Underwriting a self-storage acquisition means rebuilding the facility's income from its rent roll, its expenses from the bills you will pay, and its value from the NOI you can defend, and then testing what your equity earns if you are wrong.
In practice that is nine steps: rent roll, current NOI, going-in cap, stabilization, stabilized NOI, financing, projection, exit, and a stress test. This guide walks one facility through each.
The example deal
The facility is the Storage Underwriter app's built-in sample: Ridgeline Self Storage, 410 units in 46,200 square feet, offered at $4,650,000 ($99 per square foot). It is 80% occupied with rents below market, and there is room to add 9,000 square feet. It is a hypothetical deal, but a realistic value-add shape. Every number below comes from the underwriting engine, not from a spreadsheet typed by hand.
Dark doors are occupied units today; orange doors are the units the lease-up has to fill to reach 90%.
1. Start with the rent roll, not the offering memo
The rent roll is the one document that describes every unit. Summarize it by size: units, occupied units, the average rent those tenants actually pay (in-place), and the rent you believe the market supports.
| Size | Units | Occupied | In-place | Market |
|---|---|---|---|---|
| 5×5 | 40 | 31 (78%) | $42 | $52 |
| 5×10 | 68 | 55 (81%) | $64 | $79 |
| 10×10 | 120 | 98 (82%) | $98 | $119 |
| 10×10 CC | 48 | 44 (92%) | $132 | $155 |
| 10×15 | 64 | 49 (77%) | $129 | $155 |
| 10×20 | 56 | 41 (73%) | $158 | $189 |
| 10×30 | 14 | 9 (64%) | $215 | $259 |
| Total | 410 | 327 (80%) | $107 | $130 |
Two facts fall out immediately. Occupancy is 79.8%, and occupied tenants pay 20% below market on a weighted basis. Both are the value-add, and both are assumptions you will have to defend. Check the market rents against competitors' street rates, and check that the unit mix adds up to the building's rentable square feet. The rent roll analyzer does both.
2. Rebuild current NOI from the ground up
Current NOI is what the facility earns today, but on your cost structure. Start from gross potential rent, subtract vacancy, add ancillary income, subtract collection loss, and subtract operating expenses. Check the result against the T12 and the bank deposits.
| Current operations | Annual |
|---|---|
| Gross potential rent (all units, in-place rent) | $530,904 |
| Vacancy | −$111,288 |
| Scheduled rent | $419,616 |
| Ancillary income (tenant insurance, fees, retail) | $41,300 |
| Collection loss (2.5%) | −$11,523 |
| Effective gross income (EGI) | $449,393 |
| Property Taxes | −$31,400 |
| Insurance | −$14,800 |
| Payroll / Labor | −$58,000 |
| Management Fee | −$22,470 |
| Utilities | −$16,900 |
| Repairs & Maintenance | −$12,500 |
| Unallocated estimate (to reach 35% of EGI) | −$1,218 |
| Current NOI | $292,106 |
Two details matter here. The management fee (5% of EGI) is included even if the seller runs the facility personally, because a buyer or lender will assume someone must be paid to manage it. The unallocated estimate tops the entered lines up to a 35% expense ratio, so smaller lines you haven't collected yet (marketing, software, trash) aren't silently zero. In this deal it is only $1,218, which means 99% of expenses are backed by actual figures. Reading a T12 and rent roll covers the adjustments sellers' statements usually need.
3. Price it today: the going-in cap rate
Current NOI divided by the price is the going-in cap rate: $292,106 ÷ $4,650,000 = 6.28%. That is the unlevered yield you buy on day one. It tells you how much of the price the facility already supports, and how much you are paying for upside.
There is a catch in the tax line. The seller pays $31,400 a year. After the sale, the county is expected to reassess to about $46,000. On that bill, today's NOI is $277,506 and the real going-in cap is 5.97%. Run both in the cap rate calculator, and read property tax reassessment before relying on the seller's bill.
4. Define stabilization, specifically
“Stabilized” has to mean something you can test. For Ridgeline:
- Occupancy: 90% physical occupancy, supported by competitors' occupancy in the trade area.
- Rent: every size reaches its market rent, through new move-ins at street rates and increases for existing tenants.
- Time: 18 months, moving in a straight line from today. The lease-up calculator shows what a slower path costs.
- Expenses: held in today's dollars, plus the reassessed tax bill and a $6,000 allowance for the extra marketing and staffing the lease-up needs. The management fee rises with revenue.
- Growth: after stabilization, rent grows 3% a year; expenses grow 3% a year from the start.
