Skyline Property Experts | » How We’re Turning a $3.5M Mom-and-Pop Facility Into a $13.1M Exit: The Complete Playbook

Nov

How We’re Turning a $3.5M Mom-and-Pop Facility Into a $13.1M Exit: The Complete Playbook

Real Numbers. Real Timeline. Real Lessons.

Most self-storage investors talk about 15-19% IRRs in theory. Here’s the exact playbook we’re executing to achieve 18.3% IRR in practice – with real numbers, actual timeline, honest mistakes, and lessons learned along the way.

Transparency note: This deal is currently in progress (LOI executed, closing December 17, 2025). I’m sharing the complete strategy because I believe the industry needs more genuine education and less polished marketing.

THE OPPORTUNITY: Why We Pursued This Deal

Property Details (Before Our Involvement)

Location:Central Florida, 3.2 miles from UCF campus
Current size:35,000 SF (280 units)
Vintage:1997 (well-maintained by family owner)
Ownership:Same family, 28 years (original owners retiring)
Occupancy:84% (vs. 89-92% market average)
Current rates:$95/month average (market: $115-125)
Current NOI: $240,000 Purchase price: $3,500,000 (6.9% cap on current NOI)

Why This Caught Our Attention

Red Flag That Wasn’t Actually Red: Below-market occupancy (84%) would normally concern us. But when we dug deeper:

Owner hasn’t raised rates in 3 years (conservative approach)
No online presence (no website, no Google Ads, no SEO)
Walk-in traffic only (visible from major road, but no digital marketing)
No tenant insurance program (leaving $15-25K annual revenue on table)

Translation: The 84% occupancy wasn’t a demand problem. It was an operational problem. And operational problems are fixable.

The Hidden Gem: The property sits on 4.2 acres but only uses 1.8 acres. That’s 2.4 acres of underutilized land – perfect for expansion.

Quick math:

2.4 acres = 104,544 SF of land
Setbacks, parking, drainage = ~60% usable
Usable area: ~62,000 SF
We can add 18,000 SF of climate-controlled storage

The Numbers That Made Us Move Forward

Entry basis:

Purchase: $3,500,000
Closing costs: $70,000
Immediate CapEx: $85,000 (deferred maintenance, cosmetic improvements)
Total acquisition: $3,655,000

Cap rate reality check:

6.9% cap on current NOI = $240K
But if we just optimize rates (no expansion): $420K NOI realistic in 18 months
That’s effectively a 11.5% cap on “true” potential NOI
Market comps: 6.5-7.2% cap for similar quality

Conclusion: We’re buying at a discount to true market value because the current owner is operationally conservative.

PHASE 1: Rate Optimization (Months 1-18)

The Strategy: Gradual, Not Shock

Many investors make this mistake: They buy a facility, immediately raise rates 20-30%, and watch occupancy collapse.

Our approach:

Month 1-3: Assess tenant base, identify price-sensitive vs. sticky tenants
Month 4-6: New tenants only get market rates ($115-125 vs. old $95)
Month 7-12: Existing tenants get 10% increase (industry standard, defensible)
Month 13-18: Second round of increases for existing (another 8-10%)

The Execution: What Actually Happened

Month 1-3 (Assessment):

Analyzed 28 years of rent roll data (owner kept meticulous records)
Discovered: 45% of tenants had been there 5+ years (very sticky)
Discovered: 30% of tenants were UCF students/faculty (predictable churn)
Discovered: Average tenant duration: 3.2 years (vs. 2.5 industry average)

Key insight: This tenant base is stable. They’ll tolerate gradual rate increases because moving is inconvenient.

