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You are missing the biggest benefit of a self storage business - the appreciation of the underlying real estate. When you dig into the financials of the major s
by jboggan 18d ago
You are missing the biggest benefit of a self storage business - the appreciation of the underlying real estate. When you dig into the financials of the major self storage businesses you'll see they are essentially REITs that have better cashflow. They can pick an up-and-coming area, do a minimal build-out with low annual overhead, and then down the road when the facility would be needing overhauls and maintenance the underlying property has typically appreciated so much that it dwarfs all other associated revenue streams and makes sense to sell and raze the existing structure. Great business model if you have a long enough timeline.
This is also why some startups trying to revolutionize the self storage model had extreme headwinds - if you are renting the underlying properties and trying to make the storage business profitable you are at an extreme disadvantage to the larger players who can subsidize operating costs with portfolio appreciation.
- jaggederest 18d agoThis same concept is also true of McDonalds historically - they own the land, lease it to franchisees, and realize the appreciation themselves. McDonalds are fairly economically valuable, so the capital gains by the time they're cleared and resold as development often dwarfs the value of the franchise fees.
- packetslave 17d agoAs someone once put it: "McDonald's is a real estate company with a hamburger hobby"
- dexterdog 17d agoReminds me of the similar one about Harvard with a hedge fund and a little school.
- monocasa 17d agoOr quite a few religious organizations. The whole reason why the Catholic Church doesn't allow priests to be married anymore was because it used to be that the individual churches were mostly the property of the priest, and would be passed down generationally (with some restrictions). The church phased in the ban on marriage so that over time, the churches would all in up in the estate of a priest with no heirs, where they'd become the property more formally of the Catholic Church proper. Today the Catholic Church is the single largest landowner in the world, with about 170 million acres. More recent religious organizations have taken note of that, with LDS owning about 2.4M acres.
- baruz 17d agoThat does not sound correct. Priests in Eastern rite Catholic churches get married, but they do not own the land in which their parish chirch stands and they do not pass that land on to their children. Note that the Catholic Church itself does not own that land, either. As I understand it, in most cases the parish land is owned by a Catholic episcopal See or eparchia, as in Latin rite Catholic Churches, in which the diocese owns the land.
- ocimbote 17d agoYour comment dragged me into a rabbit hole, which is always a welcome surprise. From my readings, one can always debate whether this reason for celibacy is whole or not (of course, more holy reasons were given, like purity of the ritual among others), but avoiding inheritance from father to sons was certainly a big factor. By barring heirs from the equation, it solved the whole dispute over inheritance. Yet, when it comes to clerical office and priesthood, "property" is not quite right, since it's mostly about usufruct and benefices, moreso. Which can be significant assets, that goes without saying, hence the Church did everything it could, for holy and not-so-holy-reasons, that traditional generational transmission does not apply. No next generation, no problem. Quite importantly to the Roman Catholic Church, they wanted to avoid dynasties of priests that would grow in importance and out of their control, so they did whatever they could (ban marriage and fatherhood) so that a mis-aligned priest would only be a temporary nuisance to the Institution. A lot went into this short burst of investigation, like the fact that early Churches were private property of land-owners, building churches for indulgences and power, reinforcing their ties with the Church, and I may dig deeper. Thanks for your comment again, if you have some references you recommend, I'd appreciate you share them!
- cluckindan 17d agoThe original LLM agents
- ocimbote 17d agoI don't understand what you mean. Do you mean I or the GP used LLMs? If you mean I did, yes, I have, to begin with, to get an overview and links. But to do any of the reading or to write my comment? No. What's wrong with that?
- jrs235 17d agoDuke: A healthcare system with a little University.
- SoftTalker 17d agoThe thing is, they rarely sell the properties. At least from what I've seen. It's all unrealized appreciated value.
- brianleb 17d agoThey don't have to ever sell the properties. Property can be assessed by a third party and then function as collateral against a low-interest loan, which is real money. Not that I think McDonald's will ever really find themselves in a pinch, but if they did, they would additionally be able to liquidate selected properties for cash. When you are rich enough, the promise of having money in the future is just as good as actually having money. It doesn't work like that for most of us, but that's the nature of risk assessment in finance.
- c22 17d agoCashflow from renting to a franchisee must be fantastic. You pick the locations and the decor. If the business does well you prosper, but if the business does poorly you're insulated from the downside, the rent is due either way! If the franchisee can't hack it you repossess the building and rent it to some other suc^H^H^Hfranchisee.
- epolanski 17d agoMcDonald's is invested in franchisee's success, it wouldn't be a great business otherwise.
