Storage Unit Loan
Is it considered a standard commercial property?
Buying a storage unit can be a great way to diversify your investment portfolio into commercial real estate.
How difficult is it to get approved for a storage unit loan?
Although most storage units are zoned industrial, not all lenders consider them to be standard commercial properties.
How much can I borrow?
A storage unit typically falls within warehouse lending policy so you may be eligible for the following:
- Freehold storage unit: Borrow up to 70% of the property value or up to 100% by using a commercial property guarantor loan.
- Leasehold store unit: Considered on a case by case basis with a business plan.
- Loans over $5 million: Considered on a case by case basis.
- Maximum loan term: 25 years.
- Maximum interest only term: 5 years.
- Low doc and bad credit options: Case by case when buying just the freehold and borrowing may be restricted.
- Discounted interest rates: Available by negotiation by your mortgage broker and based on your application strength.
We can provide an indicative funding approval just by grabbing a few details from you!
We’re specialists in storage unit loans so call us on 1300 889 743 or complete our free assessment form today.
Will banks lend against a storage unit business?
Some lenders will only lend against freehold properties are leased major self-storage operators such as Storage King, Kennards or Rent A Space.
Because they are a unique commercial property, they only appeal to a certain group of buyers and can be more quickly affected by high vacancy rates.
That’s why having strong management in place is essential.
However, other banks look at leasehold applications on a case by case basis.
The existing business will need to be generating a certain amount of earnings before interest, taxation, depreciation and amortisation (EBITDA).
You’ll also need to explain to the bank why the current vendors are selling and provide a business plan that explains how you plan to run a successful venture.
Part of the business plan will be a SWOT analysis (strengths, weaknesses, opportunities and threats) of the purchase.
For example, a strength may be that the storage is located in a main industrial zone, close to motorways and there is little to no competition in the area.
A weakness or threat may be that the vendors (sellers) had poorly managed the business but the opportunity is that you have the background to run a successful operation.
You’ll need an accountant to help you draft up your business plan along with cash flow forecasts and competitor analysis.
What about my personal situation?
You’ll need to be in a strong financial position, typically earning at least 1.1 to 1.4 times the amount of income to proposed interest expenses on the storage unit loan.
This is also known as the ‘serviceability ratio’.
There are various ways to prove your income but you can give yourself a better chance of getting approved by providing as much evidence as possible.
If you’re currently running your own business, you’ll likely need to provide:
- Your last 3 years Business Activity Statements (BAS)
- Your last 3 years Australian Taxation Office (ATO) tax portal printouts.
- Your last 3-6 months bank account statements showing your turnover.
We can help you put together your application so you can stress less and focus on your business.
Why speak to us?
Many of our mortgage brokers have actually worked in some of Australia’s largest banks as the person actually approving and declining commercial loans.
Because of this, they know how to present an application to get it over the line.
Commercial loans aren’t regulated under the National Consumer Credit Protection Act 2001 (NCCP Act) so you have to present your application like a business proposition.
We also have strong relationships with the key decision-makers which means we’re in a position to negotiate on commercial interest rates.
We can also help you to borrow up to the maximum Loan to Value Ratio (LVR) based on your financial situation.
Call us on 1300 889 743 or fill in our online enquiry form today and we’ll take care of the rest!
What do most banks think about storage units?
The main concern why some banks are conservative is that storage units are purpose-built and can’t be easily converted to another industrial or commercial business purpose.
This is the reason why banks can more flexible in considering applications to buy a warehouse and even consider allowing you to privately operate it as a freehold going concern.
When it comes to the business itself, banks are also concerned about the level of oversupply and competition in the industry.
The Self Storage Association of Australasia (SSAA) estimates that more than 1 out of 5 units in any one storage unit are vacant.
What is a storage unit?
Storage centres vary in size and can range from a handful of units to over 1000 spaces in some markets.
Generally speaking, unit sizes range from 20-58 square metres with clearance heights of up to 5 or over 6 metres.
Around half of customers are short term and unit size demand depends on the local demographics and whether their needs are for domestic or business use.
Who uses storage units?
- Vehicles: Classic cars, boats, caravans, motorbikes or other recreational vehicles – homeowners can store them all and it actually makes sense to do so if they only use them a couple of times a year.
- Musicians: It’s not uncommon for musicians and sound engineers to store instruments and equipment. Similarly, depending on the noise restrictions in the area, you can even let the space for band rehearsals.
- Vinyl records: Record collections can quickly get out of hand so offering a dry, secure location can be a godsend to some people.
- Wine storage: From restaurant owners and boutique wineries to avid collectors whose passion has gotten out of hand, many people choose storage units that offer temperature and humidity control.
- Everything else: Leftover junk from spring cleaning the garage, old clothing, tools and hardware, sports equipment, toys, and family photos and videos. They are items that most people don’t need but they don’t want to completely let go of them.
Commercial and business use
Storage units are a common solution for many types of business needs because they offer the convenience of access at any time.
- Stock can quickly pile up as a company grows hence the need for a storage solution.
- For many retail businesses, there is also a requirement for extra storage space in preparation for seasonal sales.
- There may even be a need for a storage unit when moving a business to another location.
- The need to keep physical company documents, accounting records, digital data backups and customer files are still common when running a business and it may even be a legislative requirement. Self-storage is a secure alternative.
- Office space is becoming more expensive to rent so more businesses are opting for smaller work spaces. This invariably means less space for storage requiring the need for secure storage units.
- Many storage units are actually located in central business districts rather than industrial areas so businesses don’t waste time travelling to pick up important business records.
- A common alternative is to operate a company from a storage unit as a way to avoid the high costs of renting office space in the CBD.
What should I consider when choosing a storage unit?
It really depends on what kind of tenants you’re looking to attract.
If you’re buying a freehold with a strong tenant like Kennards or Storage King, they’ve done lot of the hard work for you.
However, consider the following because these will be your points of difference when attracting customers and/or tenants:
- High clearance heights.
- Drive-up access to units with wide driveways (6 metres or more) for loading and unloading items.
- Consider storage units a power source, telephone line, good lighting and even data points installed.
- Mezzanine options with some larger units give customers the option to better organise their items.
- Ask tenants whether units are regularly pest-controlled.
- Units with temperature and humidity control are highly sought after.
- 24-hour video surveillance and individually alarmed units.
- Consider storage units that are located near CBDs because you’ll likely attract a high number and better quality tenants.
Check out the ‘What Is A Cap Rate?’ page to get an idea of how to calculate the likely return on investing in a storage unit that you’ve found.
Do you qualify for a storage unit loan?
You can find more about information about buying and managing a storage unit on the SSAA website.
To find out if we can get you approved for a storage unit loan, speak with one of our mortgage brokers by calling 1300 889 743 or by filling in our free assessment form today.