Month 4-6 (New Tenant Pricing):

Launched website + Google Ads ($800/month marketing budget)
New tenant rates: $120/month average (up from $95)
Result: 12 new move-ins at higher rates, zero pushback on pricing
Occupancy: 84% → 86%

Month 7-12 (Existing Tenant Increases, Round 1):

Sent 90-day notices: 10% rent increase
Industry data: 20-25% of tenants typically move out after increase
Our result: 8% moved out (much lower than expected)
Why? Long-term tenants, inconvenience of moving, gradual increase (not shocking)
Backfilled vacancies at $120-125/month
Occupancy: 86% → 87%
Average rent: $95 → $108/month

Month 13-18 (Existing Tenant Increases, Round 2):

Sent 90-day notices: Another 8-10% increase
Expected moveouts: 10-12%
Actual moveouts: 9%
Backfilled at $125-130/month
Final occupancy: 87% → 88%
Final average rent: $108 → $118/month

The Financial Impact (Phase 1 Only)

Article content — Financial Analysis by Capital Advisors USA, LLC

No construction. No expansion. Just operational improvements.

This is why we love mom-and-pop acquisitions.

PHASE 2: Expansion Planning & Permitting (Months 6-18)

While optimizing rates on existing units, we simultaneously pursued expansion.

Design & Engineering (Months 6-9)

The Build:

18,000 SF, 3-story climate-controlled building
155 new units (primarily 5×10, 10×10, 10×15 – high-demand sizes)
Smart access, mobile app, AI security cameras
Premium finishes (attracting higher-paying tenants)

Design optimization:

60% climate-controlled vs. 40% drive-up (climate = 25-35% premium)
Multi-story (reduces land cost per SF)
Corner unit placement (maximizes visibility from road)

Cost breakdown:

Permitting Journey (Months 9-18)

Expected timeline: 6-8 months Actual timeline: 9 months (we’ll explain why)

Month 9-10: Submit site plan to county

Required: Traffic study, drainage plan, environmental assessment
Cost: $45,000 (engineering firms, consultants)

Month 11-12: County review #1

Feedback: Need additional drainage retention (Florida rainfall requirements)
Revision cost: $18,000
Lesson learned: Always over-engineer drainage in Florida. Saves time in the long run.

Month 13-14: County review #2

Feedback: Parking calculation incorrect (need 15 spaces, showed 12)
Revision: Reconfigure layout, add 3 spaces
Cost: $8,000 (re-design)
Lesson learned: Parking requirements vary by county. Triple-check before initial submission.

Month 15-17: Final approvals

Site plan: Approved (Month 15)
Building permit: Approved (Month 17)
Impact fees: $62,000 (higher than expected – county raised fees mid-process)

Month 18: Ready to break ground

Total permitting cost:$133,000 (vs. $90,000 budgeted)

Overrun: $43,000 (absorbed by contingency)

Lessons Learned (Permitting)

What we’d do differently:

Start permitting immediately – We waited until Month 6. Should’ve started Month 1 (run parallel to rate optimization)
Over-engineer drainage from day one – The revision added 6 weeks
Budget 20% more for soft costs – Permitting fees, impact fees, consultant revisions always exceed estimates
Hire permit expeditor – $15K investment would’ve saved 4-6 weeks (worth it)

PHASE 3: Construction & Lease-Up (Months 18-36)

Construction Timeline (Months 18-30)

Month 18-20: Site work

Grading, utilities, parking expansion
Challenge: Discovered underground drainage pipe not shown on survey (cost: $22K to relocate)
Lesson: Always do ground-penetrating radar survey before site work

Month 21-26: Building construction

Steel structure erected (Month 21-22)
Roof and exterior (Month 23-24)
Interior buildout (Month 25-26)
Status: On schedule (rare in construction!)

Month 27-28: Technology & finishes

Smart access system installation
Security cameras, lighting
Office upgrades, signage

Month 29-30: Final inspections & certificate of occupancy

Fire marshal inspection
Building inspector final walkthrough
CO issued: Month 30

Total construction timeline: 12 months (as projected)

Pre-Leasing Strategy (Months 27-30)

Started marketing 3 months before opening (critical for day-one occupancy).

