“Commercial Real Estate’s Cinderella Asset Class!”
Copyright © 2012 by Scott Meyers, CSSM©
All Rights Reserved
Written By Scott Meyers, CSSM©
No part of this book may be reproduced in any form nor used for teaching
purposes without the express written permission of the Author.
This publication is designed to provide accurate information with regard to
the subject matter covered. It is sold with the understanding that the publisher is
not engaged in rendering legal, accounting, or other professional advice. If legal
advice or other expert assistance is required, the services of a competent
professional person should be sought.
Introduction –
The Top 10 Reasons Why Self Storage is the Hottest Sector in Commercial Real
CHAPTER 1: Industry Overview
Definition of Self Storage
The History of Self Storage
Self Storage Tenants (Clients)
The Current State of the Market
CHAPTER 2: Investment Opportunities In self storage
20 Reasons to invest in Self Storage Now!
Debunking the Myths
CHAPTER 3: The Future of Self Storage
Reasons for Increased Demand
Advancements in Technology
More Products & Services
Focus on Customer Service
Industry Consolidation
Increased Competition
Increased Values
To Buy or to Build
The Advantages of Buying
The Advantages of Building
Chapter 5: Case Study - Brownsburg Crossing
Loan Proposal
Business Plan
About The Author
Glossary of Terms
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The Top 10 Reasons why Self Storage is the Hottest sector in Commercial
Real Estate.
As you will read in my home study course, “The Complete Guide to
Finding, Evaluating, and Purchasing Self Storage Facilities”,, I began my career by building
a large portfolio of single family and multi-family properties. I spent the first 10
years in real estate investment fighting with tenants and toilets and it almost
drove me into the insane asylum and the bankruptcy court! Chasing tenants that
wouldn’t pay, trying to stay ahead of rising taxes, insurance, and utility bills, and
the ongoing, unexpected maintenance calls, almost forced me out of the
business. So I began to ask myself, what area of real estate could I invest in that
could utilize the talents and experience I have gained, without all the hassles of
tenants and toilets? Well, after weighing all options, and after speaking with
many of my mentors in the industry, I ultimately chose Self Storage as the area I
wanted to pour my efforts into and secure my future.
So after 11 years of amassing a large portfolio of single family and multifamily apartment complexes, I began to sell them all off, and begin investing in
self storage facilities. And as most people say once they have found their true
calling, I wish I would have done it sooner! The self storage business isn’t without
its fair share of challenges however and I certainly wouldn’t call it easy. But my
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life has changed dramatically the day I sold my last apartment complex with all
those tenants and toilets and traded them for self storage units filled with
nothing but……. STUFF!
Now, I will share with you the top 10 reasons why I decided to sell all my
houses and apartments to invest in ONLY self storage:
10. Endless Opportunities – If you already own a plot of land in a GOOD
location, you can build. Now I don’t want to oversimplify the process
because there are a great deal of zoning and Approval hurdles you may
have to jump over, but this is a real estate business that is much easier to
get into compared to most others. Also, contrary to popular belief, the
large, public operators in the industry only account for about 12% of the
estimated 64,000 facilities in this country worth $22 Billion in 2007. That
means there is a huge opportunity to pursue roughly 56,000 facilities
that are owned by “mom and pop” investors that are already established
and cash flowing, and were developed specifically to sell off to investors
once they were stabilized!
9. Sky Rocketing Demand For Storage – We have an insatiable appetite for
storage in this country, with over 2,000,000 units having been added since
2000. But probably the most exciting prospect for the industry is the
aging of the baby boomers. There are roughly 77 million baby boomers in
this country as of 2009, and they account for approximately $2 trillion in
spending power. A recent poll by the Self Storage Association of a
sampling of Baby Boomers revealed that upon retirement, 50% planned
to travel, 40% planned to move, and 10% planned to start a new job.
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What do people do when they move? That’s right, they store stuff.
Downsizing, buying a second home, or even a like swap in houses
necessitates a need for storage. One economist recently compared the
opportunity in this industry to sitting on the oil industry in the 1950’s
or sitting on Silicon Valley in the 1990’s!
8. Multiple ways to increase Value and Profit Centers – I have had a great
deal of success in creating value with properties once I acquired them, but
found the opportunities greater with self storage. There’s only so much
you can do to a house, or with apartments that truly adds value, or
commands a higher rent. But with Self Storage, you can take a vanilla
facility and create multiple additional income streams such as:
a. Retail centers that sell locks, boxes, moving supplies
b. A Truck Rental service through a 3rd party, or in-house
c. A business center that charges for computer usage, copies, and
d. Ebay® Add-it centers where customers can pay you to sell their
e. A pack and ship business, and approximately 30 more profit
centers that we have identified, and continues to grow.
These additional services can contribute as much as 10-15% of the total
income a facility brings in on a monthly basis.
7. LOW, LOW, Operating Costs – With my apartments, I was responsible for
paying the utility costs for many of the common areas and vacant units,
and in some properties, the gas and water was on 1 meter, and was
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included in the rent. I was forced to pay for my tenants’ wasteful use of
gas and water. When the cost and/or taxes on these utilities increased,
guess who paid for it; ME! You simply can’t pass those increases along to
the tenants without them going down the street to a competing property.
With Self Storage, however, the expenses are minimal to begin with. You
will pay for lights in the parking lot, and utilities for the office, but those
can be monitored, and increases can be easily absorbed. This makes
budgeting for utilities and other variable costs a breeze compared to
properties with tenants and toilets. As a result, self storage operating
costs are typically much less than office, retail, and apartment buildings,
which lowers the overall break-even occupancy.
6. Low Rent and Collection Losses – 48 of the 50 states have a lien law with
regard to self storage collections procedures, and the other 3 provide for
steps that an owner can take to collect past due rent. Each state’s law
differs slightly, but most give the self storage facility owner the ability to
perform the following steps when a tenant’s rent is past due:
a. Remove the tenant’s gate code from the system, locking them
out of both the facility and their unit.
b. Place another lock on the unit to keep them from entering it.
This is what we call over locking the unit.
c. Auction their goods if payment has not been received, typically
within 90 days after they were given notice.
Each state requires that the tenant be given notice that they are past due,
and most require proof that notices were sent by certified mail or some
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other traceable format. Each state also specifies specific timing for each
one of these actions, and also requires that proper notice is given to the
tenant, and to the public by way of the local newspaper that their unit is
being auctioned off. The laws also specify what an owner can and can’t do
with regard to the tenant’s belongs, and most require that the entire unit
is auctioned off as a whole to avoid any liability. Either way, this far better
than a landlord’s recourse when going through the legal process of
evicting and collecting back rent from tenants in the single family and
multi-family apartment world.
5. HIGH Cash Flow (They Don’t Call them Cash Cows for Nothing!) –
Rental rates for self storage facilities are similar to other real estate
product types; however, lower development and operating costs create
higher profits and a greater return for investors. In addition, leases are
month to month, which provides the ability to raise rents in conjunction
with market demand. Self storage tenants won’t typically rent a truck, call
their friends, and waste a Saturday morning to move their stuff down the
street just because their rent increased by $3 per month. But if you raise
rents once or twice a year by 3-5%, multiplied by several hundred units,
with no increase in expenses, you begin to see why industry experts so
often refer to self storage facilities as the proverbial “Cash Cows”. By
contrast, if you were to raise your rents in your single family or apartment
portfolio by 3-5% once or twice per year, you would have a mass exodus
on your hands!
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4. Low Risk – Self storage space is rented on a month-to-month basis to
hundreds of different customers, most of which are individuals and small
businesses. With self storage, no single move-out is going to cause a
major drop in rental income. Compare this with other forms of
commercial real estate, where a Flagship tenant or multiple high paying
tenants can really spell disaster. In addition, self storage has the ability to
absorb economic fluctuations better than other real estate investments.
For example, when the economy is good, people buy more therefore they
need extra space to store their extra stuff. And when the economy is
down, individuals and businesses may downsize their house or business
space, and therefore turn to self storage as a cost effective place to store
their belongings. As a result, self storage has the lowest failure rate
(8%) and subsequently lowest loan default rate of any real estate
product type (compare to apartments which have a 58% loan failure
3. Leverage or Other People’s Money (OPM) – Given the fact that self
storage has the lowest loan default rate of any real estate product type,
lenders are now making 80% - 90% LTV loans on established, wellconstructed, and well managed facilities with strong track records. In
addition, there are several private investors that are funneling millions of
dollars into the market to partner with self storage developers and
investors due to the industry’s tendency to outperform the stock market
and other real estate investments. And given the reasons I just discussed,
and the industry’s track record, it is much easier to convince your wealthy
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friends and family members to become investment partners in a self
storage facility than it is with other real estate product types.
2. No Tenants – The number of times you will be in contact with the typical
Self Storage Customer is very minimal over the duration of their tenancy.
According to the Self Storage Association, 95% of self storage customers
do not return to their unit until the day they move out of the facility.
Therefore, the industry norm for hiring a manager is based on a 1 to 400
ratio, or 1 manager to manage every 400 units. There are also several
owners who are taking advantage of new technologies that have become
available in the self storage industry, most notably, kiosks. These
machines resemble an ATM and are typically installed at the front gate and
allows a customer to rent a unit, pay with a credit card, and even dispense
a lock, all without ever coming in contact with the manager! In contrast,
the widely accepted rule of thumb for managing single family and multifamily properties is a 1 to 100 ratio, or 1 manager for every 100 units.
Quite simply, single family and multi-family tenant commands a greater
amount of babysitting. You have to chase them for rent, answer their
maintenance calls, respond to complaints about dogs, kids, their
neighbors, broken down cars, noise, bugs, etc., and spend an incredible
amount of time writing letters and responding to each one of these issues
or for every time someone is in violation of their lease, or the house rules.
In addition, the eviction and collection cost each month is very time
consuming, with little results. By comparison, I have never taken a phone
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call from the patio furniture in unit 105 complaining that the lawnmowers
in unit 106 were playing their music too loud!
1. No Toilets – The typical self storage facility is constructed from steel, or
concrete, has a steel roof, metal doors, gravel or asphalt drives, and most
likely, a stainless steel fence. Some may have a small office on site with a
computer, phone, and 1 bathroom; that’s it! Steel walls and roofs last for
decades without any maintenance. Door springs need to be replaced from
time to time, and every 10 years or so you may have to add more gravel,
or resurface the lot, but can be easily budgeted for, and most fences last
20-25 years without the need for any maintenance. And of course, the
enemy of all landlords, toilets, or any other indoor plumbing for that
matter, is non existent in a self storage facility. And unless you have
climate controlled units, there are no furnaces, air-conditioners, or water
heaters to maintain. When a tenant moves out, you don’t have to
clean, paint, or replace the carpet; simply take a broom or blower,
and sweep it out!
There are many other reasons I prefer self storage to other real estate product
types as we’ll discuss throughout this home study course. I have thoroughly
enjoyed the business, and I am thankful for the opportunity to pass this
knowledge on to others that may be interested in the industry. In addition, I
consider myself a life long student in the business, and I believe in perpetual
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Industry Overview
What is Self Storage?
Self Storage Association Definition: Self Storage facilities are real property
designed and used for the purpose of renting or leasing individual storage spaces to
tenants who are to have access to such space for the purpose of storing and
removing personal property. They offer rental on a month-to-month basis of
individual spaces where customers provide their own lock and have sole access to
their space. Today’s typical storage facility may comprise several one or twostory buildings on two to 6 acres of land, or a multiple-story building, containing
a carefully designed unit mix of spaces. The units typically range in size from 5X5
to 10X30 feet with 30,000 to 120,000 total rentable square feet of space. Self
storage facilities frequently feature large roll-up doors and drive up access to
outside spaces and offer outside parking for storage of boats and recreational
vehicles, which often can’t be stored in residential communities. Today’s facilities
normally have the following features:
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Contain 10,000 to over 100,000 rentable sq. ft.
Offer a wide range of unit sizes
Are well lighted
Are paved vs. graveled
Have storage units divided by steel, movable panels
May have some or all of their spaces climate controlled
Contain high-tech security systems, including electronic access, cameras,
and digital video recording.
Have perimeters that are walled or fenced with Security Gates
May or may not have a resident manager
Have single or multi-story buildings
Provide carts and Dollies for use by its customers
May contain movable storage modules
Sell storage and moving related supplies
Provide ancillary retail services and products.
From the real estate perspective, self storage:
Meets the needs of several consumer groups (residential & commercial)
Uses simplified structures
Makes efficient use of land, especially odd shaped parcels in less desirable
Has short construction time, thereby providing little traffic disruption
Uses very little energy!
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The conventional concept of personal storage began in England when
British banks were asked to safeguard valuables for clients embarking on
extended voyages. Overcrowded vaults quickly forced them to seek storage lofts
from drayage companies (the first moving companies). The first mini-warehouses
for household and personal items were built. The two story structures were built
with packing on the lower floor and private storage rooms on the second. Except
for expansion into multi-story buildings, things remained the same for decades,
until the 1950’s when costs rose. This led to construction of palletized
warehouses which were designed to handle crated customer goods that could be
stacked three levels high.
Access to household/personal goods was restricted and it was expensive,
since customers had to make appointments to obtain items and pay each time
for the service (stored property could only be reached by forklifts which were
operated by staff) and business hours were limited and normally did not include
Initial development of self storage facilities in the US occurred primarily in
the Western United States and the Sunbelt states. Contributing factors were: a
transient population moving to new jobs and better climate, retirement
condominiums, apartment and townhouse residences, slab construction, etc.
Many facilities were developed prior to 1979, with 1978 generally acknowledged
as one of the greatest growth years in the industry. As the decade of the 1980’s
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began, increased self storage construction activity occurred along the Eastern
coast of the United States, with increased interest in Canada, Europe, Australia
and other countries of the free world.
It’s been said that self storage is used by people and businesses in transition,
but that’s only part of the picture. Self storage is used by a wide range of
consumers with different needs that may include:
Homeowners and businesses in need of temporary space for overflow of
property or inventory
Those in the process of relocating
Property stored in relation to an estate in transition due to death,
litigation, restoration, etc.
Businesses in need of space for general control of inventory, records,
supplies and equipment
Businesses that are expanding or contracting
Businesses storing seasonal displays
College students storing books, desks, etc. during summer
Military personnel in need of low cost space or are on temporary duty
Seasonal visitors with household items and sports equipment
The advantage of using rental storage space is increased flexibility, low cost,
convenience, and value.
Self storage space is generally rented on a month-to-month basis and
does not commit customers to long term leases. Tenants may typically leave
whenever they want and rent only the space they need. A recent study shows
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that the average length of tenancy for a typical customer is 11 months, and 24
months for the average commercial tenant. The cost of self storage space is lower
than office or retail space, saving users money. On average, self storage is
roughly 60% less than the cost of most office on a per square foot basis. Self
storage users can often find facilities in their local area and they receive
additional service value because self storage managers are trained to counsel
consumers on how to store items more efficiently in less space, thereby reducing
the cost.
Self storage is a useful management resource for small businesses, since
businesses can easily obtain more space as they grow without committing to
expensive long term leases. Furthermore, it provides businesses with a means to
cut costs, should they need to downsize. Self storage is also useful for college
students and seasonal visitors who may rent space for a season, and for military
personnel who go on temporary tours of duty, but intend to return to the area,
and for those who can’t afford to rent more living space.
Estimates of the overall number of self storage facilities operating in the
United States varies greatly but most industry veterans estimate that there are
somewhere between 65,000 to 70,000 facilities as of the date this eBook.
