising from functional problems, often caused by age or poor design. Future interest A person’s present right to an interest in real property that will not result in possession or enjoyment until some time in the future, such as a reversion or right of re-entry. Gap A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land. Garnishment A proceeding that applies specified monies, wages, or property to a debt or creditor by proper statutory process against a debtor. Gate the portion of the fence that is intended for vehicular entrances or exits to the facility’s driveway. Examples are a Barrier Gate (Arm), Vertical pivot gate, Horizontal slide gate, Monorail Cantilever Slide Gate, or Swing Gate. Gate Operator The mechanical device that physically opens and closes the gate. General agent One who is authorized by a principal to represent the principal in a specific range of matters. General Contractor A party that performs or supervises the construction or development of a property pursuant to the terms of a primary contract with the owner. The general contractor may use its own employees for this work and/or the services of other contractors or subcontractors. General lien The right of a creditor to have all of a debtor’s property-both real and personal-sold to satisfy a debt. General partnership The business activity of two or more persons who agree to pool capital, talents, and other assets according to some agreed-to formula, and similarly to divide profits and losses, and to commit the partnership to certain obligations. General partners assume unlimited liability.



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General Warranty Deed A deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a general warranty deed offers the greatest protection of any deed. Goose Neck The stand that holds a gate entry keypad and angles toward the customer for ease of accessibility from a car. Graduated Lease A lease providing for a variable rental rate sometimes set forth in the lease, sometimes determined by a re-appraisal using a pre-determined formula. Grantee A person who receives a conveyance of real property from a grantor. Granting clause Words in a deed of conveyance that state the grantor’s intention to convey the property at the present time. This clause is generally worded as “convey and warrant,” “grant,” “grant, bargain and sell” or the like. Grantor The person transferring title to or an interest in real property to a grantee. Gross area The total floor area of a building, except that of un-enclosed areas, measured from the outside of the exterior walls. Gross income All income that is attributed to the property. Gross income multiplier A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property’s value. Gross lease A lease of property according to which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance and operating expenses. Gross leasable area The total floor area designated for tenant occupancy and on which tenants pay rent. Usually used in describing property used for retail establishments. Gross potential rental income The sum of the rental rates of all spaces available to be rented in a property, regardless of occupancy; the maximum amount of rent a property can produce.



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Gross rent multiplier The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value. Ground lease A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Guaranty A promise by one party to pay a debt or perform an obligation contracted by another in the event that the original obligor fails to pay or perform as contracted. Habendum clause That part of a deed beginning with the words “to have and to hold,” following the granting clause and defining the extent of ownership the grantor is conveying. Hasp A fastener for a door that can be locked with a padlock. Hazard insurance A contract whereby an insurer, for a premium, undertakes to compensate for the insured for loss on a specific property due to certain hazards. Heir One who might inherit or succeed to an interest in land under the state law of descent when the owner dies without leaving a valid will. Hidden defect Any encumbrance on a title that is not apparent in the public records; for example, unknown heirs, secret marriages, forged instruments, mental incompetency, or infancy of a grantor. Highest and best use The possible use of a property that would produce the greatest net income and thereby develop the highest value. Holdover tenancy A tenancy whereby a lessee retains possession of leased property after the lease has expired and the landlord, by continuing to accept rent, agrees to the tenant’s continued occupancy as defined by state law. Holographic will A will that is written, dated and signed in the testator’s handwriting. Home equity loan A loan under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property. Hypothecate To pledge property as security for an obligation or loan without giving up possession of it.



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Implied agreement A contract under which the agreement of the parties is demonstrated by their acts and conduct. Improvement (1) Any structure, usually privately owned, erected on a site to enhance the value of the property-for example, building a fence or a driveway. (2) A publicly owned structure added to or benefiting land, such as a curb, sidewalk, street or sewer. Income approach The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life. Incorporeal right A nonpossessory right in real estate; for example, an easement or a right-of-way. Independent contractor Someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, an independent contractor pays for all expenses and Social Security and income taxes and receives no employee benefits. Index Method The appraisal method of estimating building costs by multiplying the original cost of the property by a percentage factor to adjust for current construction costs. Inflation The gradual reduction of the purchasing power of the dollar, usually related directly to the increases in the money supply by the federal government. Ingress To go in; enter. Used with egress, to describe the right of access to land. Inheritance Taxes State-imposed taxes on a decedent’s real and personal property. Installment contract A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until a future date, which may not be until final payment. Installment sale A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a



