analyzing a self storage facility

[Antonio Mcclinton Jr]

Hello everyone, I am currently looking at self storage facilties, the more and more I educate myself in them the more I want to jump in.  At the moment I am trying to learn how to analyze them so I can start making offers, any tips on how?

[Henry Clark]

@Antonio Mcclinton Jr

Self-Storage is a hot commodity right now.  Do the analysis as you mention.  But I recommend you do the analysis to build and not buy.  Normal wisdom is to buy an existing location for your first time.  But the premium is just too high now.

Use the lookup function above and go through the prior posting for info.  

Start small and Make Your Big Mistakes Early.

[Henry Clark]

Try this angle.  Don't know your family and house situation.  Sell that for your storage financing.  Build a Manager's living quarters and live there.

[Joseph Gozlan]

@Antonio Mcclinton Jr ALL commercial real estate is valued using the same formula: Value = NOI / Cap Rate.

Seems simple but there's a LOT going into those parameters.

NOI = Net Operating Income: All the income (money going into the bank) less All Operational Expenses which means all the money that goes out of the bank EXCEPT debt service and items that would be considered capex. 

Cap rate is a factor that's determined by a lot of things and is very specific to your sub market. 

As @Henry Clark mentioned above, there are a lot of factors to consider in underwriting a commercial property and getting yourself educated is critical to avoid very costly mistakes. 

As for Henry's advice to build over buy, I'd say it's market specific. Some markets the cost of the land would not make the new build cheaper than buying an existing one.  

[Antonio Mcclinton Jr]

Quote from @Joseph Gozlan:

@Antonio Mcclinton Jr ALL commercial real estate is valued using the same formula: Value = NOI / Cap Rate.

Seems simple but there's a LOT going into those parameters.

NOI = Net Operating Income: All the income (money going into the bank) less All Operational Expenses which means all the money that goes out of the bank EXCEPT debt service and items that would be considered capex. 

Cap rate is a factor that's determined by a lot of things and is very specific to your sub market. 

As @Henry Clark mentioned above, there are a lot of factors to consider in underwriting a commercial property and getting yourself educated is critical to avoid very costly mistakes. 

As for Henry's advice to build over buy, I'd say it's market specific. Some markets the cost of the land would not make the new build cheaper than buying an existing one.  

would I also use the same formula (NOI/CAP) when making an offer?

[Joseph Gozlan]

Quote from @Antonio Mcclinton Jr:

Quote from @Joseph Gozlan:

@Antonio Mcclinton Jr ALL commercial real estate is valued using the same formula: Value = NOI / Cap Rate.

Seems simple but there's a LOT going into those parameters.

NOI = Net Operating Income: All the income (money going into the bank) less All Operational Expenses which means all the money that goes out of the bank EXCEPT debt service and items that would be considered capex. 

Cap rate is a factor that's determined by a lot of things and is very specific to your sub market. 

As @Henry Clark mentioned above, there are a lot of factors to consider in underwriting a commercial property and getting yourself educated is critical to avoid very costly mistakes. 

As for Henry's advice to build over buy, I'd say it's market specific. Some markets the cost of the land would not make the new build cheaper than buying an existing one.  

would I also use the same formula (NOI/CAP) when making an offer?

 Not unless you want to lose money…

Before you make an offer, do you have to consider your debt service and other acquisition cost that might be relevant to you and then make an offer that works for YOU.