As the population becomes more familiar with self storage, the demand
for off-site storage has expanded to accommodate the growing needs of the
business community by storing files, medical records, excess inventory,
equipment, etc. In some areas business storage accounts for 30% or more of the
total tenancy of a facility. Easy access, convenient office hours, short term rental
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agreements, and no long term commitment to pay for space which may not be
needed in the future, make the self storage facility extremely attractive to the
retail customer, contractor, home based businesses, manufacturer’s, and
pharmaceutical representatives, etc.
The industry still remains relatively unsophisticated and highly fragmented.
Today, roughly 80-88% of all self-storage facilities are owned by small
independent “mom and pop” operators. In addition, there is a considerable
amount of medium to large players undergoing consolidation, although it is
becoming more difficult for the larger buyers to accomplish since most owners
realize what a great low maintenance high-cash business it is, and therefore are
reluctant to sell. As a result, the top 50 companies control approximately 25
percent of the square footage in the industry.
As demand for space has grown and the self storage industry has evolved,
consumers have become more familiar with the property type (92% of the
households in the U.S. were familiar with the concept, according to a survey
sponsored by the Self Storage Association in 1989). Inasmuch, local and regional
competition ranges from a handful of properties to scores in a given trade area.
Accordingly, customers may choose where they will store and from many
different options, with unit size and the choice of climate or non-climate
controlled space being the base options. Today consumers have the ability to
compare and choose from among a variety of self storage property styles and
customer services to meet specific storage needs.
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Competition in the self storage market is increasing. Maximum success for
investors/operators depends on the ability to meet customer needs with
convenience and value.
To satisfy customers, today’s self storage must look to locate in retail
corridors, light commercial or even high density residential neighborhoods, in
addition to traditional industrial and heavy commercial areas. Newer facilities
emphasize architectural aesthetics in construction and are designed to blend in
with the retail or residential nature of the areas they serve. Landscaping has also
become a prime consideration, as well as the interaction of storage development
with adjacent planned tracts of offices, retail stores and business parks, in order
that incubator space is available to support public planning. All of this is done
with the aim of creating a clean, stable, secure upscale image that supports the
perception, and the reality of trust among current and prospective customers.
Investment Opportunities In self storage
Like all other real estate investments, self storage shares the same attractive
qualities as residential rentals, apartments, retail strip centers, office buildings,
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and industrial properties. Those include leverage (borrowed money), tax
advantages, passive income, personal control (being your own boss), and
appreciation. However, self storage offers a number of benefits that I feel make
it such an attractive investment. Those include the following:
1. We are becoming a more transient society, moving around more and
creating a greater need to store our stuff, thus the demand for self storage
is increasing.
2. Americans tend to accumulate a great deal of possessions, and we don’t
want to “weed out” those things we don’t use or are sentimental or have
nostalgic value, which in turn, creates more demand.
3. Most new communities will not allow us to store our boats, jet skis, RV’s,
or even multiple cars on the street or in front of our homes.
4. Many retirees downsize their homes which require additional storage
space that their smaller homes don’t provide.
5. More and more Americans are buying second homes which increase the
demand for storage space.
6. College students utilize storage space when moving back home for the
7. Many businesses are downsizing and operating out of smaller offices that
necessitate a need for storage space.
8. Many small distributors will utilize self storage to operate their business
9. Pharmaceutical reps will use climate controlled storage for samples and
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10. The eBay® phenomenon has created a huge demand for space.
11. Other home based businesses are also creating demand for off-site
12. Lower Development costs – self-storage facilities development costs are
often 30 to 50 percent less than office, retail, and apartment buildings.
13. Lower Operating Costs – Operating costs for self-storage facilities are
substantially less than office, retail, and apartment buildings. As a result,
self storage owners are more isolated from large increases in utility and
other variable costs that occur in the open market.
14. Lower development and operating costs make break-even occupancy
ranges lower than other forms of real estate.
15. Occupancy is generally more stable and therefore predictable as there are
typically a greater number of units in which to “spread the risk” than in
other forms of real estate.
16. Month-to-month leases mean that rental rates can be adjusted easily.
When occupancy increases, I will adjust rates to compensate for the
17. Demand for self-storage is not dependent upon the economy. When the
economy is good, people buy more and store more. When the economy
slows, people downsize, and require a cheaper alternative to store their
extra belongings.
18. Low management overhead as customers typically only need the manager
to move in or move out, compared to office or apartment complexes that
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requires a high number of customer contacts and constant and ongoing
19. A well-run, stabilized self storage in a good location is very desirable to
other investors and institutions, making self storage a very liquid
20. It’s No Wonder Self Storage has the lowest loan default rate of all
commercial real estate property types!
Now that we’ve discussed all the reasons that make self storage a fantastic
investment, we should take some time to break down a few of the myths that
have been floating around with regard to the industry. Like many other
industries, self storage has been evolving for several decades now, and many of
the general assumptions by outsiders surrounding this business simply do not
apply. Some of the common myths are as follows:
1. “If you build it, they will come”.
In the early years, this was somewhat true. But in today’s competitive landscape
an owner/investor must perform very careful analysis and/or feasibility studies to
determine whether a potential development site or an existing facility is a wise
investment. In addition, there are many areas that are, or are becoming overbuilt,
which drastically changes the projected lease up and overall occupancy potential
for a facility.
2. “Self-storage is an easy business”.
This may have been somewhat true in the past as well, but like any business, if it
were easy, everybody would be doing it. Far too many real estate investors treat
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their business as a hobby rather than what it truly is; an asset with many moving
parts that must be managed from day to day as opposed to a stock or a mutual
fund that you purchase and only infrequently check on its performance. Today’s
self storage arena is very competitive, and successful owners are always thinking
of ways to increase income, decrease expenses, and strive for operational
efficiencies across all facets of their operation.
3. “All self storage properties are cash cows”
As we discussed earlier, self storage facilities have the lowest default rate of all
property types, but it doesn’t mean that owners don’t default and that many
others are struggling. Generally this is due to poor planning before acquiring or
developing a facility. An owner/investor must perform thorough due diligence
when it comes to competition, population growth, land costs, construction costs,
market rental rates, and the management of the facility before purchasing or
developing a facility. If you do not have the time nor the expertise, feasibility
study should be conducted by an experienced individual within the industry to
avoid buyers or developers remorse.
4. “This is a cheap business to get into”
Again, this may have been somewhat true in the past, but not any longer.
Today’s customer is demanding a higher quality facility than what the industry
provided in the beginning. Today’s facilities possess a higher quality
construction, are fully paved, fully fenced with security gates, typically have state
of the art digital video surveillance and recording systems, and are considerably
larger than in the past, which necessitates an office with a part-time or full-time
manager. Land costs are higher as most developers prefer to locate in high
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traffic locations as opposed to the hard to find or industrial park sites of
yesteryear. In addition, construction materials have been on the rise recently due
to fast developing foreign nations which affect development costs, and good
existing facilities are being sold at record high prices as the word is out on what a
great investment self storage has become.
Chapter 3
The future of Self Storage
The Future of Self Storage
As we look to the future of self storage, it’s very clear that the future looks
bright. There are a few trends afoot backed by solid industry data that justify my
positive outlook on this high growth industry. These trends are as follows:
Increasing Demand
The U.S. Population is predicted to reach 400 million by the year 2050. All
indicators show that Americans continue to be a highly mobile society with a
high propensity to accumulate “stuff”. This means that as of the time of this
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publication, we stand to add 150 million potential customers to our prospect list
who are searching for somewhere to store their belongings.
High Tech Facilities
As our customers become more selective in where to store their
belongings, owners of older facilities will need to make necessary improvements
to remain competitive. This will ultimately result in more sophisticated and
higher tech facilities offering more user friendly layouts, larger offices, flexible
unit mixes, kiosks, high security, and more climate control units. In addition, we
can expect to see self storage investors competing for the premier parcels
located in the high traffic retail areas of town. As a result, municipalities are
beginning to require that these facilities have a retail component in order to
increase the amount of sales tax generated and paid to those local governments.
They are also requiring that the facilities have a certain “look and feel” that blend
in with the surrounding businesses. Nicer fencing, or split block security walls,
paved drives, certain architectural features, and an attractive landscape package
will be mandatory and made part of the architectural permit prior to construction,
and strictly monitored for compliance.
More Products and Services
As self storage moves closer to Main Street, we will begin to see an
increase in the number of customized services available for its customers. We
have already seen some partnerships being formed that provide complementary
products and services. Of course the most common example is truck rental, but
we are now seeing pack and ship businesses, EBAY® add-it stores, Kinko’s®, or
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co-locating with retail stores such as Starbucks® or Subway® on the ground
floor with storage above in multi-story facilities.
Focus on Customer Service
As more and more people frequent our self storage facilities, they will
begin to expect more from our facilities and the face behind the counter. These
sophisticated customers are demanding excellence and consumer loyalty will
quickly go out the door, along with their stuff, if they have a bad experience.
Conversely, when customers are satisfied with the service they receive, they will
stay, and hopefully will tell their friends about the good experience they have
had. This provides an excellent opportunity for us to exceed their expectations,
and provide a substantially better experience than our less educated, less
professional competitors in our chosen markets. My goal is to be my
customer’s LAST storage provider by never giving them a reason to look
anywhere else, for any reason!
Industry Consolidation
As the larger public companies and REIT’s are pressured by Wall Street to
produce results, we will surely see more consolidation of the mid to large size
companies. Those same mid to large companies can’t meet their growth
deadlines by developing their own facilities from the ground up. The 3 years it
takes to choose a plot of land, apply for zoning, permits, and then build and
stabilize a property simply isn’t fast enough for them to meet their goals. Don’t
misunderstand me however, the mid to large companies ARE still active
developers, but their appetite for growth will fuel a surge in acquisitions and
mergers for years to come.
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Increased Competition
As all eyes are now on Self Storage, we are sure to see a number of new
entrants into this facet of commercial real estate. Unfortunately, this will lead to
overbuilding in some areas as many newer developers will ignore the feasibility
criteria for developing a facility in a given market. Therefore, it will be imperative
for owners and developers to work more efficiently to attract and retain
customers in this new environment.
Increase in Value
In the future, the upward value trend in self storage will continue for a
number of reasons:
1. Predictably low interest rates will push cap rates low, and net larger
profits for those who choose to sell.
2. For that reason, self storage continues to rise in popularity as one of
the commercial real estate assets of choice, and will ultimately attract
more investors.
3. There are still a number of individuals and investment firms that are
stinging from the recent stock market corrections. These investors are
now searching for a more stable investment that they can “touch and
feel” as opposed to investing in a company that they have never heard
of, run by people they have never met, in an industry they know
nothing about.
4. There is a lot of money chasing a few deals. Many investors have
created a great deal of value in their existing portfolios, and they are
selling off these properties and are looking for places to spend their
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1031 tax deferred exchange dollars without paying taxes. Self storage
has continued to be a great investment to exchange into and more and
more investors are choosing to park their dollars here before their tax
deferred status expires.
As the saying goes, the only thing we know for sure is that things are
going to change. I do subscribe to that line of thinking, but I also believe that
self storage will remain a reasonably predictable, stable, low maintenance, high
cash flow investment for professional investors for years to come.
The Advantages of Buying versus Building
There are several advantages to buying rather than building a self-storage
facility. These advantages include:
1. Quick Entry
Quite simply, buying an existing facility will get you into the business
faster. Bypassing the development process will allow you to take over an existing
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operation without the time and hassle of building and creating the business from
2. Predictability
Buying an existing self-storage facility gives you a historical track record
based on past operational performance. This will provide indicator to the future
success of the facility all things considered.
3. Ease of Financing
Typically, financing an existing facility with a proven history of net operating
income is much easier than construction financing which is highly speculative.
There is a wide variety of products available to finance existing facilities in today’s
market. Financial institutions have a large appetite for well performing selfstorage facilities and therefore are offering high loan to value loans at very
desirable interest rates.
The advantages of Developing versus Buying include:
1. Not buying someone else’s problems
When buying an existing facility, you may be buying someone else’s problems
that can prove expensive to fix. Be certain to have a licensed inspector perform a
physical inspection of any facility you may be interested in purchasing, and be
sure to verify all income and expense reports to determine the true Net
Operating Income of the property to avoid any surprises.
2. Choice Site Selection
Developers are free to choose a location far from competitors and be first in
an area that is experiencing a high rate of development. As in most businesses, if
you are first to market, you can grab onto the customers in that area, and in self-
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storage, customers typically don’t move their stuff just because another
competitor comes to town.
3. Low start-up Cost
The cost to buy land and develop a facility is usually significantly lower than
the price of acquiring an existing facility, looking strictly at a cost per square foot
4. Preferred Product
A developer can build a state of the art facility to meet market demand. It is
much easier and more cost effective to build a facility with all the new industry
“bells and whistles” than it is to retro-fit an older, tired facility with electronic
gates, paved driveways, digital video surveillance systems, newer door/locking
systems, business centers, kiosks, or adding a retail center and office.
5. Potential for Higher profits
If you do your homework and choose a good site, and build a marketable
facility from both a user and a potential buyer’s perspective, you could reap a
windfall of profits upon stabilization and ultimately the sale of your facility. Of
course there are no guarantees, but history has shown that developing, and
managing a facility to stabilization and then selling has proven to be considerably
more profitable than buying and selling an existing facility.
Chapter 5 – Case Study – Brownsburg Crossing
Creating your Business Plan
Once I have an accepted offer, the clock starts ticking. We have several
3rd party reports which must be completed, and most importantly, we have to
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obtain a loan commitment within the specified timeframe spelled out in our
purchase agreement. In an effort to ensure I am granted loan approval, it is
critical that I submit a business plan that outlines everything a lender needs to
know about me as a borrower, my business, and the project at hand.
Now for many people, the thought of creating a business plan is akin to
the fear of public speaking. However, it does not have to be such an unpleasant
task, especially since we already have the information. Our personal financial
statement, the project due diligence and the market analysis comprise just about
all of the information needed. All we need to do is to organize this information
into a coherent document. Our business plan is an opportunity to present
ourselves and the deal in the best possible light. It is designed to give the
lender an in-depth look at yourself as a borrower including your past
successes, the reasons why this project is so strong, and the reasons it
will succeed in this market. This will all be supported by facts from your
research and due diligence.
Reasons for a Business Plan
A written business plan speaks louder than any thing you say or do when
applying for the loan. In addition, a written plan may be the only information the
loan committee or board can refer to when looking at your deal. The business
plan speaks for you when you are not present. It is extremely important to
create a professional, organized, document proving that you have done your
homework and can manage the risk that is inherent in all facilities.
There are several software packages and numerous resources available
to assist you in preparing a business plan. Some are very good, but few are
tailored specifically to real estate. I suggest you follow the format I have provided
in this home study course for several reasons. Most business plan templates are
just that; templates. They are designed using generic terms for operating a
multitude of small businesses. However, a business plan and subsequent loan
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request for real estate requires many different elements. You may find that the
effort involved in adapting a template is more work than writing a plan from
scratch following the model I have presented.
In addition, I recommend writing your own plan because of the knowledge
you will gain in the process of doing so. By assembling the information again
and presenting it in a clear format, you gain an even better understanding of the
project that allows you to explain it in detail when the time arrives. This creates a
perception of confidence in the lender’s eyes during conversations regarding you
and the facility, and anything that reduces risk on the lender’s part is a positive
step in the right direction. Lenders see hundreds of proposals each year; some
are good, others are not. A thorough plan makes their job much easier when
pitching your deal to the board. I strive to ensure that my business plan and loan
proposal are one of, if not the best proposals they will ever see. Some of the
smaller community banks I have relationships with only approve so many
loans per year, and I want to make sure that my proposals make it to the
top of the list in the month that the committee or board meets to review and
approve requests. And so far, I haven’t lost yet!
