by Marc Goodin, CEO of Storage Authority. www.Storageauthorityfranchises.com
#1 You can build a self storage with OPM (other people's money).
You can even Leverage OPM significantly more by going with an SBA loan with 10 to 15% down. You can also borrow the carrying cost with an SBA loan. Do the math you will end up with incredible cash on cash Internal rate of returns.
#2 You can make real profits and not pay taxes due to depreciation.
You can depreciate (expense for tax purposes) much of your building costs over 39 years. You can accelerate your depreciation using Section 179 for some items to be expensed in year one. And you can do component depreciation and depreciate many items in the 5 to 12-year periods.
Here is an example of how deprecation can improve your cash flow:
Project: $7.5 million total cost, including $1MM for the land (land can not be depreciated), allows for approx. $6,000,000 to depreciate as expenses for tax purposes.
39 year deprecaition = $6,000,000/39 years = $153,846/year. This means on average for 39 years you can make $153,000 a year in profit and pay no taxes. If that income were taxed at the 35% tax bracket the saving would be $53,846/year
If you used the component deprecation strategy your 39-year depreciation schedule would be reduced in half so the tax savings would be double by taken them in the first 20+_ years. I am no tax expert so you must review your situation and tax codes with your CPA.
#3 Refinancing can put millions in your pocket by taking cash out. The cool part is it is tax-free money. I often see third-party feasibility studies providing owners a $2 - $4 Million cash out in years 5+_ Personally, I take money out every 7-10 years when I refinance.
Cheers,
Marc
ps We all have interest rates on our minds. Finally, they are moving in the right direction for higher profits. And at least interest paid reduces the amount of taxes we have to pay Uncle Sam.
pss During the rent-up-to-break-even process the above tax strategies can be used to reduce the income from your regular job.
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