analysis of a 192 Self Storage Unit Deal

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I have located a set of storage units that are for sale near our local Air Force Base. Its an older property, Mom and Pop shop. 192 units, ranging from 8X10 to 30X30. Rents range from $20 per month to $60 per month. Current Occupancy is 50%. It includes 5 acers of land with some pretty desirable frontage near the Air Base. There is room to increase the number of units or to use the frontage for a separate business. There are also 2 mobile homes on the property that are available for rent that I think were used for the onsite property management. I am going to leave them out of this equation. I think they probably contribute to the occupancy problem

The reasons for the low occupancy see pretty clear when you drive the site. There is no security fencing, poor lighting, poor signage and a lot of deferred maintenance. There are a lot of doors that need repair or replaced, paint and most of the buildings appear to need new roofing.

Seller is asking $325,000 and will do owner financing with 15% down. Unsure about the terms.

Lots of due diligence do here... but some rough estimates.

With out seeing a Profit and Loss Sheet, I am going to guess at gross monthly income

192 units X 50% occupancy X $45 Average Monthly Rental equals $4320.

Assuming $50K down payment, financing $275,000 for 20 years at 8% would be a payment of 2,300.

Guessing at Property Tax is $3600 per year, or $300 per month

Guessing at Insurance at $3600 per year, or $300 per month

Guessing at Property Management at 10% or $500 per month

Guessing at Repair costs of $150K,

So some quick estimates on potential Cash Flow before repairs looks like:

$4320 gross income

- $2300 Mortgage,

- $300 Property Tax.

- $300 Insurance

- $500 Property Management.

- $300 Utilities

So a rough cash flow of $620 per month, $7440 per year, so the CoC return with $50,000 down payment and $10,000 in closing costs, and start up costs, looks like about $12.4%.

If $150,000 in Repairs, Fencing, Lighting and Signage increased the Occupancy Rage and Average Rent, I think the numbers might look like:

192 units X 85% occupancy X $55 Average Monthly Rental would equal gross monthly income $8976

$425,000 for 20 years at 8% would be a payment of $4062

So a potential Cashflow would be

$8976 gross income

- $4062 Mortgage,

- $300 Property Tax.

- $300 Insurance

- $500 Property Management.

- $300 Utilities

Equals a monthly Cash flow of $3514, or yearly return of $42,468.

What am I missing in these numbers? What financing options are there for the long term financing?

If I am right on the NOI numbers, at 8% CAP Rate, the valuation after improvements would be $530,000?

I would drill down on the guesstimate costs and get quotes.

Also 8% is pretty high on the financing. Maybe you can get that down to 6.

Just a couple quick thoughts.

Industry standard operating expenses will be in the 30-35% range.  If you run really lean you can hum along at 26-28% using remote management strategies but I personally would still use the 30-35% to be safe.  Those rates are VERY low.  Compare them to what nearby facilities are charging to get a better idea of what you will be able to charge after improvements.  Very few markets have rates below $0.50 per square foot per month as long as the property is clean enough and well run though most of my experience is on my side of the Mississippi:)!