I must remind myself that perception is a reality for the lenders. They do
everything possible to avoid risk, but they know that every deal involves a certain
amount. Their approach is to look at every deal as if it was a loser and must be
proven to be a winner. My Personal financial statement is designed to project
stability, and my loan proposal is presented in the exact same manner. A good
loan proposal will convey the message that I have the necessary resources and
abilities to succeed in the project being proposed. This is critical to obtaining
loan approval and funding for the facility.
Elements of a Business Plan
The ability to professionally package and present my proposals, I believe,
has been a major advantage in getting my deals funded. My plans spell out
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very succinctly what I am going to do, when I am going to do it, and how I
plan to do it. In my opinion, there are seven critical elements that should be
included in any business plan and subsequently, your loan application:
7 Essential Elements of a Loan Application
1. Projected Financial Statement
2. Amount of Funds Requested
3. Requested loan terms and Length
4. Source of Repayment and collateralization
5. History of and nature of the Business
6. Repayment of the loan (including plan B should things go awry)
7. Timeframe for approval
I try to summarize those first 7 questions on the first 2 pages of my
business plan to make it easy for the lender to get a quick snapshot of what I’m
attempting to achieve. Remember, you are relying on your loan officer to present
this request for you to the loan committee, so make it as all-inclusive, yet as
simple as possible for him to do in your absence.
Your ability to prepare your
loan officer for this task will be the key element in gaining loan approval for your
new facility.
Do not, I repeat, DO NOT send him or her in to the committee or the
board with a disorganized, unprofessional mess of papers, and don’t leave
it up to him or her to explain why you should be approved for the loan. I
spell this out myself in my business plan which highlights my experience, past
successes, and my confidence in the project being proposed. They should come
to the conclusion that if they don’t fund this loan for me, then the competition
certainly will.
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Plan Format
My plan is written as a combination business plan and loan application
that focuses primarily on the subject property I want to acquire. It includes a
summary of my past experience and successes, my present portfolio of real
estate, and pertinent financial data, but the primary focus is on the deal.
The reasoning behind my format is that a self storage facility is not a
business that requires many employees, vast amounts of inventory, or major
amounts of machinery to manufacture, distribute, or sell a product. With self
storage, the emphasis is on the care of a single asset, and the plan is a
representation of my ideas for the efficient and effective management of the
facility. I’m not downplaying my ability as a borrower, but in commercial real
estate, the lender tends to look more to the performance of the asset than the
Below is a sample outline of a loan proposal and business plan. A good
plan is professional, grammatically correct, free from spelling errors, logically
organized, and most importantly, thorough. We will discuss these elements in
the pages that follow.
1. Summary Page
a. Borrower name and the entity that will hold title to the facility
b. Property Legal Description
c. Purpose of the loan
d. Loan amount and terms requested
e. Loan Ratio, or Loan To Value (LTV) requested
f. Collateral and source(s) of repayment
g. Financial Summary
2. Market Summary and Analysis
a. Area map including facility, and photos of the facility
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b. Demographics: Population, growth, employment, & income
c. Market Trends
3. Neighborhood Analysis
a. Location Description in relation to customer base
b. Market position
c. Competition
4. Property Description
a. Site plan and analysis
b. Aerial and or Satellite Photo (
c. Property Photos
d. Property Description and Rent Roll
e. Improvement plans
f. Management Summary
g. Marketing Plan
5. Financial Data
a. 3-year historical financial performance (if possible)
b. 3-year projection of operations
c. Basis for these assumptions
d. Source and use of Funds requested
6. Borrower data
a. Ownership structure and Entity
b. Background and experience of principal
c. Personal Financial Statement of borrower
7. Exhibits
a. Building and site plans
b. Survey
c. Sample Lease
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I will now discuss each section in detail and provide examples of the
information that should be included for the lender:
Summary Page
A single page summary of the proposal presents the property and the loan
request in Table Form. The summary contains all pertinent facts about the
proposed facility and serves as an introduction to the project. It also serves as a
quick reference for deal points so that anyone looking for the pertinent data does
not have to search through the whole proposal to find an answer.
My layout is simple and concise. The headings address the pertinent
questions of identifying the borrower, the property, and the purpose of the loan,
the amount of funds needed and the terms for repayment, and the security and
the source of repayment. Requested lending ratios are listed as well. Typically,
the LTV and debt coverage ratios are the first calculations any lender performs
when evaluating a loan request. I make it easy to find and discuss. I also
highlight the operations and furnish supporting documentation for further
The summary supplies the answers to the most pertinent details of the
project. The rest of my proposal will support the highlights with facts, figures,
and further clarification.
Loan Request Summary
Brownsburg Crossing Self Storage
1234, Secure Way, Brownsburg, IN 41111
143 Unit, 25,200 s.f. self storage facility on 4.1 acres
Alcatraz Storage, LLC, Scott Meyers, Managing
Purpose of Loan:
To fund the purchase of the existing facility and
$15,000 in site improvements.
Loan Amount
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Terms Requested:
Fixed Rate Permanent loan at 80% LTV amortized
over 30 years at current market rate, with no prepayment penalty.
1st Mortgage on subject property with assignment of
Rents and security deposits
Estimated Appraisal value of $1,750,000
Source of Repayment:
Proceeds from the Net Operating Income of the
Projected Stabilized Income:
Year 1
Year 2
Year 3
$ 43,568
$ 43,124
$ 43,078
Following the summary page and prior to the market analysis, I will insert
maps that depict the location from both a regional, street level, and satellite
basis. A local lender will invariably know the neighborhood and immediately be
able to zero in on the location, creating a familiar feel right away
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Maps are readily available and free at websites such as
and Satellite Maps are available at which
adds just another degree of professionalism and credibility to your plan.
A local map showing the property relative to area neighborhoods and
services adds detail to the discussion regarding market position. For example, I
show the location of the project in relation to any multi-family apartments, high
density neighborhoods, and proximity to other retail related services when
possible. I also try to stress visibility if the facility is located on a major road with
high traffic counts.
Area Description
Most lenders already possess this data in lengthy form, so I prefer to use
bullet points to highlight the major points. This also lets them know that I have
done my homework and that I have a good grasp of the market I am planning to
invest in. I will draw this from the demographic reports available at, and a sample of what I include in my plan is as follows:
Brownsburg, IN, Hendricks County
72 square miles
125,789 residents
13 miles west of Indianapolis city center
Highly accessible with a major highway, I-74, running through the city with
an exit ½ mile from the subject facility.
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Indianapolis International Airport is located just 15 minutes away in
neighboring Marion County.
Major Employers include Hart Publishers, St. Vincent Hospital, and
several Motor sport related Industrial complexes.
Strong employment statistics: 2006 unemployment rate below 4%
Average household income: $52,154
Population growth trend +3.5% per year
Market Position
The information regarding the market should make the case for the
project’s viability. Again, I use bullet points to highlight the appropriate
information. I typically use Information from the website of the local planning
office, economic development department, and/or the local chamber of
commerce. Also, be sure to credit the source or use your own words when doing
so: Don’t cut and paste from the website. Most likely, the lender and the
committee members will be familiar with the local area’s literature, but it doesn’t
hurt to re-state, and once again, it stresses your credibility in doing your
Brownsburg Crossing Self Storage
25,200 square foot self storage facility
Located off Dale Schrier Dr. near the intersection of S.R. 267 and 56th
Streets. Also visible from I-74 on the North Side.
Traffic count of 25,000 vehicles per day along 56th st.
Less than one mile north of downtown Brownsburg off S.R. 267.
Central to community facilities in a popular retail area.
17,543 households within three miles
Average Annual Household income = $52,154
Steady population increase of 3.5% over past 5 years
Two competing self storage facilities nearby averaging 85% occupancy
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Located directly across from the Brownsburg Crossing Apartments, a 560
unit apartment complex
Significant barriers to entry for new competition due to the City of
Brownsburg’s reluctance to award zoning, and the rising cost of
developable parcels.
The list should focus on factors that accurately reflect growth and stability in
the area where the facility is located. The goal is to establish that the market
exists to support the facility and my projections for future viability. Location in
relation to high density neighborhoods and apartment complexes along with
employment centers and other high traffic generators such as retail are key
indicators that the project will sustain itself. If the market is not doing so well, I
am sure to include information with regard to how our management efficiencies
will allow the facility to achieve above average occupancy.
I am also careful not to ignore the likelihood of new competition. Local
planning departments can provide information regarding proposed construction
projects. If there are significant barriers to entry for new competition, then I will
mention that fact and stress the point. However, I don’t want to give the
impression that although the lack of available land and difficult zoning actually
benefits the existing facilities, but declining populations or high unemployment
creates problems for all facilities.
The competition includes information for the subject facility and the
pertinent information for each direct competing facility. The following is an
example from the information gathered through The Self Storage Demand
Estimator we discussed earlier, as sample of which is included in the Appendix
and on the forms CD:
Competitive Supply within 5 Mile Radius
Square Feet
# of Units
$Rent/Square Ft.
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Access Self Storage
Best Self Storage
AAA Self Storage
U-Save Self Storage
You can include further detail from the SSA Self Storage Demand
Estimator with regard to demand and supply and an estimate of overall
occupancy, but it may not be required. The point I am trying to make is that once
again, I am demonstrating that the competition has been evaluated and the
project is properly positioned. I will then summarize my opinion of the market
position with regard to the subject facility and state my conclusions regarding
future demand.
Property Description
This section details the actual physical features of the facility and includes
photos, site plans, surveys, and perhaps charts. Any deferred maintenance
and/or planned improvements are discussed along with a brief discussion of how
I plan to manage the facility after acquisition. The site plan shows the buildings
and improvements to the property, along with a unit breakdown if possible. I also
try to supply an existing survey if I can obtain one from the seller. I will include
the satellite photo as well, and discuss the site’s topography, ingress/egress,
parking, visibility, utilities and any special features such as a retail center,
business office, kiosk, billboards, signage, cell tower, landscaping, etc. that may
be worth noting.
Photos provide an excellent illustration of the facility. An aerial photo
along with the satellite depiction from or from can show proximity to neighborhoods, multi-family
apartment complexes and the competition as discussed above.
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If you are using a customer provided aerial, be sure to include the date
and note any significant changes that have been made since taken.
Facility Photos should include both interior and exterior views. If using a
digital camera and editing software, you can add captions or short descriptions
directly printed on the photo.
I also include a current rent roll summary which shows the unit mix and
corresponding Rental Rates Like the one listed below:
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I will also discuss the facility’s general condition and occupancy history
along with how I plan to improve the property by increasing occupancy,
decreasing expenses, and whether I plan to construct additional buildings, install
a kiosk, security system, fencing, electronic gate, etc. and the associated costs of
Your plan for managing the facility is crucial to getting any loan
approval. If you plan to manage the facility yourself, describe your history and
experience in a format similar to a resume. If this is your first large property with
multiple tenants, highlight your previous experience managing multiple smaller
properties. And if you are new to the industry, focus on your people skills,
organizational acumen, construction or remodeling experience, and all prior
experience in real estate whether you have been a realtor, mortgage broker,
appraiser, surveyor, or property manager; all can be talents you bring to the
I always discuss my experience and expertise in leasing, collections,
maintenance, and my specialty, operations. I will also list the 3 rd party vendors or
contractors I frequently use to handle my lawn/landscaping, painting, door and
spring repair, general maintenance, parking lot sealing/striping, and my property
management software vendor. I will also identify who will be on-site to show
prospective tenants, prepare the leases, take the service calls, and tend to the
day to day operations of the facility, and the proposed hours of operation. If I
plan to use a self serve kiosk for 24 hour leasing and rental payments, I will also
list that here, and include a brochure of our kiosk vendor in the appendix or
attached in the body of the plan as reference along with their website address. In
addition, if I plan to use a call center, I will note the name of the vendor and the
hours I plan to utilize their services in addition to their brochure and website
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Depending upon the location of the facility, the current status of its
marketing efforts, and the nature of any planned expansion, a detailed marketing
plan may be required. The plan may include plans for new or additional signage,
a name change, the yellow page and phone book ads, and perhaps some
sample copy of your ads and brochures that will be available in the leasing office
and distributed to the community. I also include the cost for updating any
existing websites, or for designing one from scratch. For most facilities, a
projection of an annual budget based on ad costs would be a good start. If this is
a turnaround facility, or if I plan to add a significant number of new units, or
specialized storage such as climate control, RV condos, or record storage, I may
plan to expand my marketing efforts to advertise the newly repositioned facility.
Financial Data
The financials are where the proverbial rubber meets the road. This
will determine in the lender’s eyes, as it already has in yours, that the project is
viable. This is the section that will be referenced the most, so I am certain that it
is accurate, and does not conflict with any other financials already presented, or
in any other place in the loan request.
Most lenders like to see three years of operating history, and would also
like to see projections for the following three years after purchase. I am always
certain to explain any abnormalities in the financials should there be any drastic
increases or decreases in income or expenses from the previous 3 years. I
always pay close attention and include as much financial information as possible.
Don’t forget your audience here; these folks want to see as much financial detail
as possible which also includes narrative that tells the whole story. Not only are
the lenders impressed with my preparation, but being thorough gives me
confidence in the deal for my own peace of mind.
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An example of an operating history for a self storage facility, which
includes a pro forma for future years in the last column, is listed below
Gross Rents :
Parking :
Truck Rental
Revenues :
Vacancy :
Lease Variance :
Concessions :
Effective Gross :
Real Estate Tax :
Insurance :
Management :
Utilities :
Payroll & Benefits :
Contract Services :
General & Admin :
Repair & Maintnce:
Advertising :
Other :
Cash Flow
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If rental increases are based on the completion of improvements, be
careful to account for the increased rents. The cash flow will increase over time,
but not all in one year as the leases are almost always staggered, with an
average tenancy running approximately 7 months. I am always certain to be
realistic, both for the lender as well as myself when stating the projections for
future years.
I always check all financial reports as well as all my statements two to
three times for accuracy in reporting. If I make changes to the statements, I am
always certain to change the statements in the text accordingly.
Source and Use of Funds
A statement of source and use details the disbursement of the loan funds
and my equity as borrower. It includes all closing costs including loan origination
fees, attorney fees (if any), recording costs, escrows for survey, appraisal,
environmental report, and any improvement costs. These figures are estimates
and may change as the details of the purchase come together. Below is a
sample source and use statement for the acquisition of a self storage facility:
Source and Use of Funds
Brownsburg Self Storage – 650 N. Dale Schrier Drive, Brownsburg, IN
Borrower – Alcatraz Storage, LLC, by Scott Meyers
Funds Available
Loan Principal Amount
Borrower’s Funds
$ 457,050
Total Funds Available
Acquisition Costs
Purchase Price
Closing Costs
Legal Fees
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Recording costs
Loan Fees
Total Closing Costs
Total Acquisition Costs
Balance of Funds Available
This is final evidence of thinking the deal through. Addressing the
transaction cost in an orderly fashion demonstrates that I have performed the
necessary homework to establish the overall feasibility of the deal. If the facility
plan includes loan proceeds to fund any improvements or expansion, I will
include a line item schedule of funds requested.
Borrower/Entity Structure
Every lender needs to know who the borrower is. I always set up a
separate legal entity, typically an LLC, to hold title to each facility I
purchase. I will include details of the ownership structure including percentage
of ownership and a copy of the articles of incorporation, approved by the state of
Indiana, and a copy of my operating agreement. In addition, I will list my tax
attorney, and legal counsel for reference.
