Analyzing the value of a self storage facility

[John Ringgold]

I may have run across an owner of a self storage facility that may want to sell.  As a residential Realtor, analyzing a value on a residential property is not hard.  This is a different animal for sure and I don't get involved in the commercial space on a regular basis, however I would like some advice of putting a value on a storage unit facility.  

Would you use the income approach?

How would you factor in vacancy?

What else might I need to ask that I am not asking?

[Henry Clark]

Lots of things to consider.

1.  Market.  We use a 6 units to 100 population ratio.  This can vary. Our hometown has 11 per 100.  If our in a large town just look at the immediate 1 to 3 miles.

2.  Google self storage and zoom into tat area.  If you’re buying the business do they rank in the top 3 on the map?  Doesn’t matter if they are full. Look on the map and see competitors in your circle.  Go count the doors.  In that same area do houses lots of block roads that means lots of people. You can get headcount if your in real estate already. 
3.    Do the same thing as above.  Google Sparefoot.  Click on the map.  Do the same thing as above.  But also make a list of rental rates for 10/15/20s.  Compare this versus your location.  It’s okay to be low, mid or high depending on our facility.  If it’s an old facility it’s good to be the lowest.  
4.  Get a copy of the rent roll or a summary.  You want to pay for what they are offering, not value add you will do to the property.  Let’s keep the math easy.  Say $100,000 gross revenue per year.  You can adjust as needed.  You manage so zero cost.  Property tax look on GIS.  Decide if you will pay more after purchasing at a higher price.  Insurance say $2,500 per $1mm value.  Electricity???  Advertising???  Come up with Net Operating Income. Before interest and depreciation and taxes.  
5.  Cash flow.  Compare your loan payments and terms versus your after tax cash flow.  We shoot for a payback period of 8 to 12 years versus a bank term of 20 or 25 ears.  This will be harder to do with interest rates. 
6.  Okay to pay more if it has land to expand.  Or if rates can be increased.  Not too much.

Then look at the physical aspects.  Any maintenance needed.  Roads, fences, doors, roofs, security systems, etc.      

Currently existing locations are selling at a premium.   You would come out ahead to build.   If this is a smaller location it would be a great entry investment if you plan to grow with other locations.