Understanding the Valuation of Your Self-Storage Property
Self-storage property valuation is an analytical tool that looks at all the factors that make your property valuable to determine its worth. Knowing your property’s valuation can help you maximize your profits when you decide to sell.
Buyers seeking self-storage unit facilities are interested in the current income of the business, the value of the property and the potential for growth.
Self-Storage Property Valuation Factors
To have a thorough understanding of the valuation of your storage unit property, you have to consider some of the factors that go into the determination.
Professional evaluators calculate valuation based on several complex and dynamic factors. These experts know exactly what data to collect and analyze to give you an accurate estimate.
Some of the most impactful factors that go into storage unit property valuation include net operating income (NOI), occupancy, cap rates, market level, location and demographics.
You can determine your business’s NOI by subtracting your operating expenses from your total income to determine how much profit you are bringing in over time. This figure is used to determine the current value of your facility and can also predict future value. It’s used in calculations of some of the other factors listed below.
Percentages for occupancy provide snapshots of the state of your income in comparison to your total potential at a certain period. Collected over several months or a year, these figures can show consistency or growth.
Valuation considers two types of occupancy percentages — physical and economic. Physical occupancy is the percentage of units you have occupied out of the total number available, while economic occupancy calculates what percentage of units are rented out at full price.
Cap rates — also known as capitalization rates — are determined by dividing your NOI by the current market value. This figure reflects the totality of the market conditions, including what the buyer will pay, what the seller will accept and what lenders are willing to underwrite to complete a purchase.
There are three different cap rates that can factor into your valuation:
- Current cap rate: Recent performance, based on three to 12 months of income and expenses
- Pro forma cap rate: Projected potential based on predicted market values
- Market cap rate: A constantly changing figure based on recent sales, economic outlook and supply and demand
Buyers will pay more for properties in primary markets because these areas offer high traffic volumes, wealthier clients and greater potential. Many buyers will pay the lowest cap rates in primary markets rather than buying in secondary or tertiary markets with higher cap rates because they anticipate more consistent growth.
Location and Demographics
Your self-storage unit property’s physical location can increase your valuation if you are in a high-traffic, highly visible area. The demographics of your location also help determine your value.
Your valuation may also be higher if you’re located somewhere with a relatively high median household income or an area with military bases, universities or major housing developments that drive performance.
Professional Brokers Simplify Valuation
Getting your valuation early in the selling process is vital for any self-storage property seller who hopes to profit from selling their facility. Without a valuation, you can’t be sure you’re getting paid what your property is actually worth.
Professional self-storage brokers can talk you through the critical factors and give you a better understanding of your storage unit property’s valuation, which allows you to make improvements that raise your property’s value.
Get a Free Valuation From IRE
If you’d like to understand the value of your property, start with a free valuation from the team at Investment Real Estate, LLC. We want to help your property reach its ultimate potential so you can maximize profits when you sell.
Contact us online for more information or to schedule your valuation today.