How do I analyze a Self Storage Deal?

Question

I am talking to an off market seller of a 120(ish) storage unit facility in Bonner's Ferry, Idaho (near where I live).

I have the numbers for the business, but don't know how to value something like this. Who has some insights? I know self storage is popular these days so I need some wisdom from those who are doing it!

I might also be looking for an end buyer, private money, or partner for this deal depending how the numbers shake out.

Thanks in advance!

Henry Clark · Answer

Op.  Change and add as needed to boots on the ground info.  Here is the approach we use.  Change

Revenue. say 120 15 footers avg  $100 at 90% occupancy

$130,000 gross revenue

Land. 2 acres. $150,000

Fence. $30,000

Cantilever gate. $25,000

Security system. $15,000

Grading $15,000

Road  rock. $25,000

Asphalt ???

Electrician. $25,000 with led

Units. 120 at $4,100 erected. .   $492,000

Website. $2,000

Signage. $4,000

Landscaping. ????

Alarm system. ????

Office equip.  ????

Entrances. ????

Drainage. ????

Water sewage. ????

Total. Assume 25% down.  5 year balloon, 20 year amort.  What is P/I?  For cashflow

P/L   Revenue  $130,000

Prop tax  $20,000

Ins   $4,000

Adv $3,000

SEO  ???   To small

Elec  $1,500

Mgt software  $1,000

Snow   $2,000

Lawn  $1,000

Management  ????

Depr exp???   Don’t include in NOI, but include for cashflow impact on income taxes.  Just for kicks back out your Land cost.  Then divide the remainder by 20 years as an average.  You can refine.

Interest expenseIncome taxes        Net income

Cashflow

Add your depreciation back to your net income.  This is your cashflow from your operations.

Compare versus your loan P/I.  How is your cashflow?

Run the numbers and followup with any questions.

We look for an 8 to 12 year payback.  You can do a cap rate approach but we don’t.  Willing to pay more if there is some value add.  Don’t pay them for work they didn’t do?  Or if this is your first and want to learn the business   Good to start small.

Don’t trust anyone’s financials.  Reconstruct yourself. Assume higher adjusted property tax.

Market analysis. Read my post. Will they come?  Go through that exercise.  Your market looks real small and saturated..

I would not do this location unless you plan to scale in the industry.

If you want to get in. Normally it’s better to buy.  But. Now it is better to build. Existing locations are going for too high of a premium.

I have looked at Boise before.  That is where I would build or buy.

You’re near Cour de Lane. If you decide you want to get into self storage. Go to the annual convention there.

Buy all of the books, watch all of the podcasts, vote for my posts, join any groups, etc

Dont trust anyone, even me.  Everything in self storage can be validated.  Just your effort.

Start small and Make Your Big Mistakes Early.

Evan Polaski · Answer

@Emma Hustis,

The value of the property is what it is worth to you.  While a cap rate will give you a general idea of what the market is willing to pay, that a) doesn't make it necessarily worth that to you and b) doesn't mean the seller will accept that price.

But the bigger piece is knowing what your return threshold is.  Do you want a 10+% annual cash flow return out of this property?  If so, you need to make some good guesses on what YOUR NOI will be, what your financing will cost you, and then back into a price.

As for seller's NOI, I would certainly ask for their financials, but at the end of the day, they will only provide you about 30-50% of the picture.  You need to get your own insurance quote, understand what YOUR tax bill will be (will the assessor revalue the property to purchase price right away?), what is your payroll going to be for someone you want to manage the property, what is your repair budget going to be (a lot of sellers will defer many repairs in order to hold onto cash and make their financials look better for a buyer).  Are you planning on investing heavily in the property to make it nicer and potentially drive up the rents?  If so, you need to factor all this in and back into a purchase price to make the returns worthwhile for you.

Remember, this is INVESTING.  Real estate has some advantages over other investments, but ultimately the goal in all investing is to maximize return relative to perceived risk.

Josh C. · Answer

@Deb S.

Great response. But just to clear for all the new people the formula is NOI / cap rate = purchase price. So lower cap rate the higher the price. Not higher the cap rate higher the price. In your case $130,000. / 0.11 = $1,181,818 is an 11 cap purchase price.

Also, pretty much throw out the sellers numbers and do your own based on market conditions. Sellers usually inflate the rents and deflate the expenses.

Good luck!

Marcel Sanchez · Answer

Would love to get that example, sent you a DM :)

Deb S. · Answer

@Josh C.thanks for clarifying. As I was writing it at 6AM I thought something might be off. I should have double checked before posting. Thanks for the catch!

Ronald Rohde · Answer

Read everything that @Henry Clark posts, all of the information is in his posts.

Don't get burned on the PSA or loan docs. Have good written agreements with your customers. Good luck!

Deb S. · Answer

You need to know the NOI so ask the seller for the income and expenses for the last few years. That’s step 1. step 2 - contact a local commercial broker and ask what the avg cap rate is in the area for SS units. step 3 - use the cap rate the broker provided and the NOI from the docs the seller gave you. NOI x CAP RATE = purchase price

Simple example: $100,000 x 9 = $900,000

You can then use pro forma numbers say after you raise rents, fill vacancies etc to project future value if you wanted to sell later on. new NOI x higher cap rate

$130,000 x 10 = $1,300,000

$130,000 x 11 = $1,430,000

and so on. I can send you an example underwriting if you’d like. Send me a DM.

Emma Hustis · Answer

Thanks for your response Bob- I should have been more clear.

I need help coming up with a potential purchase price. What are people looking for in terms of ROI on this type of investment?

Bob Stevens · Answer

Its just numbers, all in less expenses.

Good luck

How do I analyze a Self Storage Deal?

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