Common Self-Storage Exit Strategies and Ways for Owners to Maximize Their Parting Profit

Eventually, all self-storage owners part with their business, whether during their lifetime or when they move on to the “great beyond.” No matter when you intend to leave yours, it’s vital that you have an exit strategy, so you can make the right decisions for your family and estate. Let’s look at some common options and ways to maximize your profit.

Though much attention is given to the best ways to acquire self-storage assets, having an exit strategy is equally important if not more so. Most experienced owners will determine this before they even make their initial investment. By setting your plan from the beginning, you’ll know when to move on from the business and how to maximize your profit when you do.

Clarifying Your Exit Needs

Think back to when you first acquired or built your self-storage asset. What was your goal? Was the business your primary source of income? Maybe you hoped to sell it and purchase a larger property? How long did you originally intend to own it? Now, consider where you are. What’s the value of the business? How much ownership and control you would like to retain (if any)? What level of liquidity do you hope to achieve? Answering these questions will help you clarify your exit strategy.

If you’re ready to retire, you no longer want to own property or you need to liquidate, an outright facility sale may be best. Knowing the amount of liquidity that meets your financial needs will help guide your decision-making. Also, how quickly do you need to turn your self-storage asset into cash? A sale can be the quickest, most lucrative solution, but consult your accountant and attorney regarding the tax implications.

Perhaps none of the above scenarios apply to you and you’re simply ready to leave the self-storage industry and focus on another type of business. In this case, consider a 1031 exchange. Again, talk to your accountant or attorney.

You might also want to dispose of a property due to lack of performance. For example, you might have locations that are no longer meeting expectations due to market challenges, staffing issues or other operational difficulties.

Whatever the reasons for your self-storage exit, you’ll want to consider the state of the economy in setting or executing your strategy. For example, over the past couple of years, as interest rates increased, many owners were disappointed in the purchase offers they received. Rates may start to go down in 2025, but no one has a crystal ball.

Finally, consider what impact your exit will have on facility employees. Self-storage owners are often close with their staff, considering them as family members. You’ll want to avoid causing your team financial harm.

Common Self-Storage Exit Strategies

Obviously, a sale is a very common way to exit a self-storage business. If this is your intended method, you first need to assess the value of your asset. There are several companies in the business that offer complimentary valuations, often with the hope of acquiring your facility. Procuring more than one appraisal can be appealing and to your advantage, but be upfront when obtaining multiple appraisals, as this is an intimate industry.

There are many things you can do to maximize the value of your storage facility before putting it on the market. That’s the subject of many other articles; however, if you no longer wish to manage your operation, consider hiring a third-party management company. This can allow you to receive cash flow while getting the day-to-day responsibilities off your plate. A good partner can also do the things necessary to improve asset value. (Note: If you already work with a management company, check your contract to ensure you aren’t required to offer them right of first refusal on a sale, as this is possible.)

Another option is to launch an initial public offering (IPO) in which your private company is made available to the public for purchase. Good examples of IPOs are the self-storage real estate investment trusts including CubeSmart and Extra Space Storage. The most common reason to go this route is to raise equity capital from a substantially larger group of investors. However, the process of going public comes with considerable costs, which makes it less than ideal for smaller business owners.

You can also consider a management buyout (MBO) in which your self-storage team would buy the business from you. These are often leveraged using borrowed capital, though some are fully funded by a capital source. An MBO can be a positive strategy for protecting current facility employees. It also allows the expertise of the current operations team to be transferred upon completion of sale.

The least desirable exit strategy is bankruptcy, as it results in loss to you as the owner. Avoid this outcome by planning well in advance, ideally before you even purchase or build a self-storage asset.

Don’t Leave Money on the Table!

The best exit strategy will be unique to your personal objectives as an owner and the needs of your self-storage business. Though planning is essential, it doesn’t have to be static. Allow yourself to be flexible and analyze what options make sense for the next stage of your life.

It’s important to note, however, that the best exit doesn’t leave money on the table. Seek the help of legal and financial professionals to ensure the maximizing your return on your self-storage investment.

Original Source: https://www.insideselfstorage.com/self-storage-investing-real-estate/common-self-storage-exit-strategies-and-ways-for-owners-to-maximize-their-parting-profit?