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!

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!

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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.

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

Chris

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.

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Wayne
Jamestown, ND


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

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

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

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

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

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!

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

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Learning Never Ends, But Will Time?

Proof positive of the value of this site! Mel & MisterJim444 surfaced within 24 hours of your query ravencr, they're the best. No disrespect intended to our other friends who've posted also.

As Wayne stated, I am a resident manager and G. M. for the partnership. Yes, I was off duty today from storage, but Mom kept me busy working so no slacking happening on my part. I've been watching the posts today as time allowed. I've been at this location since 1997. I started at this location when it was a dirt lot and we've doubled in size since then. We are definitely a hands-on type of place. One of the things our customers appreciate the most is that aspect. Sure, it's good to hear for the ego, but we also take very good care of the people as well as the facility. I don't know that the facility would do nearly as well if run by remote. There are other examples around us that prove we've got the right mix going for our area and clientele.

That should be part of your decision making as well. Some markets demand a face to face contact, where as other location sites may do just fine without a live person. Don't be afraid to visit other sites in the surrounding areas, introduce yourself and ask for honest feedback. You may be surprised how many people will share with you the ins & outs of running a storage in that region. I know from personal experience as we've consulted with other potential and eventual 'competitors' in our area and we're all the better for working together.

I helped one gentleman get his site set up with security systems, mgmt s/w, stored his new management team's household goods and everything while they waited for their final permits to come through. And yes, all done at my owner's request! Good luck and I hope you will stick around and keep us posted along the way.

__________________
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.

I just went through a self storage transition of owners. The process has proven to be tough at times but we are finally on track I think. The new owners are new to the industry and are learning about things now that they wish they would have known before making the purchase. For example, roofs and foundation are really important. Make sure the roof is in good shape. Do not just look from the outside, look inside and look for signs of ceiling replacements, mold, bulging, stains, etc. Make sure to pay close attention to the vents and fasteners on the roof too. Many leaking roofs are caused by bad venting systems and horrible, old fasteners that have come loose and allow water to slowly drip through. Over time water builds up creating mold and it soaks in to the ceilngs. It will eventually cave in possibly damaging a tenants belongings or worse yet hurting the tenant. For the foundation I would recommend not buying a property that is build on a clay base. The reason for this is because the ground shifts too much creating constant repairs of asphalt and buildings. Floors crack which allow water to come up from the floor damaging the tenants belongings or just making the building smell horrible. This is a very large investment and should not be taken lightly. I would definitely get some expert financial advise as well as make sure to have reputable companies do inspections. Make sure that any large repairs are either fixed before you complete the purchase or that they are deducted from the final price. You do not want to take out a huge business loan to buy the property only then have to take another one to make repairs such new roofs for the entire property.......that would definitely not be a good start. Oh and good point about checking for the actual $ occupancy. With the economy being so low right now a lot of facilities are running insane specials to close rentals, but once they get in they move out a month or two later. So.....the records show they had this many move-ins, but they really did not make any money.