To value a self storage facility, find its net operating income (NOI) and divide it by a capitalization rate taken from recent sales of similar facilities. The result depends on your NOI, so adjust income and expenses the way a buyer would, and get the cap rate from a local broker, lender or appraiser.
This is general information, not appraisal, legal or tax advice. A licensed appraiser or broker should support any real transaction.
The formula
Value = NOI / cap rate
The cap rate is NOI divided by price. If a facility sold for $2,000,000 and had an NOI of $180,000, the cap rate was 9 percent. A lower cap rate means a higher price for the same NOI.
Cap rates change with the market, location, size, condition, occupancy and interest rates. Any number printed in an article is old by the time you read it. Get a current one from someone who sees local sales.
Step 1: Start with income you can prove
Use the last 12 months of collected income, not potential rent.
- Pull rent collected from your books or reports.
- Add fees and other income you really collected: late fees, admin fees, lock sales, tenant plan income.
- Subtract refunds, credits and uncollectible balances.
- Check against bank deposits. See bookkeeping for self storage.
Learn the terms gross potential rent, economic occupancy and physical occupancy. A facility that is 90 percent physically full can be 80 percent economically full if tenants are late, on specials or paying low rates.
Step 2: Adjust the rent roll like a buyer
A buyer starts from the rent roll and asks which rents will stick.
| Adjustment | Why |
|---|---|
| Remove free and discounted months | The roll may show full rent while a special runs |
| Remove units used by the owner or friends | Count them at market, or not at all |
| Write off old balances | Uncollectible rent is not income |
| Do not count vacant units | Even if "about to rent" |
| Be careful with below-market rents | Upside exists, but a buyer will pay only for what they can capture |
Step 3: Rebuild expenses at buyer levels
| Expense | What buyers do |
|---|---|
| Property tax | May reassess at the sale price. Ask the county assessor |
| Insurance | Re-quote on their coverage |
| Management and payroll | Add a market cost even if you work for free |
| Repairs | Use a realistic yearly figure, not a lucky year |
| Utilities | Use actual bills |
| Software, website, marketing | Include all of it |
| Reserves | Some buyers set aside money per year for roofs and paving |
Exclude loan principal and interest, depreciation, income tax and one-time items.
Step 4: Get a cap rate
Ask for it. Sources:
- A broker who sells storage in your region
- A lender who finances storage deals
- An appraiser who values storage
Ask: "What cap rates have similar facilities sold at in the last year, and how does mine compare in size, condition and occupancy?" Get a range, not one number.
Worked valuation: a 100-unit facility
Say you own 100 units, with 92 occupied. These are made-up numbers for the example.
Income
- Average in-place rent: $105 a month on 92 units
- Rent collected: 92 x $105 x 12 = $115,920
- Late fees and other income: $6,000
- Less uncollected balances written off: ($3,000)
- Effective income: $118,920
Buyer-adjusted expenses
| Item | Amount |
|---|---|
| Property tax | $11,000 |
| Insurance | $4,500 |
| Utilities | $5,000 |
| Repairs | $6,000 |
| Software, website, processing | $3,500 |
| Marketing | $2,000 |
| Management (market cost) | $12,000 |
| Reserves | $3,000 |
| Total | $47,000 |
NOI = $118,920 - $47,000 = $71,920.
Now apply cap rates. Say a local broker gives you a range of 8 to 10 percent for comparable facilities:
| Cap rate | Value ($71,920 / rate) |
|---|---|
| 8% | $899,000 |
| 9% | $799,111 |
| 10% | $719,200 |
Rounded: about $899,000, $799,000 and $719,000. The range is wide, which is typical. A buyer who pays $800,000 for this facility is paying about $8,000 per unit ($800,000 / 100) and getting a 9.0 percent return on NOI. Price per unit is a sanity check. NOI decides.
What moves value
Small changes in NOI have big effects, because they get divided by the cap rate.
Worked example (illustrative)
At a 9 percent cap rate, each $1,000 of added yearly NOI adds about $11,111 of value ($1,000 / 0.09). Say you raise rents on 40 long-term tenants by $5 a month. That is 40 x $5 x 12 = $2,400 a year. At 9 percent, that is about $26,667 of value, if the rents stick and tenants do not leave. Cutting a $3,000 yearly expense you do not need adds about $33,333. See how to raise rent on existing tenants.
Other drivers:
- Higher economic occupancy and lower delinquency
- Better rates (street rate and in-place rent). Test scenarios in the revenue and occupancy calculator
- Lower expenses
- Property condition, location and land for expansion
- Clean records that buyers trust
Other ways to value a facility
| Method | What it is | Use |
|---|---|---|
| Income (cap rate) | NOI / cap rate | The main method |
| Price per unit or per square foot | Compare with local sales | Quick check |
| Replacement cost | What it costs to build new, less depreciation | Upper bound for buyers |
| Discounted cash flow | Projects future cash and discounts it | Larger deals, investors |
An appraiser may use all of them. Lenders rely on appraisals and DSCR; see self storage financing.
Buying versus selling
If you are buying, underwrite conservatively and verify everything; see buying an existing self storage facility. If you are selling, prepare the numbers and the proof; see how to sell a self storage facility.
Mistakes to avoid
- Using potential rent instead of collected rent
- Forgetting a management cost
- Taking a cap rate from an article or a listing
- Valuing on projected rent increases
- Counting the owner's personal expenses as business costs, or the reverse
- Ignoring deferred repairs
Checklist
- 12 months of collected income tied to bank deposits
- Rent roll adjusted for specials, delinquency and vacant units
- Expenses rebuilt at buyer levels
- NOI calculated
- Cap rate range from a broker, lender or appraiser
- Value shown as a range
- Price per unit used as a check only
Common questions in a real valuation
Should I use the trailing 12 months or a projection? Use the trailing 12 months for the base, and show projections separately. A buyer pays for what they can verify.
What if I recently raised rents? Show the effect on collected income, not just the rate. If rents rose three months ago, a trailing figure understates income and a projection overstates it. Be open about both.
What if occupancy is low? Low occupancy can mean room to grow or a weak location. Buyers will look at why. Explain what you have done and what you would do with a full-time effort.
How do I treat expansion land? Land you could build on has value, but it is separate from the income value. An appraiser may value it apart. Ask.
When to get a professional opinion
For a sale, a purchase or a loan, ask for a broker opinion of value or a licensed appraisal. They bring local comparable sales, which you do not have. Give them clean records. Ask them to explain each adjustment and the cap rate they chose, so you can learn from it and spot mistakes.
Using the result
Use the valuation to decide, not to feel good. If the value is lower than you thought, ask what raises NOI: fewer late payments, better rates, lower waste. If you plan to buy, compare the price with your own NOI estimate and walk away when they do not meet.
This is general information. Get a professional valuation before you buy, sell or borrow.