MORE IN-DEPTH INFORMATION ABOUT THE SELF-STORAGE INDUSTRY!!! Part II... Cashflow Analysis
Paul Levine
Commercial Realtor and Real Estate Advisor | Retired CPA with over 50 years of income tax experience that no other Commercial Realtor has, Income Tax Consultant and unmatched Creatively!
Self-storage facilities with 40,000 net-leasable square feet, in a market with $9-per-square-foot annual rents, will generate $450,000 in gross annual rents at 100 percent occupancy. Other income is derived from late fees, retail sales, administrative fees, truck-rental commissions, etc., and usually accounts for additional income of 5 percent.
A 10 percent adjustment to the total projected income is common because it represents normal projected vacancy and collection losses. Achieving and maintaining an average occupancy of at least 90 percent should be the goal for every development and should be used to evaluate the project's investment potential.
Normal operating expenses generally range from $2.75 to $3.25 per gross square foot of the development. This variance in expenses is due to the variable cost in different markets, such as property taxes, manager salaries, and utility costs.
The net operating income (NOI) is the balance of the development's income after operating expenses have been paid. Maintaining the highest possible NOI is extremely important because it is used to determine the facility's present and future value. NOI should be from 60 percent to 67 percent of the effective gross income of a development.
Debt service, the amount, interest rate, and terms of the loan completely depends on the financial arrangement negotiated with the lender. The investor's financial health and the lender's perception of the risk involved will oftentimes determine the interest rate, loan amount, and amortization period.
With the determination of a development's actual NOI and the debt service to be paid overtime, a projected cash flow is derived. A positive cashflow of 29.6 percent, "cash-on-cash", return on investment is typical ROI for self-storage investors, which is one of the main reasons for the industry's tremendous growth over the last 25 years.
My name is PAUL LEVINE and I can be reached at (818) 298 - 4000 or you can email me at "[email protected]".