Determining the Potential Value of a Vacant Site for Self-Storage

When you are sitting in front of a vacant lot trying to decide how much to offer the seller, you need to know what your potential net operating income is going to be. If you don’t know how much income that land can potentially generate, then you can’t make an offer on the property. You need to be able to estimate what you are going to build on that Land, what it will cost, and how much you can charge for each of those units.

If you are looking at self-storage facilities, you should have a good idea of what each size unit rents for within a 3 mile radius. Those other self-storage properties are your competition. You cannot charge significantly more than they are charging. People will simply go somewhere else. However, you don’t want to be at the bottom either. You want to be in the middle of the pack. Most self-storage facilities offer the same service. You provide a secure location for someone to store their belongings. There isn’t going to be that much room to charge more than other facilities.

Once you know what each size unit rents for, then you can do your math. We have already talked about how many units you can approximately put on an acre of land. You can put roughly 154 units on an acre of land with a single story design. Or you can put approximately 115 units on each floor of a climate controlled self-storage facility per acre. There are things that can affect these ratios that we haven’t discussed yet. Your city may have requirements that change these numbers, but they are a good average to use when you are estimating. Your feasibility study will verify everything during your due diligence period.

For our example, we are looking at 4 acres of land and you know that you want to build non-climate controlled single-story units on 3 acres and 3 stories of climate controlled units on the other acre. If we break that down, we take 154 x 3 or 462 non climate controlled units. Then we take 115 units x 3 stories and that leaves us with 345 climate-controlled units. This also means that you are building 50,964 square feet of non-climate controlled self-storage and 38,223 rentable square feet of climate controlled self-storage units. This is important when you are calculating the cost of building.

Once you have the number of units that you are going to build, you can estimate how much income they will generate. For simplicity, use the rental amount of a 10x10 unit to estimate how much your facility will generate. (If you are going to build significantly smaller units. Then these formulas will not work for you.) For our example, a non-climate controlled 10x10 unit rents for $103 a month and a climate controlled 10x10 unit rents for $154.

Now you take the number of units and multiply that by the potential income. 462 non climate controlled units x $103 is $47,586 a month or $571,032 a year. While 345 climate controlled units x $154 is $53,130 a month or $637,560 a year. This property has the potential to generate $1,208,592 in income. However, self-storage facilities are rarely fully occupied. Find out what the occupancy rate is for your area. If your occupancy rates are 73% then you would multiply those together to get $882,272.16 in gross operating income from the property per year.

You know that you are going to have expenses associated with your property. Let’s assume that half of your income is going to go towards expenses. This leaves you with $441,136.08 in net operating income. Now you can divide by the percentage return you want to get. Now you know what the property is worth to you. Remember that this number includes the facility not just the land.

Have fun looking at properties and making offers on potential opportunities. As always, Happy Investing.