Acquiring mini-storage units. Help on analyzing this deal.

[Jay Helms]

Afternoon BiggerPockets Tribe! I have a 38 unit mini-storage building under contract. It is a one 2800 sq ft building facility (built in 2004) on approx. 1 acre of land. With the opportunity to build more buildings and/or offer Boat/RV storage. I had a mini-storage friend review the below with me and he essentially told me the business wasn't worth anything, that I should just offer to buy the land at market value. Realizing that is only one opinion and encourage me to prove him wrong, I want to gain additional insight for guys who have experience in self-storage. My wife and I plan to self manage. 

• Self Storage Purchase Price: $169k

Current: 

• Annual Income: $15,180
• Annual Expenses: $3,487
  • Insurance: $1,636
  • Property Taxes: $1,177
  • Electricity: $762
• NOI: $11,693

Year 1 Pro Forma:

• Annual Income: $17,460
• Annual Expenses: $4,720
  • Insurance: $1,220
  • Property Taxes: $1,375
  • Electricity: $762
  • Grounds Maintenance: $1,400
• NOI: $12,740

38 Unit Breakdown (currently under market rents by $2-8/unit). 

Current Rents: 

• (20)  10x10 @ $45
• (14)  10x5 @ $25
• (4)     5x5 @ $15

What do you think about this deal? What expenses am I missing? 

[Michael Wagner]

It may not be too small for you...but it would be for me.  First, you can't take advantage of the economies of scale like you can in a bigger facility....meaning that as you expand, your revenue will increase faster than your expenses which will have a positive effect on profit.  So if you can expand, it might be worth it.   Also, it might be a good way to "cut your teeth" in this industry.

The other thing to consider is that your time is worth a certain amount of money.  Self managing a facility of this size will take you as much or more time than managing a facility 10-20 times larger with a part time employee.  I'm not saying its not a good deal for you, just consider what else is out there. 

From a valuation standpoint, you can't really run any facility for under $5K per year management expense so once you add that cost into your equation you are looking at an NOI of $6K or so, With that the value would be around $60K...and while I get that you will be self managing, I doubt you would agree to do so for the next owner for free of charge. The flip side, is this facility would cost about $100K plus the cost of land to build....just some things to think about.

To me, I would want approvals and need to have financing in place to expand right off the bat for me to consider this.