Self storage underwriting

[Eric Hrlbock]

I am interested in purchasing self storages.  I contacted a couple of owners and found one that is interested in selling. The owner had a arbitrary number in his head but I want to know how other underwrite self storage.   I own single family and multi family but feel pretty much lost with the self storage.   Any information will be helpful.  

[George Fitz]

Eric, Self Storage is usually valued like most other commercial real estate. It's all about NOI and cap rate. Generally the older the property, and smaller the market, the higher the cap rate. You'll see class A properties in large markets at sub 5 cap rates. But an older property in a rural market may go above 10. Obviously the main thing you want to look for is upside so can drive NOI through better management, adding new revenue streams, or expansion. Ask for a P&L and a management summary report from the owner. You need to make sure their expenses are reasonable and will be similar if you take over the property. But don't trust any expense numbers that aren't at least around a 35% expense to income ratio. As others have mentioned, best to do your research and get educated.

I met Mike Wagner recently and he knows his stuff- he'd be a great resource. Scott Meyers has an academy every few months that is very valuable. He also has home study and other options. You definitely need to check out what he offers. The ISS conference is coming up in April in Vegas. That would be worth a trip. There are many other ways to get educated online. 

Also, I would respectively disagree with Eli. If properly run, and depending on the property, self-storage can actually be way less time and effort than residential rentals. That's been my experience, as well as most others I know who have gotten into it.