Background of Principals
The final section of my loan proposal includes a very lengthy “hero file”
where I detail my past experience and investment successes. It is a separate,
spiral bound booklet that lists in detail a breakdown of the deals I’ve done in the
past, highlighting the profits on the sale of each property. I will also include a list
of current facilities in my portfolio, focusing on the increase in Net Operating
Income of each facility after I acquired the facility and implemented my best
business practices in operations and management. I also include a resume
outlining my formal education and industry training, designations, and a list of my
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awards and recognition. I round out the resume with notes on my family and
extra curricular hobbies and interests. I am a firm believer in adding a
personal touch to my plan which helps to find common ground with my
lenders and the committees that will ultimately review my request.
I include as much information in the package as will help to sell the
project. At times, I may overdo it, but I would rather err on the side of producing
more than enough information for the lender to make a decision, rather than omit
what they may be looking for. Tax returns, detailed vendor contracts, proposals
for improvements, etc. should be referenced as “available for review upon
request, but not included with this proposal”.
I prefer to copy the package on 3-ring paper, and include in a binder with
tabs for reference. Any one of the large office supply stores can assist you with
this document at minimal cost. Remember, our goal is to have our loan
proposal moved to the top of the heap when all the loans are proposed at
the monthly loan committee meeting, and ultimately, given preferential
consideration for being so professional and complete. Make it generic in
nature, but include a formal cover to the bank and lender you are making the
request to. There have been a few occasions where the lender wasn’t able to
fund the loan for some reason, in which case I would retrieve the package and
forward it to another bank to start the process over.
In Summary, when I have taken the time to prepare a thorough business
plan and loan request, it has been given the attention and priority it deserves.
And subsequently, I have had a great deal of success in getting my deals funded,
and grow my business in ways others have failed.
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To learn more about the country’s hottest business, from the nation’s
leading industry expert, please visit Scott on the web at and to purchase the Self Storage Investor’s
Must Have Home Study System, “The Complete Guide to Finding,
Evaluating, and Purchasing Self Storage Facilities”, and to see the next date
and location of the Industry leading 3 day boot camp “The Self Storage
Academy”® held in Indianapolis at Scott’s facilities, and coming to a city
near you!
A Word From the Author:
“Thanks for spending some time reading about the nation’s hottest and simplest
real estate investing strategy! Although I’m biased, I invite you to visit my
website to view the testimonials from all my students and student/partners whom
I have helped to become real estate millionaires, without all the hassles of tenants
and toilets. Having endured a near bankruptcy experience managing over 500
tenants and toilets, I realized that after surviving, and now thriving in real estate
with self storage, my purpose in life was to go out and share my story and
business by teaching other investors that there definitely is a better way to invest
in real estate – a safer way with a greater opportunity to create huge amounts of
wealth, and how to do it much quicker. Since then, I have devoted a large part of
my efforts through the creation of my home study systems, 3-day Self Storage
Academy, and the dozens of 1 day seminars, webinars, and speaking
engagements at the industry’s largest shows, where I reveal all my secrets and
share my business with those wanting to take advantage of what I learned over
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the years. I invite you to do the same by visiting me at, the industry’s largest educational company
designed to provide all the tools for investing in Self Storage. So don’t wait
another day slugging it out with tenants and toilets, or in another weekly meeting
with your boss, go there now and sign up for my free e-zine, or join the, free for the first month, and see what everybody in
real estate is talking about, but that hardly anybody is doing! So Go, DO IT NOW!
About the Author
Scott Meyers, CSSM© has been the president of Alcatraz Storage™ and its
affiliated companies since 1993. Scott began his real estate career by purchasing,
rehabbing, and selling a single family house with no money out of his own
pocket. He took that knowledge and built on it to eventually buy, rehab, and sell
over 75 single family homes in the Indianapolis area valued at over $6,000,000.
He quickly graduated into the into the commercial real estate arena by
purchasing, rehabbing, and selling over 200 Apartment units in 4 separate
developments valued at over $7,000,000. Scott currently owns and manages
Facilities from his home state of Indiana, all the way down to Texas. Scott
received his Certified Self Storage Management Designation (CSSM) through the
National Self Storage Association in September of 2007. Scott was also selected
by The Indianapolis Business Journal for its annual 40 under 40 list of up and
coming Indiana business owners in 2007 for his accomplishments in mentoring
small businesses through his small business incubator, and the many successes
he has enjoyed in his own business, Alcatraz Storage™. Scott was the past
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President of the Central Indiana Real Estate Investors Association (CIREIA), and
the co-founder of the Indiana Real Estate Investors Association (IREIA).
also spent several years as an instructor of the Landlord 101 course through the
University of Indianapolis in partnership with The Central Indiana Real Estate
Investors Association teaching investors the best business practices in managing
rental real estate. Scott received his Certified Apartment Manager (CAM) through
the National Apartment Association in 2004 and was a member from 2001-2006.
Scott has also been a member of the Indiana Chapter of the Young
Entrepreneur’s organization (YEO) since 2000 and has held an Indiana real estate
license since 1998 and has brokered hundreds of deals worth over $12 million
dollars. Scott is also a Crown Financial Ministries instructor and Budget
Counselor, and directs the financial ministries at the church he and his family
attend. Scott attended the University of Michigan and worked 8 years in the
telecommunications and software industries before starting he founded his own
real estate companies.
To find out more about Scott or how to begin investing in Self Storage, You can
contact Scott by going to
Glossary of Terms
Absorption rate The amount of space of a particular property type that is
leased compared to the amount of that same type of space available for lease
within a certain geographic area over a given period.
Abstract of title The condensed history of a title to a particular parcel of real
estate, consisting of a summary of the original grant and all subsequent
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conveyances and encumbrances affecting the property and a certification by the
abstractor that the history is complete and accurate.
Acceleration clause The clause in a mortgage or deed of trust that can be
enforced to make the entire debt due immediately if the borrower defaults on an
installment payment or other covenant.
Acceptance The offeree’s consent to enter into a contract and to be bound by
the terms of the offer. Legally, acceptance is not complete until communicated to
the offeror.
Access Right The right of ingress and egress to and from property.
Access Control System An electronic security system that allows the customer
to get in and out of the facility gate.
Accrual Basis Accounting The method of accounting that involves entering
amounts of income when they are earned and amounts of expense when they
are incurred-even though the cash may not be received or paid.
Accrued items On a closing statement, items of expense that are incurred but
not yet payable, such as interest on a mortgage loan or taxes on real property.
Acknowledgment A formal declaration made before a duly authorized officer,
usually a notary public, by a person who has signed a document.
Acre A measure of land equal to 43,560 square feet, 4,840 square yards, 4,047
square meters, 160 square rods or .4047 hectares.
Actual Cash Value (ACV) Insurance that pays a claim based on the purchase
price of the item, usually allowing for depreciation because of age and use.
Actual Eviction The legal process that results in the tenant’s being physically
removed from the leased premises.
Actual Notice Express information or fact: that which is known: direct
Addendum An addition to a written document. Addenda is the plural.
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Adjustable-rate mortgage (ARM) A loan characterized by a fluctuating interest
rate, usually one tied to a bank or savings and loan association cost-of-funds
Ad valorem tax A tax levied according to value, generally used to refer to real
estate tax. Also called the general tax.
Adverse possession The actual, open, notorious, hostile and continuous
possession of another’s land under a claim of title. Possession for a statutory
period may be a means of acquiring title.
Affidavit of Title A written statement, made under oath by a seller or grantor of
real property and acknowledged by a notary public, in which the grantor (1)
identifies himself or herself and indicates marital status, (2) certifies that since the
examination of the title on the date of the contracts no defects have occurred in
the title and (3) certifies that he or she is in possession of the property.
Agency The relationship between a principal and an agent wherein the agent is
authorized to represent the principal in certain transactions.
Agent One who acts or has the power to for another. A fiduciary relationship is
created under the law of agency when a property owner, as the principal,
executes a listing agreement or management contract authorizing a licensed real
estate broker to be his or her agent.
Air lot a designated airspace over a piece of land. An air lot, like surface
property, may be transferred.
Air rights The right to use the open space above a property, usually allowing
the surface to be used for another purpose.
Alienation The act of transferring property to another. Alienation may be
voluntary, such as by gift or sale, or involuntary, as through eminent domain or
adverse possession.
Alienation Clause The clause in a mortgage or deed of trust that states that the
balance of the secured debt becomes immediately due and payable at the
lender’s option if the property is sold by the borrower. In effect this clause
prevents the borrower from assigning the debt without the lender’s approval.
Amenity An aspect of a property that enhances its value.
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American Land Title Association (ALTA) policy A title insurance policy that
protects the interest in a collateral property of a mortgage lender who originates a
new real estate loan.
Amortized Loan A loan in which the principal as well as the interest is payable
in monthly or other periodic installments over the term of the loan.
Ancillary Products Additional products that can be sold at the facility for
additional income such as locks, packing and moving supplies, truck rental, mail
boxes, overnight shipping; etc.
Ancillary Income In addition to the rental income, most facilities will have
additional income from products or services other than rent such as merchandise
sales, late fees, default fees, truck rentals, etc.
Annual Percentage rate (APR) The relationship of the total finance charges
associated with a loan. This must be disclosed to borrowers by lenders under
the Truth-in-Lending Act.
Antitrust Laws Laws designed to preserve the free enterprise of the open
marketplace by making illegal, certain private conspiracies and combinations
formed to minimize competition.
Application A form used to record pertinent information concerning a
prospective mortgagor and the proposed security.
Apportionment A prorated division and distribution of prepaid or accrued taxes,
prepaid insurance premiums, prepaid rents and other income and expenses.
Apportionment usually occurs when a property is sold, and is the manner of
determining the amounts due to and from the party.
Appraisal An estimate of the quantity, quality or value of something. The
process through which conclusions of property value are obtained; also refers to
the report that sets forth the process of estimation and conclusion of value.
Appreciation An increase in the worth or value of a property due to economic or
related causes, which may prove to be either temporary or permanent; opposite
of depreciation.
Appurtenance A right, privilege, or improvement belonging to, and passing with,
the land.
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Appurtenant easement An easement that is annexed to the ownership of one
parcel and allows the owner the use of the neighbor’s land.
Asbestos A mineral once used in insulation and other materials that can cause
respiratory diseases.
Assemblage The combining of two or more adjoining lots into one larger tract to
increase their total value.
Assessment The imposition of a tax, charge or levy, usually according to
established rates.
Assignment The transfer in writing of interest in a bond, mortgage, lease or
other instrument.
Assumption of Mortgage Acquiring title to property on which there is an
existing mortgage and agreeing to be personally liable for the terms and
conditions of the mortgage, including payments.
Attachment The act of taking a person’s property into legal custody by writ or
other judicial order to hold it available for application to that person’s debt to a
Auction An auction is the process of selling the customer’s stored goods to the
highest bidder.
Auction Recovery Ratio This number is the percentage of money received
from an auction versus the amount that was owed by the customer. To calculate
this number, take the amount owed divided by the amount received at auction.
Audit The official examination and verification of bookkeeping accounts for the
purpose of providing the accuracy of the figures and adequacy of accounting
controls. For Self Storage A review of the storage facility’s records and
physical occupancy. Audits are performed to ascertain the validity and reliability
of information, and also provide an assessment of a company’s internal control.
Automated Underwriting Computer systems that permit lenders to expedite the
loan approval process and reduce lending costs.
Automatic Extension A clause in a listing agreement that states that the
agreement will continue automatically for a certain period of time after its
expiration date. In many states, use of this clause is discouraged or prohibited.
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Automatic Stay In bankruptcy law, an automatic stay is a measure which halts
all actions by creditors to collect debts from a debtor who has declared
bankruptcy. Under section 362 of the United States Bankruptcy Code, 11 U.S.C.
section 362, the stay begins at the moment the bankruptcy petition is filed.
Secured creditors may, however, petition the bankruptcy court for relief from the
automatic stay upon a showing of good cause.
Bailment Describes a legal relationship in common law where physical
possession of personal property is transferred from one person (the bailor) to
another person (the bailee) who subsequently holds possession of the property.
Balance The appraisal principle that states that the greatest value in a property
will occur when the type and size of the improvements are proportional to each
other as well as the land.
Balance sheet A statement of financial condition of a business organization
showing assets, liabilities, capital, and including net worth as of a given date.
Balloon Payment A final payment of a mortgage loan that is considerably larger
than the required periodic payments because the loan amount was not fully
Bankruptcy A state of financial insolvency of an individual or organization; the
inability to pay debts.
Base Line The main imaginary line running east and west and crossing a
principal meridian at a definite point, used by surveyors for reference in locating
and describing land under the rectangular survey system of legal description
Basis The financial interest that the Internal Revenue Service attributes to an
owner of an investment property for the purpose of determining annual
depreciation and gain or loss on the sale of the asset. If a property was acquired
by purchase, the owner’s basis is the cost of the property plus the value of any
capital expenditures for improvements to the property, minus any depreciation
allowable or actually taken. This new basis is called the adjusted basis.
Basis Point One one-hundredth of one percent. Used to describe the amount
of change in yield in many debt instruments, including mortgages.
Bench mark A permanent reference mark or point established for use by
surveyors in measuring differences in elevation.
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Beneficiary The person for whom a trust operates or in whose behalf the
income from a trust estate is drawn. A lender in a deed of trust loan transaction.
Binder An agreement that may accompany an earnest money deposit for the
purchase of real property as evidence of the purchaser’s good faith and intent to
complete the transaction.
Blanket loan A mortgage covering more than one parcel of real estate,
providing for each parcel’s partial release from the mortgage lien upon
repayment of a definite portion of the debt.
Bollard A steel pipe placed near building corners, gate operators, and utility
meters to protect from vehicles.
Bollard covers Are prefabricated sleeves that slip over the steel bollards to
reduce the painting maintenance necessary to preserve their appearance.
Book Cost The actual cost of assets purchased or acquired.
Book Value The capitalized cost of an asset less depreciation taken for
accounting purposes based upon the method used for the computation of
depreciation over the useful life of the asset. Also, the actual value of an asset
after the deduction of depreciation and all liabilities is the net book value.
Boot Money or property given to make up any difference in value or equity
between two properties in an exchange.
Breach of Contract violation of any terms or conditions in a contract without
legal excuse: for example, failure to make a payment when it is due.
Break-Even Point In residential or commercial property, the figure at which
occupancy income is equal to all required expenses and debt service.
Broker One who acts as an intermediary on behalf of others for a fee or
Brokerage The bringing together of parties interested in making a real estate
Budget An estimation of income and expenses over a specific time period for a
particular property, project, or institution.
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Buffer Zone A strip of land, usually used as a park or designated for a similar
use, separating land dedicated to one use from land dedicated to another use.
Building Code An ordinance that specifies minimum standards of construction
for buildings to protect public safety and health.
Building Permit Written governmental permission for the construction,
alteration or demolition of an improvement, showing compliance with building
codes and zoning ordinances.
Bundle of legal rights The concept of land ownership that includes ownership of
all legal rights to the land-for example, possession, control within the law and
Buydown A financing technique used to reduce the monthly payments for the
first few years of a loan. Funds in the form of discount points are given to the
lender by the builder or seller to buy down or lower the effective interest rate paid
by the buyer, thus reducing the monthly payments for a set time.
Call Provision In the mortgage or deed of trust, a clause giving the mortgagee
or beneficiary the right to accelerate payment of the mortgage debt in full on a
certain date or on the happening of specified conditions.
Capital Budget An estimate of costs of major improvements or replacements;
generally a long-range plan for improvements to a property.
Capital Gain Profit earned from the sale of an asset.
Capitalization A mathematical process for estimating the value of a property
using a proper rate of return on the investment and the annual net operating
income expected to be produced by the property. The formula is expressed as
Income = Value
Capitalization Rate The rate of return a property will produce on the owner’s
Capital Improvement A structural addition or betterment to real property that
increases its useful life; the use of capital for a betterment that did not exist
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Carrying Charges Costs incurred by a developer or builder. Principally, interest
on land and construction loans and property taxes to cover expenses until the
point of sale.
