Self-Storage Secrets - Running the Numbers on the Fly

How many times have you stood in front of a vacant lot or a potential conversion and wondered, “Will this work? Will it cash flow? How many units can I even put on this property?” These are critical, need to know, questions. If you don’t know what the potential of the property is, then how will you make an offer?

First, you need to know the lot size. You can get this off of the county records. Now you want to convert that acreage into square feet. There are 43,560 feet in an acre. However, you can typically only utilize 39% of that area. This means that you can build 16,988 square feet of self-storage on every acre of land if you are building a single story facility. This smaller amount allows for driveways, spacing, setbacks, and other miscellaneous things that you will need to account for. If you are looking at a 5 acre vacant lot, you now know that you can build 84,940 rentable square feet for a single story unit.

The next key is to break that down into storage units. You already know that a 10x10 is the most popular size unit. This means that you want to offer more of these units than you do of other sizes. However, you still need to provide the other size units. You want to break down your unit sizes into a bell curve with 5x5 on one end and your 10x30’s on the other end. This doesn’t have to be perfect, you are just trying to get an estimate of what you will have in your facility. The point is to be able to determine what your gross income will be. If you want to use a quick estimate, divide your square footage by 110. This will give you an approximate number of units.

For this example of 5 acres, you can build 772 units on a single story. The nice thing about this estimate is that that is going to be true of every 5 acre parcel that you look at. Now that you know the formula, you can quickly determine how many units you can get on any size lot. If you are working with climate controlled self-storage, you will need to reduce this number by 25%.

The next step is to look into what the average rents are within a 3 to 5 mile radius from the property. For the quick on the fly number that you are looking at here, you are just going to look at the average rent on a 10x10. You need to look at the same type of storage you will be providing. For example, if 1/3 of your storage will not be climate controlled and the other 2/3 will be climate controlled, then you need to plug in corresponding numbers. For our example, we are going to use $125 for a 10x10 non climate controlled and $175 for a climate controlled 10x10.

You have a lot of information at this point, let’s turn it into some real numbers. If we start with 772 units, we are going to divide that by 3. This gives you 257 non climate controlled units and 515 climate controlled units. However, if you remember, we need to reduce that number by 25%. That leaves us with 386 climate controlled units. Now we are going to determine our gross monthly income if we have 100% occupancy. 257units x $125 = $32,125 and 386 units x $175 = $67,550 or $99,675 in income a month. We are going to multiply that by 12 to get a gross annual income of $1,196,100. Now we know that there is no such thing as 100% occupancy unless you are in a few rare areas, so we are going to reduce this income by 15%. This leaves us with $1,016,685 in gross annual income. Now you need to subtract for annual expenses which are between 35% and 45% of your gross income. For simplicity, we are going to use 40%. This leaves us with a net annual income of $610,011 for this piece of property. This lets you know how much you can pay for the property including your building costs. You just need to plug in the cap rate.

Talk to builders in your area and find out what it costs to build a single story property vs a 2-story building per square foot. This will allow you to estimate what you can pay for the land. This will give you a rough pro forma on what the property will bring in to see if you even want to move forward with an offer. Have fun determining what you want to make offers on and as always, happy investing.