Updated 3 days ago on . Most recent reply
Top 5 Mistakes When Underwriting
I've closed a dozen+ self-storage facilities, walked from maybe 4x that, patterned in a couple dozen more, and coached students through a bunch more. The same 5 mistakes show up on nearly every first-timer's deal. Any one of them can turn a "great deal on paper" into the kind of loss that ends someone's investing career.
Mistake #1: Trusting the Rent Roll Instead of the Bank Statements
Every seller will hand you a clean-looking rent roll. Most mom-and-pop sellers don't understand it's a sales document, not an audit. Some just lie. Either way, the rent roll is fiction until proven otherwise.
What to do: Request 12 months of bank deposit statements. Reconcile gross deposits to the rent roll. If there's a gap larger than 5-8%, you have a problem. Common reasons for the gap: ghost tenants, friends-and-family deals at below-market rates, seller's personal belongings stored free, cash rent that bypasses the deposit record.
Mistake #2: Using the Seller's Expense Ratio
Most mom-and-pops run at a reported 15-20% expense ratio. That's because they don't pay themselves, don't have a call center, don't have software, don't have proper insurance, and don't market. They're subsidizing the facility with free labor.
What to do: Rebuild the P&L at realistic market expense ratios. My rule of thumb: 32-36% expense ratio for a well-run stabilized facility. If seller's ratio is under 25%, assume missing line items. Add back: property management (6-10% of revenue), call center ($3-4 per unit per month), software ($100-300/month per facility), marketing (3-6% of revenue), insurance (market quote), boots-on-the-ground ($200-800/month).
Mistake #3: Ignoring Occupancy by Unit Size
A facility at 92% overall occupancy sounds great. But if 10x10 units are at 55% and 5x5 units are waitlisted, you have a marketing problem masquerading as a full facility. Most first-timers only look at the summary number.
What to do: Request a unit-level occupancy report. Analyze by size. Compare to the market: if competitors have 10x10 waiting lists, yours should too. A mismatch tells you pricing is off, marketing is off, or there's a physical issue (flooded, poor access). Size-level occupancy also tells you exactly where to run promotions and where to push rates.
Mistake #4: Financing Like a Bank Instead of Thinking Like a Seller
New investors spend months at banks trying to get a 25% down commercial loan. That's a valid path. It's not the best path for every deal.
What to do: Ask what the seller actually needs. Most mom-and-pops want some mix of three things: a lump sum, monthly income, or tax deferral. When you understand which they care about, you can structure creatively.
Example structures I've used: 100% seller financed with $50K down, 7% interest, 10-year balloon on 25-year amortization; 50% private money (10% interest, 24-month term) + 30% seller carry second + 20% cash; 80% bank + 15% seller carry second + 5% cash.
Every deal is a puzzle. When the seller IS the bank, the Fed rate becomes almost irrelevant.
Mistake #5: No Exit Thesis
Most investors buy and "figure out the exit later." Then they're at the mercy of the market when they need to sell.
What to do: Before you close, write down your 3 exit options and the triggers for each.
Option A (Hold forever): what NOI do you need at stabilization to justify a hold-forever cash-on-cash return?
Option B (Refinance and recycle capital): what appraised value do you need at month 24-36 to pull your equity out?
Option C (Sell): what cap rate environment + NOI would trigger a sale? What's your 1031 candidate list?
Having the exit written down at acquisition changes how you operate. You're not just running the facility — you're running it toward a target.
Storage is the simplest asset class I've ever owned. That's why so many investors assume they can wing the underwriting. They can't. The asset is simple. The underwriting isn't.
If you're about to write your first LOI, shoot me a DM and I'll send you my Deal Filter. Will save you alot of time and if you fail any of them, fix it or walk
Happy to dig into any of these with more detail :)