Cash Flow The net spendable income from an investment, determined by
deducting all operating and fixed expenses from the gross income.
Cash-basis-Accounting The method of accounting that recognizes income and
expenses when money is actually received or paid.
Cash-on-Cash Return The rate of return on an investment measured by the
cash returned to the investor based on the investor’s cash investment without
regard to income tax savings or the use of borrowed funds.
Caveat Emptor A Latin phrase meaning “Let the buyer beware”.
Certificate of Sale The document generally given to the purchaser at a tax
foreclosure sale. A certificate of sale does not convey title: normally it is an
instrument certifying that the holder received title to the property after the
redemption period passed and that the holder paid the property taxes for that
interim period.
Certificate of Title A statement of opinion on the status of the title to a parcel of
real property based on an examination of specified public records.
Chain of Title The succession of conveyances, from some accepted starting
point, whereby the present holder of real property derives title.
Change Order A change in the original plan of construction by a building owner
or the general contractor.
Chart of accounts Numerical designation of each asset, liability and capital
Chattel Personal Property
Clear Title Title not encumbered or burdened with defects.
Climate Controlled Generally, climate control keeps temperatures below 90
degrees in summer and above 40 degrees in the winter. Humidity is kept below
60 percent to prevent mold and mildew.
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Closing Statement A detailed cash accounting of a real estate transaction
showing all cash received, all charges and credits made and all cash paid out in
the transaction.
Close ratio The percentage of the number of people whi inquired about storage
versus the number of storage spaces actually rented.
Cloud on Title Any document, claim, unreleased lien or encumbrance that may
impair the title to real property or make the title doubtful; usually revealed by a
title search and removed by either a quitclaim deed or suit to quiet title.
Code of Ethics A written system of standards for ethical conduct.
Code out of Gate When an employee or the software automatically deactivates
the customer gate code access into the storage facility.
Coinsurance clause A clause in insurance policies covering real property that
requires the policyholder to maintain fire insurance coverage generally equal to
at least 80 percent of the property’s actual replacement cost.
Collateral Property pledged as security for a debt, such as the real estate
securing a mortgage.
Commingling The illegal act by a real estate broker of placing client or
customer funds with personal funds. By law brokers are required to maintain a
separate trust or escrow account for other parties’ funds held temporarily by the
Commitment An agreement between a lender and a borrower to loan money at
a future date subject to compliance with stated conditions.
Commission Payment to a broker for services rendered, such as in the sale or
purchase of real property; usually a percentage of the selling price of the
Common Law The body of law based on custom, usage and court decisions.
Comparables Properties used in an appraisal report that are substantially
equivalent to the subject property.
Competition The appraisal principle that states that excess profits generate
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Competitive Market Analysis (CMA) A comparison of the prices of recently
sold properties that are similar to a listing seller’s property in terms of location,
style and amenities.
Completion Bond A bond furnished by a contractor to guarantee completion of
Concession An economic incentive granted by an owner to encourage the
leasing of space or the renewal of a lease.
Condemnation A judicial or administrative proceeding to exercise the power of
eminent domain, through which a government agency takes private property for
public use and compensates the owner.
Conditional use permit Written governmental permission allowing a use
inconsistent with zoning but necessary for the common good, such as locating an
emergency medical facility in a predominantly residential area.
Condominium A multiple-unit structure in which the units and pro rata shares of
the common areas are owned individually; a unit in a condominium property.
Conformity The appraisal principle that holds that the greater the similarity
among properties in an area, the better they will hold their value.
Consideration (1) that received by the grantor in exchange for his or her deed.
(2) Something of value that induces a person to enter into a contract.
Constructive Notice Notice given to the world by recorded documents. All
people are charged with knowledge of such documents and their contents,
whether or not they have actually examined them. Possession of property is also
considered constructive notice that the person in possession has an interest in
the property.
Containerized Storage Individual storage containers that are picked up and
delivered to the customer.
Contingency A provision in a contract that requires a certain act to be done or a
certain event to occur before the contract becomes binding.
Contract A legally enforceable promise or set of promises that must be
performed and for which, if a breach of the promise occurs, the law provides a
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remedy. A contract may be either unilateral, by which only one party is bound to
act, or bilateral, by which all parties to the instrument are legally bound to act as
Contribution The appraisal principle that states that the value of any
component of a property is what it gives to the value of the whole or what its
absence detracts from that value.
Conventional loan A loan that requires no insurance or guarantee.
Conversion In development terms the term refers to an existing building that
has been converted into a storage facility.
Conversion Ratio The average number of prospects who visit a rental property
compared to the number who sign a lease.
Conveyance A term used to refer to any document that transfers title to real
property. The term is also used in describing the act of transferring.
Co-ownership Title ownership held by two or more persons.
Corporation An entity or organization, created by operation of law, whose rights
of doing business are essentially the same as those of an individual. The entity
has continuous existence until it is dissolved according to legal procedures.
Corrective maintenance Ordinary repairs that must be made to a building and
its equipment on a day-to-day basis.
Cost Approach The process of estimating the value of a property by adding to
the estimated land value the appraiser’s estimate of the reproduction or
replacement cost of the building, less depreciation.
Cost recovery An Internal Revenue Service term for depreciation.
Counteroffer A new offer made in response to an offer received. It has the
effect of rejecting the original offer, which cannot be accepted thereafter unless
revived by the offeror.
Coupon rate The annual interest rate on a debt instrument. More generally,
the annual interest rate on any indebtedness .
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Covenant A written agreement between two or more parties in which a party or
parties pledge to perform or not perform specified acts with regard to property;
usually found in such real estate documents as deeds, mortgages, leases and
contracts for deed.
Covenant of quiet enjoyment The covenant implied by law by which a landlord
guarantees that a tenant may take possession of leased premises and that the
landlord will not interfere in the tenant’s possession or use of the property.
Covered parking Storage spaces designed to accommodate vehicle parking
and to protect the customer’s vehicle.
Credit On a closing statement, an amount entered in a person’s favor-either an
amount the party has paid or an amount for which the party must be reimbursed.
Credit Rating A rating given a person or company to establish credit worthiness
based upon present financial condition, experience and past credit history.
Credit Report A report to a prospective lender on the credit standing of a
prospective borrower, used to help determine credit worthiness.
Curb Appeal General cleanliness, neatness, and attractiveness of a building as
exemplified by the appearance of the exterior and grounds and the general level
of housekeeping.
Cylinder Lock A locking system in which a cylinder must rotate in order to open
the lock. The cylinder may be held in place by a variety of locking mechanisms.
Debenture An unsecured debt instrument backed only by the general credit
standing and earning capacity of the issuer.
Debit On a closing statement, an amount charged; that is, an amount that the
debited party must pay.
Debt coverage ratio The ratio of effective annual net income to annual debt
Debt Service Regular payments of the principal and interest on a loan.
Decedent A person who has died.
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Declaration A legal document that creates a condominium. The document
describes the condominium, defines the method of determining each unit owner’s
share of the common elements, and outlines the responsibilities of the owners
and the association.
Dedication The volunteer transfer of private property by its owner to the public
for some private use, such as for streets or schools.
Deductible In insurance, a specified amount the insured party must pay before
the insurer pays on a claim.
Deed A written instrument that, when executed and delivered, conveys title to or
an interest in real estate.
Deed in lieu of foreclosure A deed given by the mortgagor to the mortgagee
when the mortgagor is in default under the terms of the mortgage. This is a way
for the mortgagor to avoid foreclosure.
Deed in trust An instrument that grants a trustee under a land trust full power to
sell. Mortgage and subdivide a parcel of real estate. The beneficiary controls
the trustee’s use of these powers under the provisions of the trust agreement.
Deed Restrictions Clauses in a deed limiting the future uses of the property.
Deed restrictions may impose a vast variety of limitations and conditions.
Default The nonperformance of a duty, whether arising under a contract or
otherwise; failure to meet an obligation when due.
Defeasance clause A clause used in leases and mortgages that cancels a
specified right upon the occurrence of a certain condition, such as cancellation of
a mortgage upon repayment of the mortgage loan.
Defect of record Any encumbrance on a title that is made a part of the public
record. Some recorded defects are judgments, mortgages, other liens, or
Defeasible fee estate An estate in which the holder has a fee simple title that
may be divested upon the occurrence or nonoccurrence of a specified event.
Deferred Maintenance Ordinary maintenance of a building that, because it has
not been performed, negatively affects the use, occupancy, and value of the
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Deficiency judgment A personal judgment levied against the borrower when a
foreclosure sale does not produce sufficient funds to pay the mortgage debt in
Delinquent The status of a mortgage with a payment past due.
Demand The amount of goods people are willing and able to buy at a given
price; often coupled with supply.
Demised premises That portion of a property covered by a lease agreement,
usually defined by the walls and other structures that separate one tenant’s
space from that of another.
Demographic profile A compilation of social and economic statistics for a
specific population, usually within a geographic area.
Density zoning Zoning ordinances that restrict the maximum average number
of houses per acre that may be built within a particular area, generally a
Deposit (1) A sum of money given to bind a sale of real estate, or (2) a sum of
money given to assure payment or an advance of funds in the processing of a
loan. Also known as earnest money.
Depreciation (1) In appraisal, a loss of value in property due to any cause,
including physical deterioration, functional obsolescence and external
obsolescence. (2) In real estate investment, an expense deduction for tax
purposes taken over the period of ownership of income property.
Developer One who attempts to put land to its most profitable use through the
construction of improvements.
Devise A gift of real property by will. The donor is the devisor, and the recipient
is the devisee.
Digital Video Recorder A complete state of the art digital video system will
typically include quality closed circuit digital cameras connected to a digital video
recorder system (DVR). This setup allows for password-protected viewing of live
and recorded video at the DVR and/or from a PC or PDA connected to the
Internet or to a LAN.
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Disc locks A high security round lock that is designed with a small shank that
makes it difficult to cut-off with bolt cutters.
Discount point A unit of measurement used for various loan charges; one point
equals 1 percent of the amount of the loan.
Dispossess To obtain physical possession of property by due process of law.
Doctrine of Strict Compliance To the self storage employee, this term means
that it is important to adhere to your state’s lien law. Legally, there is very little
room for any error made in the lien process, and the procedure should always
comply with the statutory requirements set forth by the law.
Dollar Delinquency rate this rate is calculated by taking the total dollars
delinquent divided by the projected rent. A target range of 15-20% is considered
Dominant tenement A property that includes in its ownership the appurtenant
right to use an easement over another person’s property for a specific purpose.
Dual agency Representing both parties to a transaction. This is unethical
unless both parties agree to it, and it is illegal in many states.
Due Diligence After selecting the potential site or facility, the investor needs to
ascertain accurate information regarding the physical asset, financial
performance, tenant base and future prospects for the subject property. Due
diligence helps the investors accomplish those tasks. Due diligence can provide
in-depth data and insights for these areas and mitigate the risk for the
Due-on-sale clause A provision in the mortgage that states that the entire
balance of the note is immediately due and payable if the mortgagor transfers
(sells) the property.
Duress Unlawful constraint or action exercised upon a person whereby the
person is forced to perform an act against his or her will. A contract entered into
under duress is voidable.
Earnest money Money deposited by a buyer under the terms of a contract, to
be forfeited if the buyer defaults but applied to the purchase price if the sale is
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Easement A right to use the land of another for a specific purpose, such as for a
right-of-way or utilities; an incorporeal interest in land.
Easement by condemnation An easement created by the government or
government agency that has exercised its right under eminent domain.
Easement by necessity An easement allowed by law as necessary for the full
enjoyment of a parcel of real estate; for example, a right of ingress and egress
over a grantor’s land.
Easement by prescription An easement acquired by continuous, open and
hostile use of the property for the period of time prescribed by state law.
Easement in gross an easement that is not created for the benefit of any land
owned by the owner of the easement but that attaches personally to the
easement owner.
Economic life The number of years during which an improvement will add value
to the land.
Economic Occupancy To calculate the economic occupancy of a facility, add
all forms of rent collected and divide by the Gross Potential of all rented units at
the advertised prices. Normal variance is 4 to 6%
Economic Value The valuation of real property based on its earning
Effective Gross income The total amount of income actually collected during a
reporting period; the gross receipts of a property. Gross potential rental income
less vacancy and collection losses plus miscellaneous or unscheduled income.
Egress To go out. It is used with the word ingress to describe the right to
access land.
Emblements Growing crops, such as grapes and corn, that are produced
annually through labor and industry; also called fructus industriales.
Eminent domain The right of a government or municipal quasi-public body to
acquire property for public use through a court action called condemnation, in
which the court decides that the use is a public use and determines the
compensation to be paid to the owner.
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Employee Someone who works as a direct employee of an employer and has
employee status. The employer is obligated to withhold income taxes and social
security taxes from the compensation of employees.
Employment contract A document evidencing formal employment between
employer and employee or between principal and agent. In the real estate
business this generally takes the form of a management agreement or state
required employee/employer documents.
Enabling Acts State legislation that confers zoning powers on municipal
Encapsulation A method of controlling environmental contamination by sealing
off a dangerous substance.
Encroachment A building or some portion of it-a wall or fence for instance-that
extends beyond the land of the owner and illegally intrudes on some land of an
adjoining owner or a street or alley.
Encumbrance Anything-such as a mortgage, tax, or judgment lien, an
easement, a restriction on the use of the land or an outstanding dower right-that
may diminish the value or use and enjoyment of a property.
Endorsement An attachment to an insurance policy that provides or excludes a
specific coverage for a specific portion or element of a property; also called a
Environmental Protection Agency (EPA) The agency of the U.S. government
established to enforce laws that preserve and protect the environment.
Equal Credit Opportunity Act (ECOA) The federal law that prohibits
discrimination in the extension of credit because of race, color, religion, national
origin, sex, age or marital status.
Equal Employment Opportunity Commission (EEOC) A U.S. governmental
body created under Title VII of the Civil Rights Act of 1964 to end discrimination
in the workplace.
Equalization The raising or lowering of assessed values for tax purposes in a
particular county or taxing district to make them equal to assessments in other
counties or districts.
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Equitable right of redemption The right of a defaulted property owner to
recover the property prior to its sale by paying the appropriate fees and charges.
Equitable title The interest held by a vendee under a contract for deed or an
installment contract; the equitable right to obtain absolute ownership to property
when legal title is held in another’s name.
Equity The interest or value that an owner has in property over and above any
Equity of redemption The common law right to redeem property before the
foreclosure sale. In some states, the mortgagor has a statutory right to redeem
property after a foreclosure sale.
Erosion The gradual wearing away of land by water, wind and general weather
conditions; the diminishing of property by the elements.
Escalation Clause In a lease, a provision for increases in rent based on
increases in operating costs, sometimes based on a standard index such as the
Consumer Price Index to account for inflation.
Escheat The reversion of property to the state or county, as provided by state
law, in cases where a decedent dies intestate without heirs capable of inheriting,
or when the property is abandoned.
Escrow The closing of a transaction through a third party called an escrow
agent, or escrowee, who receives certain funds and documents to be delivered
upon the performance of certain conditions outlined in the escrow instructions.
Escrow account The trust account established by a broker under the provisions
of the license law for the purpose of holding funds on behalf of the broker’s
principal or some other person until the consummation or termination of a
Escrow instructions A document that sets forth the duties of the escrow agent,
as well as the requirements and obligations of the parties, when a transaction is
closed through an escrow.
Estate The ownership interest that an individual has in real property. The sum
total of all the real and personal property owned by an individual at time of death.
Estate taxes Federal taxes on a decedent’s real and personal property.
