Help on Self Storage Analysis

[Wesley E Harwood]

Hello!  I have been spending most of my time in the last 6 months learning about passive income. Trailer parks have been my focus for about 4 months, and I will own a trailer park in the future, but I have chosen to steer my focus on self storage. It seems that all of the concepts of finding the mom and pops that have an under performing asset that has the ability to raise rents, and expand the facility apply to self storage! But, what I really like is the fact that it is a GROWING business, and not a shrinking business. I also want to be able to put my hands on the first one and manage it so that I can better scale the business for the future.
I wanted to see if you guys would be willing to take a quick look at the deal that is going to allow me to quit my day job, and pursue my dreams. I really value everyones opinion.   I found a storage facility close to home! It has 56 Units, and 15,624 square feet. 100% occupied. Its 2 acres, and has the ability to double in size. Rents are at 45% of market! Current income is 4,050 per month, with the ability to grow to $9,245 on my pro-forma just raising rent. They are in pretty good shape with new roofs on half the buildings, and not much capx. I have access to fairly cheap management because I live close by, so I figure my expenses at only 15%. $9245 minus %15% = 7,858.25 NOI x 10 CAP= $785,825.00 Value. They appear willing to sell for $500,000.00! Buuut, there is the ability to double in size, and based on my market research, I can fill them right away. This puts the future NOI at $15,716 x 10 CAP = $1,571,600! The total expense would be $300K, so I will be all in at $800,000. So I figure I could almost double the value in less than one year! Am I looking at this wrong? I know you don't have all the info here, but like I said, I REALLY value everyones opinion! Last question, when it comes to no money down deals. My thought is to offer 20% down ($100,000K) and seller finance $400K. I know that there is plenty of meat on the bone for an investor. My question is, if I were to bring in an investor, what would you suggest offering them? I was thinking 12% interest, and a percentage in the ownership of the deal?  Thank you for taking a look at it! Best Regards, Wes

[Greg Dickerson]

@Wesley E Harwood your overall CAP rate value calculations are correct however you are underestimating the operating expenses. You will have taxes, insurance, maintenance, utilities, collections, advertising, etc.

Also you need to consider whether you will really be able to raise rents on a half vacant property and generate enough demand to fill another 56 units. I think you need to be a little more conservative on your projections to be safe.