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  1. #1
    ravencr is offline Junior Member
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    Nov 2009
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    Default Looking to buy...valuation methods?

    Hello everyone,

    I've been researching both campgrounds and self storage facilities for going on a year now, and I believe I've finally found a self storage facility that fits my criteria. But, I'd love to hear everyone's opinions on placing a value on a facility and making sure I get it for as good of a deal as possible and the sellers are happy with their end of the bargain, as well.

    In the campground business, from what I understand the general rule of thumb is 8-10 times the park's true net income before debt service. Obviously other factors play a role here, such as nearby competitors, surrounding attractions/reasons to stop in, location in relation to interstates, and cap rates.

    Is there a similar rule of thumb for pricing self storage units, as well? When looking at a facility or multiple facilities, should I be looking at a "top 10" list of things or items that should check out before proceeding?

    Also, in regards to financing, it seems a lot of park owners are willing to owner finance a portion of the 25% down payment to help new owners without all the money required down to purchase their park. Is this normal in the self storage business, as well?

    Also, is there a general rule of thumb for optimal occupancy for maximum profitability?

    I have so many questions...sorry folks, but I'm at the point I'm ready to make a decision on some properties. I'd really appreciate any insight into the above questions or anything else you'd like to share for a first time investor. I will note that the properties I'm looking at have kiosks with a telephone, electronic gates, and are currently managed by a call center providing instant access for the customer if needed. I'll be planning to continue to run these locations remotely in the same fashion, but instead of the call center, the calls will be fielded by myself and my wife in the beginning.

    If I haven't provided enough information to make any recommendations, please ask me for more info...I'll gladly provide it to get good feedback from other experienced owners in this business.

    Thanks in advance for your help!

  2. #2
    Gina6k's Avatar
    Gina6k is offline Moderator
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    Default Re: Looking to buy...valuation methods?

    Welcome to the forums ravencr! By morning, you'll see people jumping in to help you out a bit. Might I suggest you peruse the many free publications available for more help until the 'real' people who can help surface?
    There are so many tidbits of information and such available to help you out along the way, in addition to the great people that comprise the SST forums.

    Search for some keywords within these confines and you may find some helpful info for your decision making.

    Also, give this link a try for the free e-book downloads. Welcome to our little corner of the WWW!
    Gina 6k
    CochraneStorage dot com
    Morgan Hill, California
    twitter.com/CochraneStorage

    You only live once, but if you do it right, once is enough!
    I am not an attorney, just an experienced manager who is willing to share what I have learned. Your thoughts, practices or opinions may vary and neither of us may be right.

  3. #3
    ravencr is offline Junior Member
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    Default Re: Looking to buy...valuation methods?

    Thanks Gina...I really appreciate the help. Do you manage you facility remotely or on-site, if you don't mind me asking?

    Chris

  4. #4
    Autodoc's Avatar
    Autodoc is offline Mod eMeritus
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    Jamestown, ND
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    Default Re: Looking to buy...valuation methods?

    I think Gina is off today, but I do know that she is a resident manager - just as I am.

    I hope someone with better knowledge then I comes in here soon to help you with your questions.
    Wayne
    Jamestown, ND


    All arguments can be resolved ... with high explosives and Humor!!!

  5. #5
    astro is offline Moderator
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    Default Re: Looking to buy...valuation methods?

    Definitive, no. A fair guess? Yes. Back in the day, you started negotiating in the range of 8 to 10 times net income. I would guess that now, it would be in the range of 6 to 8 times net. So much else enters into the calculations, as you mentioned in your post. We do have members that have experience in that level if management/ownership, than I.

    Be patient, you will receive responses.

    Welcome to the group, and never be afraid of asking your questions, as there are probably 50 people out there that are just waiting for you to ask, rather than them.

    Good Luck
    Bob Taylor (Astro)
    Blue Ridge Self Storage
    Cashiers, NC

    Disclaimer: What Gina said....'cause the the cheese fell of my cracker.

  6. #6
    Mel Holsinger is offline Senior Member
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    Jan 2008
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    Tucson, Arizona
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    Default Re: Looking to buy...valuation methods?