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Estoppel Method of creating an agency relationship in which someone states
incorrectly that another person is his or her agent, and a third person relies on
that representation.
Estoppel certificate A document in which a borrower certifies the amount owed
on a mortgage loan and the rate of interest.
Ethics The system of moral principles and rules that becomes standards for
professional conduct.
Eviction A legal process to oust a person from possession of real estate.
Evidence of title Proof of ownership of property; commonly a certificate of title,
an abstract of title with lawyer’s opinion, title insurance or a Torrens registration
Exception In legal descriptions, that portion of land to be deleted or excluded.
Exchange A transaction in which all or part of the consideration is the transfer of
like-kind property (such as real estate for real estate).
Exculpatory clause A clause in a contract holding one party harmless in the
event of some default. For example, the provision in a note that the debtor will
not be held personally liable in the event of a default.
Executed Contract A contract in which all parties have fulfilled their promises
and thus performed the contract.
Execution The signing and delivery of an instrument. Also a legal order
directing an official to enforce a judgment against the property of a debtor.
Express agreement An oral or written contract in which the parties state the
contract’s terms and express their intentions in words.
Extension Continuation past original maturity date: continuation of a
External Depreciation Reduction in a property’s value caused by outside
factors (those that are off the property).
Facility A self storage property.
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Facility Manager A type of real estate manager who, when employed directly by
a corporation that owns real estate incidental to its primary business, may be
responsible for acquisition and disposition in addition to physical upkeep of the
property, record keeping, and reporting on its management, although acquisition
and disposition are likely to be handled separately by a corporate asset manager.
More broadly, the responsibilities involve coordinating the physical workplace
with the people and purpose of the organization.
Fair Credit Reporting Act (FCRA) A federal law that gives people the right to
see and correct their credit records at credit reporting bureaus. It also requires
real estate managers to inform rental applicants if a credit bureau is contracted to
investigate their credit, advise them in writing if a lease is denied because of a
poor credit report, and identify the source of credit information that resulted in
their being denied a lease.
Fair Labor Standards Act (FLSA) The federal law that establishes minimum
wages per hour and maximum hours of work. It also provides that certain
employees who work in excess of forty hours per week are to be paid one and
one-half times their regular hourly wage.
Fair Market value The price paid, or one that might be anticipated as
necessarily payable, by a willing and informed buyer to a willing and informed
seller (neither of whom is under any compulsion to act), if the object sold has
been reasonably exposed to the market.
Feasibility Study A study or analysis that determines whether a real estate
project, proposed or existing, successfully meets desired objectives.
Federal Reserve System The country’s central banking system, which is
responsible for the nation’s monetary policy by regulating the supply of money
and interest rates.
Fee simple absolute The maximum possible estate or right of ownership of real
property, continuing forever.
Feudal system A system of ownership usually associated with pre-colonial
England, in which the king or other sovereign is the source of all rights. The right
to possess real property was granted by the sovereign to an individual as a life
estate only. Upon the death of the individual, title passed back to the sovereign,
not to the decedent’s heirs.
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Fidelity Bond A surety issued by a third party that protects one individual
against financial loss that might result from dishonest acts of another specific
Fiduciary One in whom trust and confidence is placed; a reference to a broker
employed under the terms of a listing contract or buyer agency agreement.
Fiduciary relationship A relationship of trust and confidence, as between
trustee and beneficiary, attorney and client or principal and agent.
Fiscal policy The government’s policy in regard to taxation and spending
programs. The balance between these two areas determines the amount of
money the government will withdraw from or feed into the economy, which can
counter economic peaks and slumps.
Fiscal year Any 12-month period used for financial reporting and preparation of
balance sheets, profit and loss statements and other financial summations.
Fixture An item of personal property that has been converted to real property by
being permanently affixed to the realty.
Flex space Single-story commercial structures that can be configured to
accommodate a single tenant or multiple tenants or with varying proportions of
office and warehouse or manufacturing space according to individual tenants’
Foreclosure A legal procedure whereby property used as security for a debt is
sold to satisfy the debt in the event of default in payment of the mortgage note or
default of other terms in the mortgage document. The foreclosure procedure
brings the rights of all parties to a conclusion and passes the title in the
mortgaged property to either the holder of the mortgage or a third party who may
purchase the realty at the foreclosure sale, free of all encumbrances affecting the
property subsequent to the mortgage.
Forfeiture The loss of money or anything of value due to a failure to perform.
Fortress style construction This is a single sided exterior access building that
is primarily used along a property line.
Fraud Deception intended to cause a person to give up property or a lawful
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Freehold estate An estate in land in which ownership is for an indeterminate
length of time, in contrast to a leasehold estate.
Frontage The property line abutting the most important adjacent property,
usually a street, lake, river or ocean.
Functional obsolescence A loss of value due to an improvement to real estate
arising from functional problems, often caused by age or poor design.
Future interest A person’s present right to an interest in real property that will
not result in possession or enjoyment until some time in the future, such as a
reversion or right of re-entry.
Gap A defect in the chain of title of a particular parcel of real estate; a missing
document or conveyance that raises doubt as to the present ownership of the
Garnishment A proceeding that applies specified monies, wages, or property to
a debt or creditor by proper statutory process against a debtor.
Gate the portion of the fence that is intended for vehicular entrances or exits to
the facility’s driveway. Examples are a Barrier Gate (Arm), Vertical pivot gate,
Horizontal slide gate, Monorail Cantilever Slide Gate, or Swing Gate.
Gate Operator The mechanical device that physically opens and closes the
General agent One who is authorized by a principal to represent the principal in
a specific range of matters.
General Contractor A party that performs or supervises the construction or
development of a property pursuant to the terms of a primary contract with the
owner. The general contractor may use its own employees for this work and/or
the services of other contractors or subcontractors.
General lien The right of a creditor to have all of a debtor’s property-both real
and personal-sold to satisfy a debt.
General partnership The business activity of two or more persons who agree to
pool capital, talents, and other assets according to some agreed-to formula, and
similarly to divide profits and losses, and to commit the partnership to certain
obligations. General partners assume unlimited liability.
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General Warranty Deed A deed in which the grantor fully warrants good clear
title to the premises. Used in most real estate deed transfers, a general warranty
deed offers the greatest protection of any deed.
Goose Neck The stand that holds a gate entry keypad and angles toward the
customer for ease of accessibility from a car.
Graduated Lease A lease providing for a variable rental rate sometimes set
forth in the lease, sometimes determined by a re-appraisal using a predetermined formula.
Grantee A person who receives a conveyance of real property from a grantor.
Granting clause Words in a deed of conveyance that state the grantor’s
intention to convey the property at the present time. This clause is generally
worded as “convey and warrant,” “grant,” “grant, bargain and sell” or the like.
Grantor The person transferring title to or an interest in real property to a
Gross area The total floor area of a building, except that of un-enclosed areas,
measured from the outside of the exterior walls.
Gross income All income that is attributed to the property.
Gross income multiplier A figure used as a multiplier of the gross annual
income of a property to produce an estimate of the property’s value.
Gross lease A lease of property according to which a landlord pays all property
charges regularly incurred through ownership, such as repairs, taxes, insurance
and operating expenses.
Gross leasable area The total floor area designated for tenant occupancy and
on which tenants pay rent. Usually used in describing property used for retail
Gross potential rental income The sum of the rental rates of all spaces
available to be rented in a property, regardless of occupancy; the maximum
amount of rent a property can produce.
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Gross rent multiplier The figure used as a multiplier of the gross monthly
income of a property to produce an estimate of the property’s value.
Ground lease A lease of land only, on which the tenant usually owns a building
or is required to build as specified in the lease.
Guaranty A promise by one party to pay a debt or perform an obligation
contracted by another in the event that the original obligor fails to pay or perform
as contracted.
Habendum clause That part of a deed beginning with the words “to have and to
hold,” following the granting clause and defining the extent of ownership the
grantor is conveying.
Hasp A fastener for a door that can be locked with a padlock.
Hazard insurance A contract whereby an insurer, for a premium, undertakes to
compensate for the insured for loss on a specific property due to certain hazards.
Heir One who might inherit or succeed to an interest in land under the state law
of descent when the owner dies without leaving a valid will.
Hidden defect Any encumbrance on a title that is not apparent in the public
records; for example, unknown heirs, secret marriages, forged instruments,
mental incompetency, or infancy of a grantor.
Highest and best use The possible use of a property that would produce the
greatest net income and thereby develop the highest value.
Holdover tenancy A tenancy whereby a lessee retains possession of leased
property after the lease has expired and the landlord, by continuing to accept
rent, agrees to the tenant’s continued occupancy as defined by state law.
Holographic will A will that is written, dated and signed in the testator’s
Home equity loan A loan under which a property owner uses his or her
residence as collateral and can then draw funds up to a prearranged amount
against the property.
Hypothecate To pledge property as security for an obligation or loan without
giving up possession of it.
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Implied agreement A contract under which the agreement of the parties is
demonstrated by their acts and conduct.
Improvement (1) Any structure, usually privately owned, erected on a site to
enhance the value of the property-for example, building a fence or a driveway.
(2) A publicly owned structure added to or benefiting land, such as a curb,
sidewalk, street or sewer.
Income approach The process of estimating the value of an income-producing
property through capitalization of the annual net income expected to be produced
by the property during its remaining useful life.
Incorporeal right A nonpossessory right in real estate; for example, an
easement or a right-of-way.
Independent contractor Someone who is retained to perform a certain act but
who is subject to the control and direction of another only as to the end result and
not as to the way in which the act is performed. Unlike an employee, an
independent contractor pays for all expenses and Social Security and income
taxes and receives no employee benefits.
Index Method The appraisal method of estimating building costs by multiplying
the original cost of the property by a percentage factor to adjust for current
construction costs.
Inflation The gradual reduction of the purchasing power of the dollar, usually
related directly to the increases in the money supply by the federal government.
Ingress To go in; enter. Used with egress, to describe the right of access to
Inheritance Taxes State-imposed taxes on a decedent’s real and personal
Installment contract A contract for the sale of real estate whereby the purchase
price is paid in periodic installments by the purchaser, who is in possession of the
property even though title is retained by the seller until a future date, which may
not be until final payment.
Installment sale A transaction in which the sales price is paid in two or more
installments over two or more years. If the sale meets certain requirements, a
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taxpayer can postpone reporting such income until future years by paying tax
each year only on the proceeds received that year.
Institutional lender A financial institution that invests in mortgages and carries
them in its own portfolio. Mutual savings banks, life insurance companies,
commercial banks, pension and trust funds, and savings and loan associations
are examples.
Insurance An agreement by one party (the insurer, carrier, insurance company)
to assume part or all of a financial loss in the event of a specified contingency or
peril in consideration of a premium payment by a second party (the insured).
Insurable Title A title on which a title insurance company is willing to issue its
policy of insurance.
Interactive Side Display Is the portion of the surveillance software that
graphically shows all the security functions of a facility.
Intercom An electronic intercommunication system, as between two rooms.
Interest A charge made by a lender for the use of money.
Interim financing A short-term loan usually made during the construction phase
of a building project; typically referred to as a construction loan.
Intestate The condition of a property owner who dies without leaving a valid will.
Title to the property will pass to the decedent’s heirs as provided in the state law
of descent.
Intrinsic value An appraisal term referring to the value created by a person’s
personal preferences for a particular type of property.
Investment Money directed toward the purchase, improvement and
development of an asset in expectation of income or profits.
Involuntary lien A lien placed on property without the consent of the property
Joint tenancy Ownership of real estate between two or more parties who have
been named in one conveyance as joint tenants. Upon the death of a joint
tenant, the decedent’s interest passes to the surviving joint tenant or tenants by
the right of survivorship.
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Joint Venture The joining of two or more people to conduct a specific business
enterprise. A joint venture is similar to a partnership in that it must be created by
agreement between the parties to share in the losses and profits of the venture.
It is unlike a partnership in that the venture is for one specific project only, rather
than for a continuing business relationship.
Judgment The formal decision of a court upon the respective rights and claims
of the parties to an action or suit. After a judgment has been entered and
recorded with the county recorder, it usually becomes a general lien on the
property of the defendant.
Judicial precedent In law, the requirements established by prior court
Junior lien An obligation, such as a second mortgage, that is subordinate in
right or lien priority to an existing lien on the same realty.
Keypad Electronic security access for a gate system.
Kick Plate A guard that protects the hallway corners of interior buildings.
Laches An equitable doctrine used by courts to bar a legal claim or prevent the
assertion of a right because of undue delay or failure to assert the claim or right.
Laminated lock A lock composed of layers of steel bonded together which
hardens and increases strength and durability.
Land The earth’s surface, extending downward to the center of the earth and
upward infinitely into space, including things permanently attached by nature,
such as trees and water.
Landlord One who owns real property that is leased to a tenant.
Landlord-tenant law Laws enacted by various jurisdictions that regulate the
relationship between landlord and tenant.
Landmark In land surveys, any conspicuous object that helps establish land
Latch A moveable, sliding bar, which is part of a lock mechanism that engages
a cut out on a door jam or door rail assembly, keeping the door closed.
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Late Fees A charge imposed against a tenant whose rent is not received by the
due date or grace period.
Latent defect A hidden structural defect that could not be discovered by
ordinary inspection and that threatens the property’s soundness or the safety of
its inhabitants. Some states impose on sellers and licensees a duty to inspect for
and disclose latent defects.
Lease A written or oral contract between a landlord (the lessor) and a tenant
(the lessee) that transfers the right to exclusive possession and use of the
landlord’s real property to the lessee for a specified period of time and for a
stated consideration (rent). By state law leases for longer than a certain period
of time (generally one year) must be in writing to be enforceable.
Leasing agent A person who is directly responsible for renting space in
assigned properties.
Leasehold estate A tenant’s right to occupy real estate during the term of a
lease, generally considered to be a personal property interest.
Lease option A lease under which the tenant has the right to purchase the
property either during the lease term or at its end.
Lease purchase The purchase of real property, the consummation of which is
preceded by a lease, usually long-term. Typically done for tax or financing
Legacy A disposition of money or personal property by will.
Legal Description A description of a specific parcel of real estate complete
enough for an independent surveyor to locate and identify it.
Legally competent parties People who are recognized by law as being able to
contract with others; those of legal age and sound mind.
Lessee The tenant in a lease.
Lessor The landlord in a lease.
Letter of Credit A letter authorizing a person or company to draw on a bank, or
stating that the bank will honor their credit up to the stated amount.
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Leverage The use of borrowed money to finance an investment.
Levy To assess; to seize or collect. To levy a tax is to assess a property and
set the rate of taxation. To levy an execution is to officially seize the property of
a person in order to satisfy an obligation.
Liability insurance Insurance protection against claims arising out of injury or
death of people or physical or financial damage to property.
License (1) A privilege or right granted to a person by a state to operate as a
real estate broker or salesperson. (2) The revocable permission for a temporary
use of land-a personal right that cannot be sold.
Lien A right given by law to certain creditors to have their debts paid out of the
property of a defaulting debtor, usually by means of a court sale.
Lien Theory Some states interpret a mortgage as being purely a lien on real
property. The mortgagee thus has no right of possession but must foreclose the
lien and sell the property if the mortgagor defaults.
Life cycle costing In property management, comparing one type of equipment
to another based on both purchase cost and operating cost over its expected
useful lifetime.
Life estate An interest in real or personal property that is limited in duration to
the lifetime of its owner or some other designated person or persons.
Life Tenant A person in possession of a life estate.
Limited Liability Company (LLC) Created by state statute, a business
ownership form that functions like a corporation-its members are protected from
liability-but for income tax purposes is classified as a partnership. Income and
expenses flow through to the individual members. The arrangement offers
considerable flexibility in its organization and structure.
