How Much Cash Flow Do You Need to Make Your Self-Storage Facility Work

When you are looking at a self-storage facility, you want to make sure that the property is in the right location, you want to make sure that it is the right size, you want to make sure that it has upside potential, and you want to make sure that there will be enough cash flow to make the project worthwhile.

Each investor will have their own criteria for how much cashflow they want in order to be happy, but you need to make sure that you have enough cashflow to pay all of your expenses and put a little bit of money in your pocket. If you are not making a profit, what is the point?

The first thing that you need to do is determine how much income the property brings in each month. For example, if the property had 100 units and the average rental income for the units is $150. Then the property brings in $15,000 or $180,000 a year. However, this is not your cashflow. This is your gross income.

Now you need to determine what expenses you are going to have. Typically, your expenses are going to be between 40% and 60% of your gross income. You need to figure in your management expenses, your utilities, your taxes, your insurance, your maintenance expenses, your vacancy allowance. This is just the beginning. Once you have taken off all of these expenses, then you need to subtract for your debt payment. Whether you borrowed money from the bank or investors or both, you are going to be making a payment. That payment is going to come out of your gross income.

Now, the money that you have left after you have determined all of your expenses is your cashflow. If the property is upside down in its current state, you need to figure out what the upside potential is and how long it will take you to get there. How long are you going to have negative cash flow? If you know that you will be able to cut some of the overhead costs immediately and you have ideas how to improve the occupancy rate, then you may only be negative for a short period of time. If it is going to take years to get to where you are at a break even point you might want to seriously consider why you are looking at this property.

When you are considering a property that has a high vacancy rate, you need to make sure that you do a feasibility study to make sure that the market isn’t oversaturated. If the market is oversaturated, there is a chance that the property is at full occupancy based on current market conditions. That would leave you with negative cashflow for a very long time.

Before you start looking at properties, determine what you want for your returns and what you want for your cashflow. This way you will be able to evaluate properties based on their performance rather than making an emotional decision. There are a lot of great opportunities out there. Have fun while you are looking for them. As always, happy investing.