5. Stabilized NOI, and where it comes from
Stabilized NOI is $420,230 before the expansion. The NOI bridge breaks the $128K increase into its sources, so each can be challenged separately:
- Occupancy adds $58,198: the new tenants valued at today's in-place rents.
- Rent to market adds $97,848: the rent increase on every stabilized tenant. It is the largest step, and the one most dependent on existing tenants accepting increases.
- Other income adds $4,521, because tenant insurance and fees grow with occupied units. Collection loss takes $4,014 on the higher revenue.
- Expenses take $28,428: the tax reassessment, a larger management fee and the stabilization allowance.
- The expansion adds $92,379 once its 9,000 square feet lease up, for a total of $512,609. It costs $645,000 to build, a 14.3% yield on cost. See the expansion calculator.
At a 6.75% cap, total stabilized NOI is worth $7,594,212, about $2.10M more than the $5,495,725 all-in cost. That value creation is the reason to do the deal, and it only exists if the bridge holds. The value-add guide goes through each step in detail.
6. Sources, uses and debt
| Uses | Amount |
|---|---|
| Purchase Price | $4,650,000 |
| Closing Costs | $42,500 |
| Due Diligence | $18,000 |
| Initial Repairs / CapEx | $85,000 |
| Working Capital | $25,000 |
| Loan Fees | $30,225 |
| Expansion Capital | $645,000 |
| Total project cost | $5,495,725 |
The bank loan is 65% of the price, $3,022,500 at 6.85% on a 25-year amortization, interest-only for the first 12 months ($17,253 a month, then $21,074). The seller carries a $300,000 second note at 6%. That leaves $2,173,225 of equity, and the expansion is funded from equity too.
Coverage is the test that matters most to the lender: 1.25x on today's NOI, 1.39x in year 1 (helped by the interest-only period), and 1.51x at stabilization on amortizing payments for both notes. Break-even occupancy today, including debt service, is 70%. Check your own terms in the loan calculator, and read seller financing before proposing a second note behind a bank loan.
7. Project the hold
The projection runs month by month and sums months into years, so year 1 reflects a facility that is still leasing up, not a stabilized one:
| Year | NOI | Debt service | Cash flow | DSCR |
|---|---|---|---|---|
| 1 | $324,789 | $232,833 | $91,956 | 1.39x |
| 2 | $438,715 | $278,680 | $160,035 | 1.57x |
| 3 | $512,896 | $278,680 | $234,216 | 1.84x |
| 4 | $534,599 | $278,680 | $255,919 | 1.92x |
| 5 | $550,637 | $278,680 | $271,957 | 1.98x |
Year-1 cash-on-cash is 4.2%; at stabilization it is 10.8%. That gap is normal for value-add, but it means the equity has to be patient.
8. Exit and returns
At the end of year 5 the facility is sold on the NOI a buyer will get next, year 6's $567,156, at a 6.75% exit cap: a $8,402,312 sale price. After $168,046 of selling costs and $3,066,909 of loan payoff, net proceeds are $5,167,356.
Put the equity in, the annual cash flows and the net proceeds on a timeline and the deal produces a 25.1% levered IRR and a 2.84x equity multiple (15.6% unlevered). The exit cap is set at the valuation cap, above the 6.28% going-in cap, so the return does not depend on cap rates falling. Self-storage returns explains each metric.
9. Stress-test, then decide
No deal goes exactly to plan. The two assumptions that move a value-add storage deal most are the occupancy it stabilizes at and the cap rate it sells at, so test both at once:
Even at 80% occupancy and a 7.75% exit cap, the levered IRR is still 13.6%: below a 15% target, but far from a loss. That resilience comes mostly from buying at a going-in cap that already covers the debt (1.25x on today's NOI).
Last, compare the deal with the targets you set before you saw it. Against the app's default targets, Ridgeline is worth a closer look. This deal meets 3 of your 4 investment targets. Yield on Cost of 9.3% is below your 10.0% target. It also raises two flags worth writing down before an offer:
- Large rent increase required. Stabilization assumes in-place rents rise 20% to market on a weighted basis.
- Projected property tax increase. Taxes are modeled to rise 46% after reassessment; the going-in cap uses current taxes.
Those are exactly the assumptions the due diligence checklist should confirm: market rents from a competitor rate survey, and the tax bill from the county assessor.
This guide is general education about self-storage underwriting, not investment, lending, tax or legal advice. Figures from third-party reports are cited with their dates and change over time.