Limited Partnership (LP) A partnership arrangement in which the liability of
certain partners is limited to the amount of their investment. Limited partnerships
are managed and operated by one or more general partners whose liability is not
limited; limited partners have no voice in management.
Line of Credit An agreement by a commercial bank or other financial institution
to extend credit up to a certain amount for a certain time to a specific borrower.
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Liquidated damages An amount predetermined by the parties to a contract as
the total compensation to an injured party should the other party breach the
Liquidity The ability to sell an asset and convert it into cash, at a price close to
its true value, in a short period of time.
Lis pendens A recorded legal document giving constructive notice that an
action affecting a particular property has been filed in either a state or a federal
Littoral rights (1) a landowner’s claim to use water in large navigable lakes and
oceans adjacent to his or her property. (2) The ownership rights to land
bordering these bodies of water up to the high-water mark.
Loan origination fee A fee charged to the borrower by the lender for making a
mortgage loan. The fee is usually computed as a percentage of the loan amount.
Loan-to-value ratio. The relationship between the amount of the mortgage loan
and the value of the real estate being pledged as collateral.
Lockers A very small storage compartment with a lock usually used to store
very small items.
Loss draft Insurance payments in settlement of a claim for damage to
mortgaged property.
Loss payable clause An insurance policy provision for payment of a claim to
someone, other than the insured, who holds an insurable interest in the covered
Management agreement A contract between the owner of income property and
a management firm or individual property manager that outlines the scope of the
manager’s authority.
Management Fee The monetary consideration paid monthly or otherwise for the
performance of management duties.
Management plan An outline of a property’s physical and fiscal management
that is directed toward achieving the owner’s goals.
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Market A place where goods can be bought and sold and a price established.
Market Analysis An evaluation of supply and demand conditions in a particular
area for a particular type of goods or services. In real estate management, the
process of identifying the specific group of prospective tenants for a particular
property and then evaluating the property by that market’s standards for rental
Marketing All business activity a producer uses to expose potential consumers
to available goods and services, including selling, advertising, and packaging.
For rental property, methods used to attempt to lease space.
Market Rent The price a tenant pays a landlord for the use and occupancy of
real property, based upon current prices for comparable property.
Marketable title Good or clear title, reasonably free from the risk of litigation
over possible defects.
Market value The most probable price a property would bring in an arm’s-length
transaction under normal conditions on the open market.
Master plan A comprehensive plan to guide the long-term physical development
of a particular area.
Maturity The terminating or due date of a note, time draft, acceptance, bill of
exchange, or bond. The date a time instrument of indebtedness becomes due
and payable.
Mechanic’s lien A statutory lien created in favor of contractors, laborers and
materialmen who have performed work or furnished materials in the erection or
repair of a building.
Metes-and-bounds description A legal description of a parcel of land that
begins at a well marked point and follows the boundaries, using directions and
distance around the tract, back to the place of beginning.
Mill One-tenth of one cent. Some states use a mill rate to compute real estate
Minor Someone who has not reached the age of majority and therefore does not
have legal capacity to transfer title to real property.
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Miscellaneous income Income a property produces from sources other than
rent, such as vending machines, late fees, etc.
Modernization The process of replacing original or outdated equipment with
similar features that are of up-to-date design.
Monetary policy Governmental regulation of the amount of money in circulation
through such institutions as the Federal Reserve Board.
Month-to-Month tenancy A periodic tenancy under which the tenant rents for
one month at a time. In the absence of a rental agreement a tenancy is generally
considered to be month to month.
Monument A fixed natural or artificial object used to establish real estate
boundaries for a metes-and-bounds description.
Moratorium A period during which a borrower is granted the right to delay
fulfillment of an obligation.
Mortgage A conditional transfer or pledge of real estate as security for the
payment of a debt. Also, the document creating a mortgage lien.
Mortgage banker Mortgage loan companies that originate, service and sell
loans to investors.
Mortgage broker An agent of a lender who brings the lender and borrower
together. The broker receives a fee for this service.
Mortgagee A lender in a mortgage loan transaction.
Mortgage lien A lien or charge on the property of a mortgagor that secures the
underlying debt obligations.
Mortgagor A borrower in a mortgage loan transaction.
Multiperil policies Insurance policies that offer protection from a range of
potential perils, such as those of a fire, hazard, public liability and casualty.
Multiple-listing service (MLS) A marketing organization composed of member
brokers who agree to share their listing agreements with one another in the hope
of procuring ready, willing and able buyers for their properties more quickly than
they could on their own.
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Multi-Plexor An electronic device that allows multiple cameras to be viewed on
one screen. Typically used for the Video surveillance at a facility.
Mystery Shopping A person who is posing as a potential customer and
evaluates the employee’s sales and customer service techniues.
Negotiation The process of bargaining that precedes an agreement; in leasing,
the bargaining to reach a mutual agreement on rental rates, term of the lease,
and other points.
Negotiable instrument A written promise or order to pay a specific sum of
money that may be transferred by endorsement or delivery. The transferee then
has the original payee’s right to payment.
Net lease A lease calling for the lessee to pay all fixed and variable expenses
associated with the property. Also known as a pure net lease as opposed to a
gross lease.
Net operating income (NOI) The income projected for an income-producing
property after deducting losses for vacancy and collection and operating
Net rentable area The actual square footage of a building that can be rented.
Halls, lobbies, stairways, elevator shafts, maintenance areas and the like are not
Net Spendable income The amount of cash that remains from the gross
income after deducting operating expenses, principal and interest payments, and
income taxes.
Nonconforming use A use of property that is permitted to continue after a
zoning ordinance prohibiting it has been established for the area.
Nonhomogeneity A lack of uniformity; dissimilarity. Because no two parcels of
land are exactly alike, real estate is said to be nonhomogeneous.
Non-Recourse Note A debt instrument giving the lender no recourse to the
borrower. The lender must rely solely on the property for repayment.
Notary One authorized by the state to take acknowledgments and give oaths.
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Novation Substituting a new obligation for an old one or substituting new parties
to an existing obligation.
Noncupative will An oral will declared by the testator in his or her final illness,
made before witnesses and afterward reduced to writing.
Obsolescence The loss of value due to factors that are outmoded or less
useful. Obsolescence may be functional or economic.
Occupancy Rate The percentage of space or units which are leased or
Occupational Satefy and Health Act (OSHA) A law passed in 1970 requiring
employers to comply with job safety and health standards issued by the U.S.
Department of Labor.
Offer and acceptance Two essential components of a valid contract; a “meeting
of the minds.”
Offeror/Offeree The person who makes the offer is the offeror. The person to
whom the offer is made is the offeree.
On-site manager A person that lives in the apartment at the facility.
Open-end loan A mortgage loan that is expandable by increments up to a
maximum dollar amount, the full loan being secured by the same original
Operating budget A listing of all anticipated income from and expenses of
operating a property, usually projected on an annual basis.
Operating expenses All expenditures made in connection with operating a
property with the exception of debt service, capital reserves, and income taxes.
Operations manual An authoritative collection of information that describes the
organization and its goals, explains policies that guide its operations, outlines
specific procedures for implementing those policies, assigns responsibility for
performing various functions, and contains the various documents (forms) for
performing the work; also called standard operating procedures manual.
Option An agreement to keep open for a set period an offer to sell or purchase
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Origination Fee A fee or charge for the work involved in the evaluation,
preparation, and submission of a proposed mortgage loan.
Over Lock / Lock out When a customer does not pay the rent by the due date,
the operator has the ability to put a lock over their lock to prevent them from
removing their belongings until they have paid all back rent and late charges.
Lock out refers to removing their gate code to limit their access to the facility until
all back rent and late fees have been collected.
Package loan A real estate loan used to finance the purchase of both real
property and personal property, such as in the purchase of a self storage facility
and all the business equipment in the rental or retail office.
Parol evidence rule A rule of evidence providing that a written agreement is the
final expression of the agreement of the parties, not to be varied or contradicted
by prior or contemporaneous oral or written negotiations.
Participation mortgage A mortgage loan wherein the lender has a partial equity
interest in the property or receives a portion of the income from the property.
Partition The division of cotenants’ interests in real property when the parties do
not all voluntarily agree to terminate the co-ownership; takes place through court
Partnership An association of two or more individuals who carry on a continuing
business for profit as co-owners. Under the law a partnership is regarded as a
group of individuals rather than as a single entity. A general partnership is a
typical form of joint venture in which each general partner shares in the
administration, profits and losses of the operation. A limited partnership is a
business arrangement whereby the operation is administered by one or more
general partners and funded, by and large, by limited or silent partners, who are
by law responsible for losses only to the extent of their investments.
Party wall A wall that is located on or at a boundary line between two adjoining
parcels of land and is used or is intended to be used by the owners of both
Patent A grant or franchise of land from the United States Government.
Pay off To satisfy in full an existing indebtedness.
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Payback period The amount of time required to recover the cost of a capital
Payment cap The limit on the amount of the monthly payment can be increased
on an adjustable-rate mortgage when the interest rate is adjusted.
Pedastrian Gate Allows access to the property without opening the gate
system. The pedestrian gate typically has security screenings and one way
keyed handle.
Percolation test A test of the soil to determine if it will absorb and drain water
adequately to use a septic system for sewage disposal.
Perfecting title The elimination of any claims against a title.
Performance bond A bond to guarantee performance of specified acts, such as
the completion of property or off-site improvements.
Personal liability Personal liability arises when the borrower’s assets are
pledged or subject to claim in addition to a primary security.
Personal property Items, called chattels, that do not fit into the definition of real
property; movable objects.
Per unit allocation The method of allocating costs over the total number of
units affected.
Physical deterioration A reduction in a property’s value resulting from a decline
in physical condition; can be caused by action of the elements or by ordinary
wear and tear.
Planning commission A local or regional organization, normally a government
agency responsible for the preparation and adoption of comprehensive long-term
general plans for the physical development of property within its jurisdiction.
Plat map A map of a town, section or subdivision indicating the location and
boundaries of individual properties.
Plottage The increase in value or utility resulting from the consolidation
(assemblage) of two or more adjacent lots into one larger lot.
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Police power The government’s right to impose laws, statutes and ordinances,
including zoning ordinances and building codes, to protect the public health,
safety and welfare.
Portable Storage Buildings Prefabricated storage buildings.
Potential Rental Income All the rent that would be received if all of the facility’s
spaces was rented at the current market rent.
Power of Attorney A written instrument authorizing a person, the attorney-infact, to act as agent for another person to the extent indicated in the instrument.
Premises A defined portion of land and the improvements thereon as usually
described in a deed, deed of trust, or a mortgage.
Prepaid items On a closing statement, items that have been paid in advance by
the seller, such as insurance premiums and some real estate taxes, for which he
or she must be reimbursed by the buyer.
Prepayment penalty A charge imposed on a borrower who pays off the loan
principal early. This penalty compensates the lender for interest and other
charges that would otherwise be lost.
Preventive maintenance A program of regular inspection and care that allows
potential problems to be prevented or at least detected and solved before major
repairs are needed.
Primary mortgage market The mortgage market in which loans are originated
and consisting of lenders such as commercial banks, savings and loan
associations and mutual savings banks.
Principal (1) A sum loaned or employed as a fund or an investment, as
distinguished from its income or profits. (2) The original amount (as in a loan) of
the total due and payable at a certain date. (3) A main party to a transaction-the
person for whom the agent works.
Principal meridian The main imaginary line running north and south and
crossing a base line at a definite point, used by surveyors for reference in
locating and describing land under the rectangular (government) survey system
of legal description.
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Priority As applied to claims against property, the status of being prior or having
precedence over other claims. Priority is usually established by filing or
recordation in point of time, but may be established by statute or agreement.
Probate A legal process by which a court determines who will inherit a
decedent’s property and what the estate’s assets are.
Procuring cause The effort that brings about the desired result. Typically, the
broker who is the procuring cause of a sale gets the commission.
Pro Forma Statement A financial or accounting statement projecting income
and performance of real estate within a period of time based upon estimates and
Progression An appraisal principle that states that, between dissimilar
properties, the value of the lesser-quality property is favorably affected by the
presence of the better-quality property.
Promissory note A financing instrument that states the terms of the underlying
obligation, is signed by its maker and is negotiable (transferable to a third party).
Property analysis A study of a property referring to such items as deferred
maintenance, functional and economic obsolescence, land location and zoning,
exterior construction and condition, plant and equipment, unit mix, facilities, and
expected income and expenses.
Property Manager Someone who manages real estate for another person for
compensation. Duties include collecting rents, maintaining the property and
keeping up all accounting.
Property reports The mandatory federal and state documents compiled by
subdividers and developers to provide potential purchasers with facts about a
property prior to their purchase.
Prorations Expenses, either prepaid or paid in arrears, that are divided or
distributed between buyer and seller at the closing.
Puffing Exaggerated or superlative comments or opinions.
Purchase-money mortgage (PMM) A note secured by a mortgage or deed of
trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase
price of real estate.
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Pyramiding The process of acquiring additional properties by refinancing
properties already owned and investing the loan proceeds in additional
Quantity-survey method The appraisal method of estimating building costs by
calculating the cost of all of the physical components in the improvements,
adding the cost to assemble them and then including the indirect costs
associated with such construction.
Quiet title a court action to remove a cloud on the title.
Quiet enjoyment The right of an owner to the use of property without
interference of possession.
Quitclaim deed A conveyance by which the grantor transfers whatever interest
he or she has in the real estate, without warranties or obligations.
Rate cap The limit on the amount the interest rate can be increased at each
adjustment period in an adjustable-rate loan. The cap may also set the
maximum interest rate that can be charged during the life of the loan.
Rate Survey Refers to any method used to survey competitors to obtain a
collection of information to determine pricing, sizes, occupancy, specials, etc.
Ready, willing and able buyer One who is prepared to buy property on the
seller’s terms and is ready to take positive steps to consummate the transaction.
Real estate Land; a portion of the earth’s surface extending downward to the
center of the earth and upward infinitely into space, including all things
permanently attached to it, whether naturally or artificially.
Real estate investment trust (REIT) Trust ownership of real estate by a group
of individuals who purchase certificates of ownership in the trust, which in turn
invests the money in real property and distributes the profits back to the investors
free of corporate income tax.
Real Estate Settlement Procedures Act (RESPA) The federal law that
requires certain disclosures to consumers about mortgage loan settlements. The
law also prohibits the payment or receipt of kickbacks and certain kinds of
referral fees.
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Real property The interests, benefits and rights inherent in real estate
Realtor® A registered trademark term reserved for the sole use of active
members of local realtor boards affiliated with the National Association of
Recapture An owner’s recovery of money invested in real estate, usually
referring to a depreciation allowance.
Receivership Court-ordered turnover of a property to an impartial third party
(receiver) so that it may be preserved for the benefit of the affected parties.
Reconciliation The final step in the appraisal process, in which the appraiser
combines the estimates of value received from the sales comparison, cost and
income approaches to arrive at a final estimate of market value for the subject
Reconveyance deed A deed used by a trustee under a deed of trust to return
title to the trustor.
Recording The act of entering or recording documents affecting or conveying
interests in real estate in the recorder’s office established in each county. Until it
is recorded, a deed or mortgage ordinarily is not effective against subsequent
purchasers or mortgagees.
Recourse note A debt instrument under which the lender can take action
against the borrower or endorser personally, in addition to foreclosure.
Redemption The right of a defaulted property owner to recover his or her
property by curing the default.
Redemption period A period of time established by state law during which a
property owner has the right to redeem his or her real estate from a foreclosure
or tax sale by paying the sales price, interest and costs. Many states do not
have mortgage redemption laws.