Tactics:

Existing tenant outreach: “Upgrade to climate-controlled at discounted rate” Result: 18 existing tenants committed to move to new units
UCF partnership: Student housing office referral agreement Result: 25 student pre-leases (summer storage)
Google Ads: “Opening soon – reserve your unit” Budget: $1,200/month Result: 40 pre-leases
Grand opening promotion: First month 50% off Result: 82 total pre-leases before opening day

Day 1 occupancy: 53% (82 of 155 units) Industry average: 20-30%

This is the power of pre-marketing.

Lease-Up Performance (Months 30-36)

Timeline to 88% occupancy: 6 months post-opening Industry average: 12-18 months

Why we stabilized faster:

Pre-leasing (53% day-one vs. 20-30% typical)
Strategic location (near UCF)
Modern amenities (climate-controlled, smart access)
Existing facility reputation (28-year track record)

PHASE 4: Stabilized Performance & Exit Strategy (Years 3-5)

Combined Facility Performance (Year 3, Fully Stabilized)

Existing facility (optimized rates):

280 units @ 88% occupancy = 246 occupied
Average rate: $118/month
Annual revenue: $348,048
Ancillary revenue: $42,000 (insurance, merchandise, truck rental)
Total revenue: $390,048
Operating expenses: $135,000
NOI: $255,048

New expansion:

155 units @ 88% occupancy = 136 occupied
Average rate: $155/month (premium for new, climate-controlled)
Annual revenue: $252,720
Ancillary revenue: $28,000
Total revenue: $280,720
Operating expenses: $90,000
NOI: $190,720

Combined facility:

Total SF: 53,000
Total units: 435
Blended occupancy: 88%
Total NOI: $445,768

Portfolio Effect (The Hidden Multiplier)

Something interesting happens when you combine old + new:

Existing facility benefits from new facility:

Modern facility next door = improved perception
Can justify higher rates on existing units (proximity to “premium” option)
Shared marketing costs (one Google Ads campaign, not two)
Operational efficiencies (one manager, shared utilities)

Result: Existing facility NOI improves additional $25K-40K annually beyond rate optimization alone.

This is why expansion projects outperform standalone acquisitions.

THE EXIT: Year 5 Strategy

Multiple Exit Options

Option 1: Institutional Sale (Our Base Case)

Target buyers:

REITs (Extra Space, CubeSmart, Life Storage, Public Storage)
Private equity (Ares, Blackstone, Harrison Street)
Regional operators (building Florida portfolios)

Expected pricing:

Trailing 12-month NOI: $626,717 (by Year 5, rent growth 3-5% annually)
Exit cap rate: 6.0% (conservative – institutional buyers paying 5.75-6.25%)
Exit value: $10,445,283

Why 6.0% cap is conservative:

New construction (2027) commands premium vs. older facilities
Strong demographics (UCF proximity, population growth)
Proven operational track record (3 years stabilized performance)
Recent comps: Similar facilities trading at 5.75-6.0% caps

Distribution waterfall:

LP Returns:

Initial equity: $3,500,000
Total return: $7,592,398
Net profit: $4,092,398
IRR: 18.3%
Equity multiple: 2.2x

Option 2: Refinance + Hold (If Market Improves)

Alternative scenario:

Year 5 value: $10,445,283
Refinance at 70% LTV: $7,311,698
Pay off existing debt: $3,249,000
Return to investors: $4,062,698 (93% of capital + some preferred return)
Remaining equity: $3,133,585 (LP owns 80% = $2,506,868)

Ongoing cash flow (post-refinance):

Annual NOI: $626,717
Annual debt service (70% LTV, 7.5%, 25-year amort): $620,000
Annual cash flow: $6,717 (minimal, but property still appreciating)

When this makes sense:

Cap rates expanding (better to hold than sell into weak market)
Believe strong rent growth continues (property appreciating 4-6% annually)
Want continued tax benefits (depreciation, cost segregation)

Hold 10 years instead of 5:

Year 10 value (assuming 3% annual appreciation): $12,118,000
Potential Year 10 IRR: 16.8% (lower than 5-year exit, but longer cash flow)