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taxpayer can postpone reporting such income until future years by paying tax each year only on the proceeds received that year. Institutional lender A financial institution that invests in mortgages and carries them in its own portfolio. Mutual savings banks, life insurance companies, commercial banks, pension and trust funds, and savings and loan associations are examples. Insurance An agreement by one party (the insurer, carrier, insurance company) to assume part or all of a financial loss in the event of a specified contingency or peril in consideration of a premium payment by a second party (the insured). Insurable Title A title on which a title insurance company is willing to issue its policy of insurance. Interactive Side Display Is the portion of the surveillance software that graphically shows all the security functions of a facility. Intercom An electronic intercommunication system, as between two rooms. Interest A charge made by a lender for the use of money. Interim financing A short-term loan usually made during the construction phase of a building project; typically referred to as a construction loan. Intestate The condition of a property owner who dies without leaving a valid will. Title to the property will pass to the decedent’s heirs as provided in the state law of descent. Intrinsic value An appraisal term referring to the value created by a person’s personal preferences for a particular type of property. Investment Money directed toward the purchase, improvement and development of an asset in expectation of income or profits. Involuntary lien A lien placed on property without the consent of the property owner. Joint tenancy Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent’s interest passes to the surviving joint tenant or tenants by the right of survivorship.



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Joint Venture The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship. Judgment The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant. Judicial precedent In law, the requirements established by prior court decisions. Junior lien An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same realty. Keypad Electronic security access for a gate system. Kick Plate A guard that protects the hallway corners of interior buildings. Laches An equitable doctrine used by courts to bar a legal claim or prevent the assertion of a right because of undue delay or failure to assert the claim or right. Laminated lock A lock composed of layers of steel bonded together which hardens and increases strength and durability. Land The earth’s surface, extending downward to the center of the earth and upward infinitely into space, including things permanently attached by nature, such as trees and water. Landlord One who owns real property that is leased to a tenant. Landlord-tenant law Laws enacted by various jurisdictions that regulate the relationship between landlord and tenant. Landmark In land surveys, any conspicuous object that helps establish land boundaries. Latch A moveable, sliding bar, which is part of a lock mechanism that engages a cut out on a door jam or door rail assembly, keeping the door closed.



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Late Fees A charge imposed against a tenant whose rent is not received by the due date or grace period. Latent defect A hidden structural defect that could not be discovered by ordinary inspection and that threatens the property’s soundness or the safety of its inhabitants. Some states impose on sellers and licensees a duty to inspect for and disclose latent defects. Lease A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord’s real property to the lessee for a specified period of time and for a stated consideration (rent). By state law leases for longer than a certain period of time (generally one year) must be in writing to be enforceable. Leasing agent A person who is directly responsible for renting space in assigned properties. Leasehold estate A tenant’s right to occupy real estate during the term of a lease, generally considered to be a personal property interest. Lease option A lease under which the tenant has the right to purchase the property either during the lease term or at its end. Lease purchase The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically done for tax or financing purposes. Legacy A disposition of money or personal property by will. Legal Description A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it. Legally competent parties People who are recognized by law as being able to contract with others; those of legal age and sound mind. Lessee The tenant in a lease. Lessor The landlord in a lease. Letter of Credit A letter authorizing a person or company to draw on a bank, or stating that the bank will honor their credit up to the stated amount.



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Leverage The use of borrowed money to finance an investment. Levy To assess; to seize or collect. To levy a tax is to assess a property and set the rate of taxation. To levy an execution is to officially seize the property of a person in order to satisfy an obligation. Liability insurance Insurance protection against claims arising out of injury or death of people or physical or financial damage to property. License (1) A privilege or right granted to a person by a state to operate as a real estate broker or salesperson. (2) The revocable permission for a temporary use of land-a personal right that cannot be sold. Lien A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale. Lien Theory Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults. Life cycle costing In property management, comparing one type of equipment to another based on both purchase cost and operating cost over its expected useful lifetime. Life estate An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons. Life Tenant A person in possession of a life estate. Limited Liability Company (LLC) Created by state statute, a business ownership form that functions like a corporation-its members are protected from liability-but for income tax purposes is classified as a partnership. Income and expenses flow through to the individual members. The arrangement offers considerable flexibility in its organization and structure. Limited Partnership (LP) A partnership arrangement in which the liability of certain partners is limited to the amount of their investment. Limited partnerships are managed and operated by one or more general partners whose liability is not limited; limited partners have no voice in management. Line of Credit An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specific borrower.