Redlining The illegal practice of a lending institution denying loans or restricting
their number for certain areas of a community.
Refinancing The repayment of a debt from the proceeds of a new loan using
the same property as security.
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Regression An appraisal principle that states that, between dissimilar
properties, the value of the better-quality property is affected adversely by the
presence of the lesser-quality property.
Regulation Z Implements the Truth-in-lending Act requiring credit institutions to
inform borrowers of the true cost of obtaining credit.
Rehabilitation The restoration to good use, through repair of structures or
improvements of public facilities, of a declining area of neighborhood to arrest
and reverse deteriorating influences.
Release deed A document, also known as a deed of reconveyance, that
transfers all rights given a trustee under a deed of trust loan back to the grantor
after the loan has been fully repaid.
Remainder interest The remnant of an estate that has been conveyed to take
effect and be enjoyed after the termination of a prior estate, such as when an
owner conveys a life estate to one party and the remainder to another.
Rent A fixed, periodic payment made by a tenant of a property to the owner for
possession and use, usually by prior agreement of the parties.
Rental ledger A record of rent received, date of receipt, period covered, and
other related information for each individual tenant.
Rent Control Laws that regulate rental rates, usually to limit the amount of rent
increases and their frequency.
Rent Roll A listing of all rental units, showing for rented units the rental rate,
tenant’s name, and lease expiration date as well as the status of rent and other
Rent Schedule A statement of proposed rental rates, determined by the owner
or the property manager or both, based on a building’s estimated expenses,
market supply and demand and the owner’s long-range goals for the property.
Rent-Up Period The time after construction that a rental property requires to
achieve projected stabilized income and occupancy levels.
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Replacement cost The construction cost at current prices of a property that is
not necessarily an exact duplicate of the subject property but serves the same
purpose or function as the original.
Replacement Reserve A cash reserve for the future replacement of fixed
Reproduction cost The construction cost at current prices of an exact duplicate
of the subject property.
Reserve fund Money set aside to provide funds for anticipated future
Restrictive covenants A clause in a deed that limits the way the real estate
ownership may be used.
Retrofit The replacement of fixtures or facilities in a building with new equipment
that is more efficient, usually in terms of energy consumption, fire protection
codes, or accommodations for new technology.
Return on Investment The amount of profit based on the amount of resources
used to produce it. ROI is calculated by considering the annual benefit divided
by the investment amount. This is a ratio that measures how well the company
makes use of its money. The ROI looks at what the company is worth related to
the amount of the original investment.
Reversionary right The return of the rights of possession and quiet enjoyment
to the lessor at the expiration of a lease.
Right-of-way The right given by one landowner to another to pass over the
land, construct a roadway or use as a pathway, without actually transferring
Risk management Evaluation and selection of appropriate property and other
Roll-up Doors Doors that roll up instead of opening out.
Rules and regulations Real estate licensing authority orders that govern
licensees’ activities; they usually have the same force and effect as statutory law.
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Sale and leaseback A transaction in which an owner sells his or her improved
property and, as part of the same transaction, signs a long-term lease to remain
in possession of the premises.
Sales comparison approach The process of estimating the value of a property
by examining and comparing actual sales of comparable properties.
Sales Contract A deliberate written agreement between competent parties
stating terms and conditions of a sale.
Salesperson A person who performs real estate activities while employed by or
associated with a licensed real estate broker.
Satisfaction of mortgage A document acknowledging the payment of a
mortgage debt.
Secondary mortgage market A market for the purchase and sale of existing
mortgages, designed to provide greater liquidity for mortgages; also called the
secondary money market. Mortgages are first originated in the primary mortgage
Security The collateral given, deposited, or pledged to secure the fulfillment of
an obligation or the payment of a debt.
Security deposit A payment by a tenant, held by the landlord during the lease
term and kept (wholly or partially) on default or destruction of the premises by
the tenant.
Security stickers A tamper proof sticker placed on a lock that will alert the
manager if the lock has been changed.
Servient tenement Land on which an easement exists in favor of an adjacent
property (called a dominant estate); also called a servient estate.
Setback The amount of space local zoning regulations require between a lot line
and a building line.
Severalty Ownership of real property by one person only, also called sole
Severance Changing an item of real estate to personal property by detaching it
from the land; for example, cutting down a tree.
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Site Manager An employee who oversees and administers the day to day affairs
of a property in accordance with directions from the property manager or the
owner and may live in the property being managed or off site.
Soft Costs Architectural, engineering, and legal fees as distinguished from land
and construction costs.
Soft Dollars The amount invested in the development or purchase of a property
that is immediately deductible for tax purposes.
Sole Proprietorship A business enterprise carried on by one person.
Special assessment A tax or levy customarily imposed against only those
specific parcels of real estate that will benefit from a proposed public
improvement like a street or sewer.
Special warranty deed A deed in which the grantor warrants, or guarantees,
the title only against defects arising during the period of his or her tenure and
ownership of the property and not against defects existing before that time,
generally using the language, “by, through or under the grantor but not
Specific lien A lien affecting or attaching only to a certain, specific parcel of land
or piece of property.
Specific performance A legal action to compel a party to carry out the terms of
a contract.
Square-foot method The appraisal method of estimating building costs by
multiplying the number of square feet in the improvements being appraised by
the cost per square foot for recently constructed similar improvements.
Square foot occupancy The total square feet rented divided by the total square
feet available.
Stabilized operating statement Detailed projection of all income and
disbursements over a selected period of years and averaged for a single year.
Statute of frauds That part of a state law that requires certain instruments, such
as deeds, real estate sales contracts and certain leases, to be in writing to be
legally enforceable.
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Statute of limitations That law pertaining to the period of time within which
certain actions must be brought to court.
Statutory lien A lien imposed on property by statute-a tax lien, for example-in
contrast to an equitable lien, which arises out of common law.
Statutory redemption The right of a defaulted property owner to recover the
property after its sale by paying the appropriate fees and charges.
Storage Space The space provided to the customer to store their belongings
and pay rent.
Straight-line method A method of calculating depreciation for tax purposes,
computed by dividing the adjusted basis of a property by the estimated number
of years of remaining useful life.
Straight loan A loan in which only interest is paid during the term of the loan,
with the entire principal amount due with the final interest payment.
Street Rates The street rate is what a unit of a certain size should command in
rent according to current market conditions.
Subdivider One who buys undeveloped land, divides it into smaller, usable lots
and sells the lots to potential users.
Subletting The leasing of premises by a lessee to a third party for part of the
lessee’s remaining term.
Subordination Relegation to a lesser position, usually in respect to a right or
Subordination agreement A written agreement between holders of liens on a
property that changes the priority of mortgage, judgment and other liens under
certain circumstances.
Subrogation The substitution of one creditor for another, with the substituted
person succeeding to the legal rights and claims of the original claimant.
Subrogation is used by title insurers to acquire from the inured party rights to sue
in order to recover any claims they have paid.
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Substitution An appraisal principle that states that the maximum value of a
property tends to be set by the cost of purchasing an equally desirable and
valuable substitute property, assuming that no costly delay is encountered in
making the substitution.
Suit for possession A court suit initiated by a landlord to evict a tenant from
leased premises after the tenant has breached one of the terms of the lease or
has held possession of the property after the lease’s expiration.
Suit to quiet title A court action intended to establish or settle the title to a
particular property, especially when there is a cloud on the title.
Superfund Popular name of the hazardous waste cleanup fund established by
the comprehensive Environmental Response, Compensation and Liability Act
Supply The amount of goods available in the market to be sold at a given price.
The term is often coupled with demand.
Supply and demand The appraisal principle that follows the interrelationship of
the supply of and demand for real estate. As appraising is based on economic
concepts, this principle recognizes that real property is subject to the influences
of the marketplace just as is any other commodity.
Surety bond An agreement by an insurance or bonding company to be
responsible for certain possible defaults, debts or obligations contracted for by an
insured party; in essence, a policy insuring one’s personal and/or financial
integrity. In the real estate business a surety bond is generally used to ensure
that a particular project will be completed at a certain date or that a contract will
be performed as stated.
Surrender The voluntary giving up of possession. The cancellation of a lease
by mutual consent of lessor and lessee.
Survey The process by which boundaries are measured and land areas are
determined; the on-site measurement of lot lines, dimensions and position of a
house on a lot, including the determination of any existing encroachments or
Syndicate A combination of people or firms formed to accomplish a business
venture of mutual interest by pooling resources. In a real estate investment
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syndicate the parties own and/or develop property, with the main profit generally
arising from the sale of the property.
Tacking Adding or combining successive periods of continuous occupation of
real property by adverse possessors. This concept enables someone who has
not been in possession for the entire statutory period to establish a claim of
adverse possession.
Target marketing Breaking a market into segments, then concentrating
marketing efforts on one or a few key segments that will be more beneficial for
the self storage property.
Taxation The process by which a government or municipal quasi-public body
raises monies to fund its operation.
Tax credit An amount by which tax owed is reduced directly.
Tax deed An instrument, similar to a certificate of sale, given to a purchaser at a
tax sale.
Tax lien A charge against property, created by operation of law. Tax liens and
assessments take priority over all other liens.
Tax sale A court-ordered sale of real property to raise money to cover
delinquent taxes.
Tenant One who pays rent to occupy real estate. Property managers often limit
the use of the term “tenant” to commercial tenants and refer to residential tenants
as “residents.”
Tenancy by the entirety The joint ownership, recognized in some states, of
property acquired by husband and wife during marriage. Upon the death of one
spouse the survivor becomes the owner of the property.
Tenancy in common A form of co-ownership by which each owner holds an
undivided interest in real property as if he or she were sole owner. Each
individual owner has the right to partition.
Tenant One who holds or possesses lands or tenements by any kind of right or
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Tenant improvements Alterations to the interior of a building to meet the
functional demands of the tenant.
Term The period of time between the commencement date and termination date
of a note, mortgage, legal document or other contract.
Testate Having made and left a valid will.
Testator A person who has made a valid will. A woman often is referred to as a
testatrix, although testator can be used for either gender.
Time is of the essence A phrase in a contract that requires the performance of
a certain act within a stated period of time.
Time Lapse Recorder Video Recording systems that offer time-lapsed
recording from cameras posted around the storage facility that provide an extra
element of security
Title (1) The right to or ownership of land. (2) The evidence of ownership of
Title insurance A policy insuring the owner or mortgagee against loss by
reason of defects in the title to a parcel of real estate, other than encumbrances,
defects and matters specifically excluded by the policy
Title Search The examination of public records relating to real estate to
determine the current state of the ownership.
Title theory Some states interpret a mortgage to mean that the lender is the
owner of mortgaged land. Upon full payment of the mortgage debt the borrower
becomes the landowner.
Trade fixture An article installed by a tenant under the terms of a lease and
removable by the tenant before the lease expires.
Traffic report A record of the number of prospects who visit or make inquiries at
a property and the factors that attracted them to it.
Transfer tax Tax stamps required to be affixed to a deed by state and/or local
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Trust A fiduciary arrangement whereby property is conveyed to a person or
institution, called a trustee, to be held and administered on behalf of another
person, called a beneficiary. The one who conveys the trust is called the trustor.
Trust deed An instrument used to create a mortgage lien by which the borrower
conveys title to a trustee, who holds it as security for the benefit of the note
holder (the lender); also called a deed of trust.
Trust deed lien A lien on the property of a trustor that secures a deed of trust
Trustee The holder of bare legal title in a deed of trust loan application.
Trustee’s deed A deed executed by a trustee conveying land held in a trust.
Trustor A borrower in a deed of trust loan transaction.
Umbrella liability insurance Extra liability coverage that exceeds the limits of
one’s basic liability policy.
Underwriting The analysis of risk and the matching of it to an appropriate rate
and term.
Unencumbered property A property that is free and clear.
Unenforceable contract A contract that has all the elements of a valid contract,
yet neither party can sue the other to force performance of it.
Uniform Commercial Code A codification of commercial law, adopted in most
states, that attempts to make uniform all laws relating to commercial
transactions, including chattel mortgages and bulk transfers. Security interests in
chattels are created by an instrument known as a security agreement. To give
notice of the security interest, a financing statement must be recorded. Article 6
of the code regulates bulk transfers-the sale of a business as a whole, including
all fixtures, chattels and merchandise.
Unilateral Contract A one-sided contract wherein one party makes a promise
so as to induce a second party to do something. The second party is not legally
bound to perform; however, if the second party does comply, the first party is
obligated to keep the promise.
Unit The space provided for the customer’s goods.
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Unit delinquency Rate Calculated by taking the total number of spaces
delinquent divided by the total number of units at the property. This number
reflects the percentage of total customers who are delinquent at any given time.
Unit occupancy rate Total number of units rented divided by the total number
of units available.
Unit-in-place method The appraisal method of estimating building costs by
calculating the costs of all of the physical components in the structure, with the
cost of each item including its proper installation, connection, etc.; also called the
segregated cost method.
Usury Charging interest at a higher rate than the maximum rate established by
state law.
Vacancy and rent loss Vacancy refers to any type of rental property or unit
thereof that is unrented. In the estimate of gross income of a property, an
allowance or discount for vacancy is usually made. Rent loss can result from a
number of reasons, such as a loss in rental income during periods of remodeling
or rehabilitation of a project, low occupancy rates rent loss because of the
tenant’s inability to pay, and other such occurrences.
Valid contract A contract that complies with all the essentials of a contract and
is binding and enforceable on all parties to it.
Value The power of a good or service to command other goods in exchange for
the present worth of future rights to its income or amenities.
Valuation An estimation or calculation of the worth of an object; the process of
determining an object’s worth.
Variance Permission obtained from zoning authorities to build a structure or
conduct a use that is expressly prohibited by the current zoning laws; an
exception from the zoning ordinances.
Vendee A buyer, usually under the terms of a land contract.
Vendor A seller, usually under the terms of a land contract.
Video surveillance monitor Monitors used to view surveillance cameras on the
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Voidable contract A contract that seems to be valid on the surface but may be
rejected or disaffirmed by one or both of the parties.
Void contract A contract that has no legal force or effect because it does not
meet the essential elements of a contract.
Voluntary lien A lien placed on property with the knowledge and consent of the
property owner.
Warranty deed A deed in which the grantor or seller warrants or guarantees
that good title is being conveyed, as opposed to a quitclaim deed that contains
no representation or warranty as to the quality of title being conveyed.
Waste An improper use or an abuse of a property by a possessor who holds
less than fee ownership, such as a tenant, life tenant, mortgagor or vendee.
Such waste ordinarily impairs the value of the land or the interest of the person
holding the title or the reversionary rights.
Wheel Locking Device A device used to overlock delinquent customers who
have vehicles parked on the site.
Will A written document, properly witnessed, providing for the transfer of title to
property owned by the deceased, called the testator.
Wireless Door Alarms Technology that enables the alarm to function as
effectively as hard wired alarms for each storage door, yet costs significantly less
to install.
Workers’ compensation acts Laws that require an employer to obtain
insurance coverage to protect his or her employees who are injured in the course
of their employment.
Working capital liquid assets available for the conduct of daily business.
Wraparound loan A method of refinancing in which the new mortgage is placed
in a secondary, or subordinate, position; the new mortgage includes both the
unpaid principal balance of the first mortgage and whatever additional sums are
advanced by the lender.
Yield In real estate, the term refers to the effective annual amount of income
which is being accrued on an investment. Expressed as a percentage of the
price originally paid.
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Zero Lot Line A term generally used to describe the positioning of a structure
on a lot so that one side rests directly on the lot’s boundary line. Such
construction is usually prohibited by setback ordinances, unless it is a part of a
special space-conserving project.
Zoning ordinance An exercise of police power by a municipality to regulate and
control the character and use of property.
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