You have a very unique opportunity to purchase a storage warehouse. Ima Hoarder is an aunt of one of your classmates. She is getting up in years and has owned Stash Your Stuff Warehouse for quite a long time. It is not a big facility, so it does not require a full time attendant. In fact, Ms. Hoarder has always managed the facility in just afternoons and some weekend work. The property is fully built out with storage units, and there is not any space for open lot storage or an office on the property. This could be the perfect part time business for you while you continue taking courses at COM, if you can turn a profit worth your effort. The facility consists of the following units:
20 large units that rent for $60 per month
10 medium units that rent for $40 per month
20 small units that rent for $20 per month
Ima only accepts cash or check for the rental payments. There may be some way to streamline this process, but it works for Ima.
Stash Your Stuff is located on a busy street in Texas City, and there are two brand new apartment complexes close by with another scheduled to start construction within six months. The current rental rates have not been increased in two years, and a quick check of other rental rates suggest that some form of rate increase might be justified, but then again, raising rates could increase vacancy. The facility has a lighted sign on the front of the building that gives the business name and its website. Ms. Hoarder is a lifelong learner and has taken classes at COM to help her maintain her website.
Ms. Hoarder has invested her money wisely, and now that she is getting a little older, she would like to slow down. She has grand children in Austin and would really like to spend more time with them and her daughter there. So far, Ima hasn’t spoken to anyone about selling Stash Your Stuff, but you know that if she were to call a realtor, her asking price would increase dramatically. In an initial conversation with her, you feel that you could possibly purchase the property now for $62,500. If someone else talks to her and she feels she has two interested parties, the price would likely go up to around $94,000. If she were to hire a realtor, then very likely she would list the property for around $125,000. Needless to say, time is of the essence if you are to get a good deal on this business. You talked to your banker who quoted you 6 ½ % interest on a 10-year loan with 20% down payment. The monthly payments would be as follows:
$50,000 (80% of $62,500) for 10 years would be a monthly payment (principle and interest) of $568
$75,000 (80% of $94,000) for 10 years would be a monthly payment (principle and interest) of $852
$100,000 (80% of $125,000) would be a monthly payment (principle and interest) of $1135
You have enough cash in savings to make any of these down payments. You have also done your research to find out the following:
Normal vacancy rates run about 10% of maximum possible monthly rental income. You should assume that your vacancy rates would approximate this norm.
Maintenance of the facility typically runs about 5% of maximum possible monthly rental income and you should be able to expect this to hold true for you. Ima uses a local handy man for maintenance, and her maintenance expenses still fall within the 5% range.
Taxes and insurance run about $400 per month
Advertising including maintenance of the website typically runs about $150 per month. Ima really hasn’t done much advertising.
Answer the following questions in the space immediately below each question. The answer space will enlarge to accommodate your answer. Once you have answered all the questions, save the file and submit it in the space provided in the assignment. See rubric for grading measurements.
Complete the following tables. Answers should be annual NOT monthly (30 points)
Large units- maximum possible annual revenue without vacancy rate
Large units- maximum possible annual revenue assuming vacancy rate
Medium units- maximum possible annual revenue without vacancy rate
Medium units- maximum possible annual revenue assuming vacancy rate
Small units- maximum possible annual revenue without vacancy rate
Small units- maximum possible annual revenue assuming vacancy rate
Annual possible gross revenue (assume vacancy rate)
Estimated annual vacancy rate (cost of vacancies)
Estimated annual maintenance
Estimated annual taxes and insurance
Estimated annual advertising
Total annual estimated expenses
Purchase price
$62,500
$94,000
$125,000
Annual mortgage expense
$6, 816
$10, 224.00
$13, 620.00Estimated annual net profit or loss (assume vacancy rate)