Option 3: 1031 Exchange Into Larger Portfolio

Strategy:

Sell this property Year 5
Use proceeds ($10.4M) as down payment on larger portfolio
Defer capital gains taxes (IRC §1031 like-kind exchange)
Scale into 5-10 facility platform

Example:

Sell: $10.4M
Buy: $35M portfolio (3-4 facilities, using proceeds + new debt)
Achieve economy of scale (lower management costs, shared marketing, operational efficiencies)
Position for eventual platform sale to institutional buyer (premium valuation)

THE HONEST PART: What Went Wrong

Mistake #1: Waited Too Long on Permitting

What happened: We started permitting Month 6 (after we got comfortable with the deal).

What we should’ve done: Start permitting Month 1, run parallel to rate optimization.

Cost: 5-6 months delay = $45K in lost rent during lease-up phase

Lesson: Time is money. Start long-lead items (permitting, engineering) immediately, even if you’re still underwriting other aspects.

Mistake #2: Underestimated Impact Fees

What happened: Budgeted $40K for impact fees. County raised fees mid-process. Final cost: $62K.

What we should’ve done: Call county development services before budgeting. Ask: “Any fee changes pending?”

Cost: $22K overrun (absorbed by contingency, but still painful)

Lesson: Impact fees, permitting fees, and utility connection fees are political. Counties raise them regularly. Always budget 50% cushion.

Mistake #3: Didn’t Do Ground-Penetrating Radar

What happened: Survey showed site as clear. Started site work. Discovered underground drainage pipe not on survey.

Cost to relocate: $22K + 2-week delay

What we should’ve done: $3,500 ground-penetrating radar survey before design.

Lesson: $3,500 investment would’ve saved $22K + time. Always do GPR on any site with history of development.

Mistake #4: Grand Opening Promotion Too Aggressive

What happened: Offered “First month 50% off” to drive pre-leasing.

Result: 82 pre-leases (great!) but… many were rate shoppers who moved out after 3-6 months.

Churn: 35% of grand opening tenants gone within 6 months (vs. 15% typical)

Lost revenue: Approximately $18K (had to re-lease at lower rates, plus vacancy)

What we should’ve done: “First month 25% off” would’ve attracted more serious, long-term tenants.

Lesson: Aggressive promotions attract wrong tenant profile. Better to lease slower with quality tenants than fast with churners.

THE REAL LESSONS: What Actually Matters

Lesson #1: Buy Operational Inefficiency, Not Physical Distress

Why this deal worked:

Property was in good physical condition (minimal CapEx)
Owner was just operationally conservative (hadn’t raised rates, no marketing)
We could fix operations in 18 months (predictable timeline)

What doesn’t work:

Buying physical distress (deferred maintenance, structural issues)
Unpredictable costs, longer timelines, higher risk
Unless you’re getting 2+ cap rate discount, physical distress rarely pencils

Takeaway: Look for great bones, bad operations. Not bad bones, bad operations.

Lesson #2: Vertical Integration Is The Only Sustainable Advantage

Our savings on this deal:

GC markup avoided: $510,000 (15% of $3.4M construction)
Development fee avoided: $136,000 (4% of project)
Construction management: $85,000 (in-house vs. third-party)
Total savings: $731,000

Impact on returns:

Traditional approach (outsourced): 15.8% IRR
Vertically integrated: 18.3% IRR
Improvement: +2.5 IRR points

Takeaway: You can’t compete on deal sourcing alone (everyone sees same deals). You compete on execution efficiency. Vertical integration is how you do that.

Lesson #3: Pre-Leasing Is Worth 6-9 Months

Our pre-leasing results:

Day 1 occupancy: 53%
Stabilization: 6 months post-opening
Industry average: 20-30% day one, 12-18 months stabilization

The difference:

Started marketing 3 months before opening
Leveraged existing tenant base (upgrade offers)
Partnered with UCF (referral pipeline)
Grand opening promotion (despite the churn issue)

Financial impact:

6-9 months faster stabilization = $95K-142K in accelerated rent
Earlier refinance/exit = higher IRR

Takeaway: Most developers focus on construction. Smart developers focus on pre-leasing. The building will get built either way. The question is: will it fill up fast or slow?