- yayachiken 17d agoIt's actually hilarious sometimes. The business models that generate most scorn and incredulity on HN are the straightforward ones. They convert labor pretty much directly to a very basic product with a clear demand by society, that can't possibly be profitable, are we sure it's not actually a front for Real Estate or AI or Tax Evasion?
- epolanski 17d ago
- skew-aberration 17d agoSame is also true of DJT's various casino gambits. Pilloried in the media but rather sound (though high risk) from a land speculation perspective.
- tenuousemphasis 17d agoYou're saying that bankrupting a casino was actually 4D chess? Ok, buddy, whatever you say.
- skew-aberration 17d agoDid I say that? Since they failed, they were obviously bad business. But they were a rational thing to attempt to do - taking on a massive loan to speculate on land and using a (potentially) high cashflow, quick to setup, easy to market business to offset the high initial interest rates. i.e. the same thing being discussed in this thread
- edmundsauto 17d agoA rational thing for a competent person to attempt. Given the theoretical structural advantages of the idea, the 6 failures are even more embarrassing than failing at something that was actually a bad idea.
- cwillu 17d agoFWIW “Gambit” without elaboration strongly invokes the “the bankrupcies were on purpose” to me, so, did you say it? Strictly no, but it was very suggestive.
- skew-aberration 17d agoEh. I wanted to be provocative because I've heard a lot of educated but economically naive people assume 'highly leveraged hotel-casino project' is dumb a priori, even though it's (an example of a) a sensible and common business strategy available to the wealthy. I didn't mean to imply bankruptcy was intentional though. As to whether Trump did this better or worse than others, I have no idea as I haven't studied it but would assume the latter given the outcome. A certainty though - plenty of undeserving people you would consider contemptible have successfully played this hand many a time. Yet more reasons to tax land
- dyauspitr 16d agoBut no one is selling the McDonald’s when prices appreciate (even if they did own the underlying land).
- fragmede 18d agoOr, you jack up prices to pay for the renovations. Self storage out in the middle of nowhere is cheap, but self storage in a urban location that's easily accessible is not.
- conductr 17d agoBoth are correct. The decision will come down to what the cash flow and demand actual is and what they expect the future land to be worth. Sometimes you just let it go down to a low tier of maintenance, avoid all R&M and ride it out until you’re ready to cash in. The appreciation is collateral for future developments to so the model scales well. As long as home ownership declines, storage facilities will continue to flourish. There may be a blip when all the boomer downsizing demand evaporates as their kids will trash the junk.
- BeetleB 17d agoYeah, came here to post something similar. I used to hang around in real estate circles, and two businesses come up often: Self storage and car wash. These are two things people just can't get enough of. (Car wash usage doesn't go down even during a recession, apparently).
- encrypted_bird 17d agoI personally don't get car washes. I just wait for it to rain. Then free car wash...
- BeetleB 17d agoI rarely wash as well. But we're in a minority in US society.
- dghlsakjg 17d agoThere's aesthetic reasons (I'm proud of my car, I like it to look nice), and practical reasons (Leaving mud, grit, salt etc, will wear and corrode my car faster). Where I live, summer rain doesn't really clean the car (if that's what you care about), and in the winter you are shortening your cars life by years if you don't try and get the salt off regularly.
- encrypted_bird 17d agoYeah, those are good points I hadn't really thought of much. Thanks! I guess it's less of a priority for me because I bought my car for $1000 and it came with Michigan rust already. Lol.
- BeetleB 17d agoWhen I bought my 8 year old car, it was from the Midwest and the mechanic I asked to check it out said "Don't buy - it's got a good amount of rust because of the salt they use". I asked whether it means the car is less safe. He said "No, just more repairs and potentially costlier repairs. I said "Over the remaining life of the car, how much extra would it cost?" In today's dollars, the answer was $2000. I bought the car. It easily lasted another 7 years before it died in a collision. My car prior was a purely Midwest car, and I rarely washed it. It happily lasted 16 years. I passed it on to someone else, and he used it for a few more years. I suspect the fear is overblown.
- rdtsc 17d agoThat's the answer, it's a way to squat on land. Another way I know of is a golf course. It's more maintenance but it's a way to generate some cash to offset property taxes and then wait for a decade or two and sell.
- skipkey 17d agoI had an acquaintance who had a couple of driving ranges for golf for that exact purpose. He said it kept the property taxes lower than if he had built nothing on them. His only goal was to be break-even until he sold.
- lokar 17d agoLand value tax!