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Self-Storage Facility Vital Signs: NOI, Cap Rates and Property Value

By Isaac Rothermel Comments

The value of your self-storage property is like your blood pressure; it’s not something you need to track daily, but you should check it every few months to ensure the numbers are moving in the right direction. Unlike your blood pressure, however, you want to see your property value increase over time.

If you haven’t reviewed your facility’s value in several years, there’s a good chance you’ll be very pleased. Low mortgage rates for commercial properties and high demand for self-storage investments have driven up the price buyers are willing to pay. If you’ve considered selling your facility in the last few years or plan to exit soon, now’s an ideal time to find out how much your property is worth.

Since a storage facility is an investment for most buyers, property value is determined using net operating income (NOI) and capitalization (cap) rates. NOI is the money you have left after paying operating expenses, but before loan payments, income taxes and/or depreciation. Let’s look at each component.


For the purposes of determining NOI, most investors and bankers will insist you treat expenses the way an absentee owner would. In other words, though you may handle some tasks on your own, such as management and landscaping, the typical investor/owner pays to outsource them. With that in mind, below is a list of standard operating expenses that need to be considered when calculating NOI:

  • Property taxes
  • Insurance
  • Payroll
  • Third-party management fee
  • Utilities
  • Advertising/marketing
  • Office expenses
  • Lawn maintenance
  • Snow removal
  • General building maintenance
  • Bank charges
  • Retail inventory

To calculate NOI, subtract these operating expenses from revenue, which comes from various sources, including but not limited to:

  • Standard storage rent
  • Late fees
  • Administration fees
  • Tenant-insurance sales
  • Outdoor vehicle storage
  • Retail sales
  • Truck rentals
  • Retail/office/apartment rent
  • Cell-tower leases

Cap Rate

Once you know your NOI, you can determine an appropriate cap rate for your property. An easy way to understand the cap rate is to think of it as the return on investment a buyer would receive in the first year if he paid all cash for the property. Assuming the NOI remains the same in each of the following scenarios, you can see that the lower the cap rate, the higher the price. Conversely, the higher the cap rate, the lower the price. For example:

  • NOI of $250,000 / 9 percent cap rate = $2,777,777
  • NOI of $250,000 / 7 percent cap rate = $3,571,428

The problem is determining the cap rate is as much an art as a science, since it depends on location, property condition and investment-market factors. Let’s examine each to understand their impact.

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