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Liquidated damages An amount predetermined by the parties to a contract as the total compensation to an injured party should the other party breach the contract. Liquidity The ability to sell an asset and convert it into cash, at a price close to its true value, in a short period of time. Lis pendens A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court. Littoral rights (1) a landowner’s claim to use water in large navigable lakes and oceans adjacent to his or her property. (2) The ownership rights to land bordering these bodies of water up to the high-water mark. Loan origination fee A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount. Loan-to-value ratio. The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral. Lockers A very small storage compartment with a lock usually used to store very small items. Loss draft Insurance payments in settlement of a claim for damage to mortgaged property. Loss payable clause An insurance policy provision for payment of a claim to someone, other than the insured, who holds an insurable interest in the covered property. Management agreement A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager’s authority. Management Fee The monetary consideration paid monthly or otherwise for the performance of management duties. Management plan An outline of a property’s physical and fiscal management that is directed toward achieving the owner’s goals.



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Market A place where goods can be bought and sold and a price established. Market Analysis An evaluation of supply and demand conditions in a particular area for a particular type of goods or services. In real estate management, the process of identifying the specific group of prospective tenants for a particular property and then evaluating the property by that market’s standards for rental space. Marketing All business activity a producer uses to expose potential consumers to available goods and services, including selling, advertising, and packaging. For rental property, methods used to attempt to lease space. Market Rent The price a tenant pays a landlord for the use and occupancy of real property, based upon current prices for comparable property. Marketable title Good or clear title, reasonably free from the risk of litigation over possible defects. Market value The most probable price a property would bring in an arm’s-length transaction under normal conditions on the open market. Master plan A comprehensive plan to guide the long-term physical development of a particular area. Maturity The terminating or due date of a note, time draft, acceptance, bill of exchange, or bond. The date a time instrument of indebtedness becomes due and payable. Mechanic’s lien A statutory lien created in favor of contractors, laborers and materialmen who have performed work or furnished materials in the erection or repair of a building. Metes-and-bounds description A legal description of a parcel of land that begins at a well marked point and follows the boundaries, using directions and distance around the tract, back to the place of beginning. Mill One-tenth of one cent. Some states use a mill rate to compute real estate taxes. Minor Someone who has not reached the age of majority and therefore does not have legal capacity to transfer title to real property.



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Miscellaneous income Income a property produces from sources other than rent, such as vending machines, late fees, etc. Modernization The process of replacing original or outdated equipment with similar features that are of up-to-date design. Monetary policy Governmental regulation of the amount of money in circulation through such institutions as the Federal Reserve Board. Month-to-Month tenancy A periodic tenancy under which the tenant rents for one month at a time. In the absence of a rental agreement a tenancy is generally considered to be month to month. Monument A fixed natural or artificial object used to establish real estate boundaries for a metes-and-bounds description. Moratorium A period during which a borrower is granted the right to delay fulfillment of an obligation. Mortgage A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien. Mortgage banker Mortgage loan companies that originate, service and sell loans to investors. Mortgage broker An agent of a lender who brings the lender and borrower together. The broker receives a fee for this service. Mortgagee A lender in a mortgage loan transaction. Mortgage lien A lien or charge on the property of a mortgagor that secures the underlying debt obligations. Mortgagor A borrower in a mortgage loan transaction. Multiperil policies Insurance policies that offer protection from a range of potential perils, such as those of a fire, hazard, public liability and casualty. Multiple-listing service (MLS) A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing and able buyers for their properties more quickly than they could on their own.



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Multi-Plexor An electronic device that allows multiple cameras to be viewed on one screen. Typically used for the Video surveillance at a facility. Mystery Shopping A person who is posing as a potential customer and evaluates the employee’s sales and customer service techniues. Negotiation The process of bargaining that precedes an agreement; in leasing, the bargaining to reach a mutual agreement on rental rates, term of the lease, and other points. Negotiable instrument A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee’s right to payment. Net lease A lease calling for the lessee to pay all fixed and variable expenses associated with the property. Also known as a pure net lease as opposed to a gross lease. Net operating income (NOI) The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses. Net rentable area The actual square footage of a building that can be rented. Halls, lobbies, stairways, elevator shafts, maintenance areas and the like are not included. Net Spendable income The amount of cash that remains from the gross income after deducting operating expenses, principal and interest payments, and income taxes. Nonconforming use A use of property that is permitted to continue after a zoning ordinance prohibiting it has been established for the area. Nonhomogeneity A lack of uniformity; dissimilarity. Because no two parcels of land are exactly alike, real estate is said to be nonhomogeneous. Non-Recourse Note A debt instrument giving the lender no recourse to the borrower. The lender must rely solely on the property for repayment. Notary One authorized by the state to take acknowledgments and give oaths.