    Quote Originally Posted by astro View Post
    Definitive, no. A fair guess? Yes. Back in the day, you started negotiating in the range of 8 to 10 times net income. I would guess that now, it would be in the range of 6 to 8 times net. So much else enters into the calculations, as you mentioned in your post. We do have members that have experience in that level if management/ownership, than I.

    Be patient, you will receive responses.

    Welcome to the group, and never be afraid of asking your questions, as there are probably 50 people out there that are just waiting for you to ask, rather than them.

    Good Luck
    I would seriously look at working with a self storge consultant that has experience in acquisitions as well as management. I would suggest Mr. Jim Chiswell( Mr. Jim on the forum) as he has been involved in many of these transactions.

    In todays world, a 9-11 cap rate is not unreasonable, you have to look at many things in order to determine a fair buy price as well as the seller has to consider true market value and not potential market value.

    Just some food for thought.

    Bottom line, this is a big financial commitment and I would advise getting profesional help at least for the first project.
    Mel Holsinger, President
    Professional Self Storage Management, LLC
    3434 E. Kleindale Ste. E
    Tucson, AZ 85716
    O: 520.320.9135
    F: 520.320.9435
    www.proselfstorage.com

  7. #7
    r_lee5 is offline Senior Member
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    Lodi Ca
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    Default Re: Looking to buy...valuation methods?

    Be sure you are looking at the true gross income, not the 100% ocupancy $ reduced by the vacancy rate. Get the previous years' financials and vet them against the sales agents' documents. I've seen a number of cases where these numbers are quite disimilar where heavy discounting was done pre-listing to boost the occupied unit %. Also check the reports in the site software for expected or anticipated income. Most "management summary" reports or consolidated management reports will have an income $ figure that factors in vacancies as well as rate variance and concessions. Again compare that # to the previous financials income $.
    Check the expenses for reasonableness. You really have to have benchmarks for industry specific expenses to see if improvements can be made or if there are line items missing or understated.
    Once you have a realistic NOI, I would use an 8 CAP to calculate value on the high side.
    If you, as it seems, are new to the industry, I would agree with Mel: Get expert advice!

  8. #8
    MisterJim444 is offline Senior Member
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    Winchester, Virginia
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    Default Re: Looking to buy...valuation methods?

    ravencr:

    Unlike the camp ground reference you made to a multiple of net income, self storage has traditional be valued based on the capitalization of the net operating income (NOI). R_lee5 makes a very valid point about the reasonableness. Payroll is a great example. The current owner may be paying his son-in-law $1,500 gross a month while you will need a professional manager, plus benefits (unless you are going to manage it yourself).

    Typically a self storage NOI does not include debt service payments or depreciation. Once you arrive at the NOI figure, to arrive at a valuation you would divide the number by the Capitalization Rate that you are willing to accept. If you want to earn a 9% return for example and the facility has an NOI of $150,000, you would be willing to pay $1,667,000; an 8% return $1,875,000. The lower cap rate you would accept the higher the purchase price because it is an inverse relationship.

    OK, but that is just a starting point. That figure assumes that the facility is in solid condition. If during your due diligence, you discover that there are roof leaks on one building and that repair will cost you $25,000 that should come off the purchase price. Trust me the owner already knows what problems he has that he hopes you don’t find. Been there – done that.

    Again back to r_lee5’s great comment about the rent roll. You need to examine every lease, not just review the management summary that the seller gives you. As he said, you want to make sure that they haven’t given away the store with low ball rents just to increase their physical occupancy. Remember, every $10 that the seller is claiming that they are earning in rents you are paying him $125.00 at an 8% cap rate. I don’t care if 100% of the units are rented if they are only paying 60% of the street rates that he claims that they are renting the units for because of deep discounting.

    The value of a self storage facility is not bricks and mortar – land value nor location. It is simply the stream of cash flow that it is producing.

    I would also urge you to follow Gina6k’s recommendations about the many resources available from Inside Self Storage magazine. Just click on the links above to sample the many items that will be helpful.

    Hope that others will join in the discussions with their perspectives on valuation. Best of luck. We all look forward to welcoming you to this great industry.

    MisterJim444
    Learning Never Ends, But Will Time?

 

 
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