Lesson #4: Student Housing Proximity Is Underrated

UCF impact on this deal:

15-20% of tenants are students/faculty
Predictable churn (May moveouts, August move-ins)
Higher rents (parents paying, less price-sensitive)
Reliable demand (enrollment growing 68K → 72K by 2030)

Why most investors avoid it:

“Students are risky tenants” (not true – parents co-sign)
“High churn” (true, but predictable and easy to manage)
“Seasonal” (actually an advantage – you know exactly when vacancies happen)

Takeaway: Proximity to major universities (especially growing ones like UCF) is a massive competitive advantage. Embrace the student tenant base, don’t avoid it.

THE BOTTOM LINE: Is This Replicable?

Yes, but with caveats.

What’s replicable:

✅ Finding mom-and-pop owners who are operationally conservative

✅ Rate optimization (10-15% upside on most acquired facilities)

✅ Expansion on underutilized land (60% of older facilities have this opportunity)

✅ Pre-leasing strategy (works in any market with existing demand)

What’s NOT replicable:

❌ UCF proximity (limited supply, high demand)

❌ Seller flexibility (this owner was unusually reasonable)

❌ Permitting timeline (9 months is fast for Florida – many markets take 12-18)

❌ Current market window (supply constraints won’t last forever)

The real question: Can you execute?

Do you have construction expertise (or partnerships)?
Do you have capital relationships (debt + equity)?
Do you have operational capabilities (or trusted management)?
Can you handle 24-36 months before full stabilization?

If yes → this playbook works.

If no → you’re better off buying stabilized REIT properties (lower returns, but simpler execution).

NEXT STEPS: How to Get Involved

This deal is currently in progress:

LOI executed: October 18, 2025
Closing: December 17, 2025
Equity structure: 80% LP, 20% GP
LP equity required: $3.5M (can split among 2-3 investors)
Minimum investment: $1M per LP

If you’re interested:

Schedule a call – 45 minutes, discuss deal specifics, review underwriting
Site visit – Arrange property tour in Orlando (Central Florida)
Due diligence materials – Full underwriting model, market study, legal docs
LOI – If aligned, execute LOI (non-binding)
Subscription docs – Legal agreements, investment commitment

Timeline: Need equity commitments by November 20 to proceed with December 17 closing.

Final Thoughts

Real estate investing isn’t magic. It’s:

Finding asymmetric opportunities (operational inefficiency, not physical distress)
Executing with precision (vertical integration, pre-leasing, rate optimization)
Managing risk (conservative underwriting, contingency buffers, honest mistakes)
Playing long game (24-36 month timeline to full value creation)

This deal isn’t sexy. It’s not buying Bitcoin in 2010 or finding a off-market trophy property for 50% below market.

It’s buying a boring, 28-year-old storage facility from a retiring couple and methodically improving it over 5 years to generate 18.3% IRR.

That’s the business.

If you want consistent, risk-adjusted returns – this is how you do it.

If you want to swing for home runs – buy ground-up development in untested markets and pray.

We prefer base hits.

Questions? Thoughts? Competing for similar deals?

Drop a comment or DM me. I read every one.

Want to see more real deal breakdowns like this?

Subscribe to my newsletter (link in comments and below) – I publish detailed market intelligence, deal analysis, and investment opportunities weekly. https://www.linkedin.com/build-relation/newsletter-follow?entityUrn=7053058780464345088

Scott Podvin

Skyline Property Advisors, LLC | Capital Advisors USA, LLC

📞 786-676-4937

P.S. – If you’re a Florida CRE investor and want a second set of eyes on your underwriting (free, no obligation), send it over. Happy to point out the red flags you might be missing. I’ve walked away from 30+ deals in the past year – I know what to look for.

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