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Novation Substituting a new obligation for an old one or substituting new parties to an existing obligation. Noncupative will An oral will declared by the testator in his or her final illness, made before witnesses and afterward reduced to writing. Obsolescence The loss of value due to factors that are outmoded or less useful. Obsolescence may be functional or economic. Occupancy Rate The percentage of space or units which are leased or occupied. Occupational Satefy and Health Act (OSHA) A law passed in 1970 requiring employers to comply with job safety and health standards issued by the U.S. Department of Labor. Offer and acceptance Two essential components of a valid contract; a “meeting of the minds.” Offeror/Offeree The person who makes the offer is the offeror. The person to whom the offer is made is the offeree. On-site manager A person that lives in the apartment at the facility. Open-end loan A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage. Operating budget A listing of all anticipated income from and expenses of operating a property, usually projected on an annual basis. Operating expenses All expenditures made in connection with operating a property with the exception of debt service, capital reserves, and income taxes. Operations manual An authoritative collection of information that describes the organization and its goals, explains policies that guide its operations, outlines specific procedures for implementing those policies, assigns responsibility for performing various functions, and contains the various documents (forms) for performing the work; also called standard operating procedures manual. Option An agreement to keep open for a set period an offer to sell or purchase property.



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Origination Fee A fee or charge for the work involved in the evaluation, preparation, and submission of a proposed mortgage loan. Over Lock / Lock out When a customer does not pay the rent by the due date, the operator has the ability to put a lock over their lock to prevent them from removing their belongings until they have paid all back rent and late charges. Lock out refers to removing their gate code to limit their access to the facility until all back rent and late fees have been collected. Package loan A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a self storage facility and all the business equipment in the rental or retail office. Parol evidence rule A rule of evidence providing that a written agreement is the final expression of the agreement of the parties, not to be varied or contradicted by prior or contemporaneous oral or written negotiations. Participation mortgage A mortgage loan wherein the lender has a partial equity interest in the property or receives a portion of the income from the property. Partition The division of cotenants’ interests in real property when the parties do not all voluntarily agree to terminate the co-ownership; takes place through court procedures. Partnership An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law a partnership is regarded as a group of individuals rather than as a single entity. A general partnership is a typical form of joint venture in which each general partner shares in the administration, profits and losses of the operation. A limited partnership is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments. Party wall A wall that is located on or at a boundary line between two adjoining parcels of land and is used or is intended to be used by the owners of both properties. Patent A grant or franchise of land from the United States Government. Pay off To satisfy in full an existing indebtedness.



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Payback period The amount of time required to recover the cost of a capital investment. Payment cap The limit on the amount of the monthly payment can be increased on an adjustable-rate mortgage when the interest rate is adjusted. Pedastrian Gate Allows access to the property without opening the gate system. The pedestrian gate typically has security screenings and one way keyed handle. Percolation test A test of the soil to determine if it will absorb and drain water adequately to use a septic system for sewage disposal. Perfecting title The elimination of any claims against a title. Performance bond A bond to guarantee performance of specified acts, such as the completion of property or off-site improvements. Personal liability Personal liability arises when the borrower’s assets are pledged or subject to claim in addition to a primary security. Personal property Items, called chattels, that do not fit into the definition of real property; movable objects. Per unit allocation The method of allocating costs over the total number of units affected. Physical deterioration A reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear. Planning commission A local or regional organization, normally a government agency responsible for the preparation and adoption of comprehensive long-term general plans for the physical development of property within its jurisdiction. Plat map A map of a town, section or subdivision indicating the location and boundaries of individual properties. Plottage The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.



