Self-Storage Terminology You Must Know: Business, Finance and Real Estate

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Deferred maintenance: The overall impact of postponing or neglecting maintenance and periodic repairs. This saves money in the short run but frequently results in shortened asset life or more costly repairs later. This is different than preventive maintenance.

Due diligence: The process of investigating and obtaining the details of a situation, often in conjunction with the purchase of real estate (Doing your homework).

Debt service: Payments made on the facility’s loan. This is the interest, fees and principal due to the bank on a monthly basis.

Diversification: The technique of reducing risk by investing in different things.

Economic occupancy: The occupancy in terms of dollars compared to gross potential.

Gross Rental Income divided by Gross Potential Rent = Economic Occupancy.

Feasibility study: A study to determine the likelihood of the success of a project. It usually contains assumptions on rates, market conditions, construction costs, etc. It is one part of the due diligence process.

Generations of storage facilities: To date there are three generations of self-storage facilities:

  • First generation 1965-1988: Metal buildings with rows of garage-type storage in industrial parks or on other land that otherwise would have no real use. Usually no climate control.
  • Second generation 1989-1993: Characterized by improvements such as better locations, paved driveways, security technology, computerization, climate control, etc.
  • Third generation 1993 to present: State-of-the-art facilities in prime locations with high drive-by-traffic counts, excellent visibility, signage, temperature or humidity control, business-oriented areas. Some are designed to resemble upscale hotels or office buildings. Offer ancillary services such as wine or firearms storage, boat/RV storage and upscale amenities such as WiFi and business services.

Gross income: Income minus expenses before taxes.

Gross potential rent: The total dollar amount the facility would gross each month if every unit were rented at the street rate.

Lease up (aka absorption period): The period of time needed to fill a self-storage facility. A storage facility is usually considered fully rented or leased up at 85 to 90 percent. Occupancy must be held for three to six months.

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