Potential Storage Unit Deal

[Josh Gaddy]

I'm hoping some of you smarter people may be able to shed a little light here. I came across an off market deal for a 15 unit storage complex yesterday. They are all 10x15. 14 are rented for $75 and 1 for $100 so the revenue is currently $1,150 a month. It also comes with a build able lot than can be expanded on or sold. He's asking $110,000. I have no experience in storage units but it seems like a good deal. Any advice?

[Scott Meyers]

Josh, 

If you look at several of my previous posts, I've answered this question at least a dozen times.... 

But let's do it again Shall we?  First, a little disclamier:  This is thumbnail, and there are a NUMBER of factors we can't touch on, so here's the quick and dirty:  

Multiply the monthly Revenue X 12. 

Ask the Seller for His P & L for the last 12 months, or his monthly expenses, Then also multiply by 12 (insurance, Taxes, etc. are all calculated on an annual Basis, so you'll need to figure that out). 

If you can't get these figures, You can use an industry standard of around 35% of Annual Income as a ball park figure for Annual Expenses. 

Subtract Expenses from income will yield your NOI (Net Operating Income)

Divide the NOI by a market cap rate - I'd use 10% in this case, just to build a buffer - (I'm sure my scrutinizing followers will disagree, but let's play it safe).

This will provide an ESTIMATE of Value. 

SO, 

$1,150 X 12 =     $13,800 Gross (Not Gross Potential, but Gross)

$13,800 X .35 =  $4,830 Gross Expenses - Again, this is an Average, NOT Actual 

Net Operating Income = $8,970

Divide by .10 (10% Cap Rate) = $89,700.  

NOW, before you get disappointed, you gotta give him some value for the land, so I'd do some research to see what similar parcels are selling for ON THE SAME ROAD if possible. 

Lots more to consider first - His occupancy, the occupancy of competitors in a 3 mile radius, market rental rates, and the ability to expand on the extra ground..... 

So in Closing Josh, I know this is a small deal, but regardless, I do this day in and day out, and I see people make BIG mistakes in their valuation process, so I STRONGLY suggest you educate yourself in the asset class. 

I know this because I'm the guy that wrote the course..... poke around here on BP and on the interwebs and you'll see what I mean. 

Keep after it! 

Scott Meyers

Self Storage Junkie