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Police power The government’s right to impose laws, statutes and ordinances, including zoning ordinances and building codes, to protect the public health, safety and welfare. Portable Storage Buildings Prefabricated storage buildings. Potential Rental Income All the rent that would be received if all of the facility’s spaces was rented at the current market rent. Power of Attorney A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument. Premises A defined portion of land and the improvements thereon as usually described in a deed, deed of trust, or a mortgage. Prepaid items On a closing statement, items that have been paid in advance by the seller, such as insurance premiums and some real estate taxes, for which he or she must be reimbursed by the buyer. Prepayment penalty A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost. Preventive maintenance A program of regular inspection and care that allows potential problems to be prevented or at least detected and solved before major repairs are needed. Primary mortgage market The mortgage market in which loans are originated and consisting of lenders such as commercial banks, savings and loan associations and mutual savings banks. Principal (1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits. (2) The original amount (as in a loan) of the total due and payable at a certain date. (3) A main party to a transaction-the person for whom the agent works. Principal meridian The main imaginary line running north and south and crossing a base line at a definite point, used by surveyors for reference in locating and describing land under the rectangular (government) survey system of legal description.



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Priority As applied to claims against property, the status of being prior or having precedence over other claims. Priority is usually established by filing or recordation in point of time, but may be established by statute or agreement. Probate A legal process by which a court determines who will inherit a decedent’s property and what the estate’s assets are. Procuring cause The effort that brings about the desired result. Typically, the broker who is the procuring cause of a sale gets the commission. Pro Forma Statement A financial or accounting statement projecting income and performance of real estate within a period of time based upon estimates and assumptions. Progression An appraisal principle that states that, between dissimilar properties, the value of the lesser-quality property is favorably affected by the presence of the better-quality property. Promissory note A financing instrument that states the terms of the underlying obligation, is signed by its maker and is negotiable (transferable to a third party). Property analysis A study of a property referring to such items as deferred maintenance, functional and economic obsolescence, land location and zoning, exterior construction and condition, plant and equipment, unit mix, facilities, and expected income and expenses. Property Manager Someone who manages real estate for another person for compensation. Duties include collecting rents, maintaining the property and keeping up all accounting. Property reports The mandatory federal and state documents compiled by subdividers and developers to provide potential purchasers with facts about a property prior to their purchase. Prorations Expenses, either prepaid or paid in arrears, that are divided or distributed between buyer and seller at the closing. Puffing Exaggerated or superlative comments or opinions. Purchase-money mortgage (PMM) A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of real estate.



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Pyramiding The process of acquiring additional properties by refinancing properties already owned and investing the loan proceeds in additional properties. Quantity-survey method The appraisal method of estimating building costs by calculating the cost of all of the physical components in the improvements, adding the cost to assemble them and then including the indirect costs associated with such construction. Quiet title a court action to remove a cloud on the title. Quiet enjoyment The right of an owner to the use of property without interference of possession. Quitclaim deed A conveyance by which the grantor transfers whatever interest he or she has in the real estate, without warranties or obligations. Rate cap The limit on the amount the interest rate can be increased at each adjustment period in an adjustable-rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan. Rate Survey Refers to any method used to survey competitors to obtain a collection of information to determine pricing, sizes, occupancy, specials, etc. Ready, willing and able buyer One who is prepared to buy property on the seller’s terms and is ready to take positive steps to consummate the transaction. Real estate Land; a portion of the earth’s surface extending downward to the center of the earth and upward infinitely into space, including all things permanently attached to it, whether naturally or artificially. Real estate investment trust (REIT) Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax. Real Estate Settlement Procedures Act (RESPA) The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees.



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Real property The interests, benefits and rights inherent in real estate ownership. Realtor® A registered trademark term reserved for the sole use of active members of local realtor boards affiliated with the National Association of Realtors®. Recapture An owner’s recovery of money invested in real estate, usually referring to a depreciation allowance. Receivership Court-ordered turnover of a property to an impartial third party (receiver) so that it may be preserved for the benefit of the affected parties. Reconciliation The final step in the appraisal process, in which the appraiser combines the estimates of value received from the sales comparison, cost and income approaches to arrive at a final estimate of market value for the subject property. Reconveyance deed A deed used by a trustee under a deed of trust to return title to the trustor. Recording The act of entering or recording documents affecting or conveying interests in real estate in the recorder’s office established in each county. Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagees. Recourse note A debt instrument under which the lender can take action against the borrower or endorser personally, in addition to foreclosure. Redemption The right of a defaulted property owner to recover his or her property by curing the default. Redemption period A period of time established by state law during which a property owner has the right to redeem his or her real estate from a foreclosure or tax sale by paying the sales price, interest and costs. Many states do not have mortgage redemption laws. Redlining The illegal practice of a lending institution denying loans or restricting their number for certain areas of a community. Refinancing The repayment of a debt from the proceeds of a new loan using the same property as security.



