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How to Value a Self-Storage Facility

Buyers of self-storage facilities mostly price one number: net operating income, or NOI. Here is the method, so you can run it on your own facility before anyone calls.

1. Count the rent you actually collect

Take the number of units, the share that is occupied, and what customers really pay each month, not your posted rates. Take off discounts, free months and bad debt. This is your collected rent.

2. Add income that is not rent

Tenant protection or insurance plans, admin and late fees, retail, truck rental and parking all count. Keep them on their own lines so a buyer can see them.

3. Subtract every cost, including a manager

Property tax, payroll, insurance, utilities, marketing, repairs and the rest. If you run the place yourself, a buyer will still charge a management fee, because they are not buying your free labor. Leave it out and your number will look better than theirs.

4. Divide by a cap rate

What is left is NOI. A cap rate is NOI divided by price, so price is NOI divided by the cap rate. A lower cap rate means a higher price. Nobody can give you the right cap rate without knowing your market, so ask brokers and buyers what they are using, and look at a range rather than one number.

Where owners go wrong

• Using posted rates instead of what customers pay.
• Leaving out a management fee.
• Forgetting that a sale can raise the property tax assessment.
• Looking at one cap rate instead of a range.