Small Self Storage Analysis

[Adam Feick]

I am looking at a small self storage facility.  Here is the information I know.

2 buildings, 46 units total.  Fenced in with automatic gate.  Space for another building (about 24 units) and RV/boat storage 10~15 spaces.  

Asking price $185,000

Current potential gross rent $1,930 (mo), actual gross rent $1,320 (mo).  Just recently have occupancy at 80%, but it is not reflected in their income yet.  The current rental rates are near market rent little upside.  

Expenses:  Taxes $100/mo, Electric $60/mo.

The current owner self manages and has it mixed in with other investment properties.  Their records are terrible and they can't tell me how much in maintenance, insurance, lawn care, etc. that they have.  Only taxes and electric.  

My assumed monthly expenses at the sellers price:

Taxes $170, Insurance $70, maintenance $70, management/software $110, lawncare $75, misc $50.  

This puts the Cap-rate sub 5%.  For the area cap rates are selling around a 7%.  

Can anyone tell me are my assumed expenses out of line?  

What other expenses should I be thinking about?

Thanks in advance!

[Kevin Bledsoe]

@Adam Feick

Adam, so it looks like the issue is that you have is that expenses , with $400 a month in Onsite Staffing, is going to be about $13,500 under your assumptions. The Net Effective Income is only $15,840, so your NOI is $2,340. The Gross Potential Income is $23,160 but that isn't what's actually being collected and that's your upside. So the issue, if I'm reading your numbers correctly, is that the property, at an 8% cap rate, is really worth $30,000. If they were collecting the Gross Potential Revenue then your NOI would be $9,660. At an 8% cap rate you would have a value of $121,009. Maybe you give them $10,000 in value for expansion room.

I’m not sure where this property is located but it sounds fairly tertiary. Cap rates in tertiary markets for a property of this size will be much closer to an 8% cap rate, even with low interest rates.

If all of my assumptions from you post are correct I don’t think that this would be a wise investment at that price. What I usually find is that there are so many buyers making blind calls to to self storage owner’s, telling them unrealistic property values, and they have pie in the sky numbers in their head. It sounds like they probably need a knowledgeable broker in this space to give them the real number or maybe this is what they have into developing the property.

You can add revenue management, tenant insurance, collect more late & admin fees but those things won’t fill the revenue void.

If I misread your assumptions on revenue and expenses feel free to correct my numbers and redo the math problem.

Hopefully this all makes sense and best of luck!