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Regression An appraisal principle that states that, between dissimilar properties, the value of the better-quality property is affected adversely by the presence of the lesser-quality property. Regulation Z Implements the Truth-in-lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit. Rehabilitation The restoration to good use, through repair of structures or improvements of public facilities, of a declining area of neighborhood to arrest and reverse deteriorating influences. Release deed A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid. Remainder interest The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate, such as when an owner conveys a life estate to one party and the remainder to another. Rent A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties. Rental ledger A record of rent received, date of receipt, period covered, and other related information for each individual tenant. Rent Control Laws that regulate rental rates, usually to limit the amount of rent increases and their frequency. Rent Roll A listing of all rental units, showing for rented units the rental rate, tenant’s name, and lease expiration date as well as the status of rent and other payments. Rent Schedule A statement of proposed rental rates, determined by the owner or the property manager or both, based on a building’s estimated expenses, market supply and demand and the owner’s long-range goals for the property. Rent-Up Period The time after construction that a rental property requires to achieve projected stabilized income and occupancy levels.



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Replacement cost The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original. Replacement Reserve A cash reserve for the future replacement of fixed assets. Reproduction cost The construction cost at current prices of an exact duplicate of the subject property. Reserve fund Money set aside to provide funds for anticipated future expenditures. Restrictive covenants A clause in a deed that limits the way the real estate ownership may be used. Retrofit The replacement of fixtures or facilities in a building with new equipment that is more efficient, usually in terms of energy consumption, fire protection codes, or accommodations for new technology. Return on Investment The amount of profit based on the amount of resources used to produce it. ROI is calculated by considering the annual benefit divided by the investment amount. This is a ratio that measures how well the company makes use of its money. The ROI looks at what the company is worth related to the amount of the original investment. Reversionary right The return of the rights of possession and quiet enjoyment to the lessor at the expiration of a lease. Right-of-way The right given by one landowner to another to pass over the land, construct a roadway or use as a pathway, without actually transferring ownership. Risk management Evaluation and selection of appropriate property and other insurance. Roll-up Doors Doors that roll up instead of opening out. Rules and regulations Real estate licensing authority orders that govern licensees’ activities; they usually have the same force and effect as statutory law.



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Sale and leaseback A transaction in which an owner sells his or her improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises. Sales comparison approach The process of estimating the value of a property by examining and comparing actual sales of comparable properties. Sales Contract A deliberate written agreement between competent parties stating terms and conditions of a sale. Salesperson A person who performs real estate activities while employed by or associated with a licensed real estate broker. Satisfaction of mortgage A document acknowledging the payment of a mortgage debt. Secondary mortgage market A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market. Mortgages are first originated in the primary mortgage market. Security The collateral given, deposited, or pledged to secure the fulfillment of an obligation or the payment of a debt. Security deposit A payment by a tenant, held by the landlord during the lease term and kept (wholly or partially) on default or destruction of the premises by the tenant. Security stickers A tamper proof sticker placed on a lock that will alert the manager if the lock has been changed. Servient tenement Land on which an easement exists in favor of an adjacent property (called a dominant estate); also called a servient estate. Setback The amount of space local zoning regulations require between a lot line and a building line. Severalty Ownership of real property by one person only, also called sole ownership. Severance Changing an item of real estate to personal property by detaching it from the land; for example, cutting down a tree.



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Site Manager An employee who oversees and administers the day to day affairs of a property in accordance with directions from the property manager or the owner and may live in the property being managed or off site. Soft Costs Architectural, engineering, and legal fees as distinguished from land and construction costs. Soft Dollars The amount invested in the development or purchase of a property that is immediately deductible for tax purposes. Sole Proprietorship A business enterprise carried on by one person. Special assessment A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer. Special warranty deed A deed in which the grantor warrants, or guarantees, the title only against defects arising during the period of his or her tenure and ownership of the property and not against defects existing before that time, generally using the language, “by, through or under the grantor but not otherwise.” Specific lien A lien affecting or attaching only to a certain, specific parcel of land or piece of property. Specific performance A legal action to compel a party to carry out the terms of a contract. Square-foot method The appraisal method of estimating building costs by multiplying the number of square feet in the improvements being appraised by the cost per square foot for recently constructed similar improvements. Square foot occupancy The total square feet rented divided by the total square feet available. Stabilized operating statement Detailed projection of all income and disbursements over a selected period of years and averaged for a single year. Statute of frauds That part of a state law that requires certain instruments, such as deeds, real estate sales contracts and certain leases, to be in writing to be legally enforceable.



