Valuing Self-Storage Investments

Self-Storage Investment - Complete Controller

Self-storage has recently gained acclaim as a valuable commercial real estate investment owing to individuals’ and businesses’ increased storage and warehousing needs. Let us briefly explain what self-storage means in the world of real estate. Self-storage deals with renting out storage space to individuals or businesses, usually on a short-term basis. 

The storage facility can uphold household goods and equipment inventory and archived business records. If you are looking for a self-storage facility for purchase, it is essential to evaluate its gross potential or the value it is likely worth in the market. Below are a few ways to calculate the gross potential of a 
self-storage commercial property.

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Get Actual Figures

It is crucial to emphasize assessing the storage facility’s actual business figures. These figures relate to payments made for self-storage utilities, maintenance, advertising, and the revenue generated from unit rentals within a real estate property. Once you have the actual numbers with you, and it is vital to understand that these figures cannot be estimates, you can make the necessary calculations. 

Using estimates will not allow you to calculate gross potential in a self-storage property accurately. 

Once the various costs have been identified and factual figures have been acquired, you can calculate the gross income and potential net profits from the self-storage facility. This is one method to calculate gross potential in a self-storage facility, with help from the property owner. Property owners who fail to disclose this information can make evaluating a self-storage property tedious. However, you can obtain the information required through industry journals and published annual reports from real estate companies.

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Determine a Capitalization Rate

Identifying the capitalization rate is another significant step in calculating gross potential in a self-storage facility. The cap rate is vital in estimating a return on investment (ROI), and it may be lower in popular areas and locations where strong-profile tenants are common. For areas that are low in popularity, typically comprised of older buildings or weak-profiled tenants, a higher cap rate may be fixed to account for maintenance and repair services as and when required. These factors can help you decide a cap rate in any given area. 

However, since the emphasis has been on actual figures and not forecasted ones, you may want to inquire with a property owner about the prevalence of the cap rate in a given area where the self-storage property is located. The cap rate can also be calculated using the net operating incomes and recent sale prices of comparable properties. The determined rate may then be used to calculate the current market value of the self-storage facility. In this case, the value calculation is how we calculate gross potential in a self-storage property.

Now that you have both the operating income and cap rate, you can calculate the self-storage property’s value by putting the figures in the valuation formula. Critical aspects to remember when calculating gross potential in a self-storage property include monthly cash flows, value appreciation over time, tax advantage, tax break from depreciation, and any significant expenses usually included in the business bookkeeping process. These expenses can span from mortgage interest, insurance, advertising, and management to repair and maintenance of the facility.

If you are looking to purchase a self-storage facility, it is essential to evaluate its gross potential or the value it is likely to be worth in the market.

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Conclusion

In conclusion, due to growing demand, self-storage has emerged as a lucrative investment in commercial real estate. Evaluating a self-storage property’s gross potential involves analyzing actual figures, determining capitalization rates, and considering various expenses. Understanding these factors is crucial for accurately assessing a self-storage facility’s value and potential profitability before making a purchase decision.

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