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Statute of limitations That law pertaining to the period of time within which certain actions must be brought to court. Statutory lien A lien imposed on property by statute-a tax lien, for example-in contrast to an equitable lien, which arises out of common law. Statutory redemption The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges. Storage Space The space provided to the customer to store their belongings and pay rent. Straight-line method A method of calculating depreciation for tax purposes, computed by dividing the adjusted basis of a property by the estimated number of years of remaining useful life. Straight loan A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment. Street Rates The street rate is what a unit of a certain size should command in rent according to current market conditions. Subdivider One who buys undeveloped land, divides it into smaller, usable lots and sells the lots to potential users. Subletting The leasing of premises by a lessee to a third party for part of the lessee’s remaining term. Subordination Relegation to a lesser position, usually in respect to a right or security. Subordination agreement A written agreement between holders of liens on a property that changes the priority of mortgage, judgment and other liens under certain circumstances. Subrogation The substitution of one creditor for another, with the substituted person succeeding to the legal rights and claims of the original claimant. Subrogation is used by title insurers to acquire from the inured party rights to sue in order to recover any claims they have paid.



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Substitution An appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution. Suit for possession A court suit initiated by a landlord to evict a tenant from leased premises after the tenant has breached one of the terms of the lease or has held possession of the property after the lease’s expiration. Suit to quiet title A court action intended to establish or settle the title to a particular property, especially when there is a cloud on the title. Superfund Popular name of the hazardous waste cleanup fund established by the comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Supply The amount of goods available in the market to be sold at a given price. The term is often coupled with demand. Supply and demand The appraisal principle that follows the interrelationship of the supply of and demand for real estate. As appraising is based on economic concepts, this principle recognizes that real property is subject to the influences of the marketplace just as is any other commodity. Surety bond An agreement by an insurance or bonding company to be responsible for certain possible defaults, debts or obligations contracted for by an insured party; in essence, a policy insuring one’s personal and/or financial integrity. In the real estate business a surety bond is generally used to ensure that a particular project will be completed at a certain date or that a contract will be performed as stated. Surrender The voluntary giving up of possession. The cancellation of a lease by mutual consent of lessor and lessee. Survey The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions and position of a house on a lot, including the determination of any existing encroachments or easements. Syndicate A combination of people or firms formed to accomplish a business venture of mutual interest by pooling resources. In a real estate investment



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syndicate the parties own and/or develop property, with the main profit generally arising from the sale of the property. Tacking Adding or combining successive periods of continuous occupation of real property by adverse possessors. This concept enables someone who has not been in possession for the entire statutory period to establish a claim of adverse possession. Target marketing Breaking a market into segments, then concentrating marketing efforts on one or a few key segments that will be more beneficial for the self storage property. Taxation The process by which a government or municipal quasi-public body raises monies to fund its operation. Tax credit An amount by which tax owed is reduced directly. Tax deed An instrument, similar to a certificate of sale, given to a purchaser at a tax sale. Tax lien A charge against property, created by operation of law. Tax liens and assessments take priority over all other liens. Tax sale A court-ordered sale of real property to raise money to cover delinquent taxes. Tenant One who pays rent to occupy real estate. Property managers often limit the use of the term “tenant” to commercial tenants and refer to residential tenants as “residents.” Tenancy by the entirety The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse the survivor becomes the owner of the property. Tenancy in common A form of co-ownership by which each owner holds an undivided interest in real property as if he or she were sole owner. Each individual owner has the right to partition. Tenant One who holds or possesses lands or tenements by any kind of right or title.



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Tenant improvements Alterations to the interior of a building to meet the functional demands of the tenant. Term The period of time between the commencement date and termination date of a note, mortgage, legal document or other contract. Testate Having made and left a valid will. Testator A person who has made a valid will. A woman often is referred to as a testatrix, although testator can be used for either gender. Time is of the essence A phrase in a contract that requires the performance of a certain act within a stated period of time. Time Lapse Recorder Video Recording systems that offer time-lapsed recording from cameras posted around the storage facility that provide an extra element of security Title (1) The right to or ownership of land. (2) The evidence of ownership of land. Title insurance A policy insuring the owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects and matters specifically excluded by the policy Title Search The examination of public records relating to real estate to determine the current state of the ownership. Title theory Some states interpret a mortgage to mean that the lender is the owner of mortgaged land. Upon full payment of the mortgage debt the borrower becomes the landowner. Trade fixture An article installed by a tenant under the terms of a lease and removable by the tenant before the lease expires. Traffic report A record of the number of prospects who visit or make inquiries at a property and the factors that attracted them to it. Transfer tax Tax stamps required to be affixed to a deed by state and/or local law.



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Trust A fiduciary arrangement whereby property is conveyed to a person or institution, called a trustee, to be held and administered on behalf of another person, called a beneficiary. The one who conveys the trust is called the trustor. Trust deed An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust. Trust deed lien A lien on the property of a trustor that secures a deed of trust loan. Trustee The holder of bare legal title in a deed of trust loan application. Trustee’s deed A deed executed by a trustee conveying land held in a trust. Trustor A borrower in a deed of trust loan transaction. Umbrella liability insurance Extra liability coverage that exceeds the limits of one’s basic liability policy. Underwriting The analysis of risk and the matching of it to an appropriate rate and term. Unencumbered property A property that is free and clear. Unenforceable contract A contract that has all the elements of a valid contract, yet neither party can sue the other to force performance of it. Uniform Commercial Code A codification of commercial law, adopted in most states, that attempts to make uniform all laws relating to commercial transactions, including chattel mortgages and bulk transfers. Security interests in chattels are created by an instrument known as a security agreement. To give notice of the security interest, a financing statement must be recorded. Article 6 of the code regulates bulk transfers-the sale of a business as a whole, including all fixtures, chattels and merchandise. Unilateral Contract A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise. Unit The space provided for the customer’s goods.



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Unit delinquency Rate Calculated by taking the total number of spaces delinquent divided by the total number of units at the property. This number reflects the percentage of total customers who are delinquent at any given time. Unit occupancy rate Total number of units rented divided by the total number of units available. Unit-in-place method The appraisal method of estimating building costs by calculating the costs of all of the physical components in the structure, with the cost of each item including its proper installation, connection, etc.; also called the segregated cost method. Usury Charging interest at a higher rate than the maximum rate established by state law. Vacancy and rent loss Vacancy refers to any type of rental property or unit thereof that is unrented. In the estimate of gross income of a property, an allowance or discount for vacancy is usually made. Rent loss can result from a number of reasons, such as a loss in rental income during periods of remodeling or rehabilitation of a project, low occupancy rates rent loss because of the tenant’s inability to pay, and other such occurrences. Valid contract A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it. Value The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities. Valuation An estimation or calculation of the worth of an object; the process of determining an object’s worth. Variance Permission obtained from zoning authorities to build a structure or conduct a use that is expressly prohibited by the current zoning laws; an exception from the zoning ordinances. Vendee A buyer, usually under the terms of a land contract. Vendor A seller, usually under the terms of a land contract. Video surveillance monitor Monitors used to view surveillance cameras on the site.



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Voidable contract A contract that seems to be valid on the surface but may be rejected or disaffirmed by one or both of the parties. Void contract A contract that has no legal force or effect because it does not meet the essential elements of a contract. Voluntary lien A lien placed on property with the knowledge and consent of the property owner. Warranty deed A deed in which the grantor or seller warrants or guarantees that good title is being conveyed, as opposed to a quitclaim deed that contains no representation or warranty as to the quality of title being conveyed. Waste An improper use or an abuse of a property by a possessor who holds less than fee ownership, such as a tenant, life tenant, mortgagor or vendee. Such waste ordinarily impairs the value of the land or the interest of the person holding the title or the reversionary rights. Wheel Locking Device A device used to overlock delinquent customers who have vehicles parked on the site. Will A written document, properly witnessed, providing for the transfer of title to property owned by the deceased, called the testator. Wireless Door Alarms Technology that enables the alarm to function as effectively as hard wired alarms for each storage door, yet costs significantly less to install. Workers’ compensation acts Laws that require an employer to obtain insurance coverage to protect his or her employees who are injured in the course of their employment. Working capital liquid assets available for the conduct of daily business. Wraparound loan A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. Yield In real estate, the term refers to the effective annual amount of income which is being accrued on an investment. Expressed as a percentage of the price originally paid.



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Zero Lot Line A term generally used to describe the positioning of a structure on a lot so that one side rests directly on the lot’s boundary line. Such construction is usually prohibited by setback ordinances, unless it is a part of a special space-conserving project. Zoning ordinance An exercise of police power by a municipality to regulate and control the character and use of property.

Documents

Self Storage Profits - Amazon Simple Storage Service · The History of Self Storage Self Storage Tenants ... 20 Reasons to invest in Self Storage Now! ... storage in this country,