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Open self storage unit full of cardboard boxes. 3d rendering

Nowadays, self-storage facilities have become a popular solution for people who look to store various items. Both individuals and businesses use these facilities for a variety of reasons. Self-storage benefits them by providing an affordable means for storing both small and big items. It has achieved many commendations as a valuable commercial real estate investment. You may be thinking how to put a value on the self-storage facility, because if you are looking to have a self-storage facility than you should calculate its gross potential as it helps to determine the value that is likely to be worth in the market. The following are the few ways through which you can calculate your gross potential for a self-storage facility.

 

Get the Actual Figures

The emphasis in this type is upon accessing the actual figures that are related to the payment made for self-storage regarding utilities, maintenance, advertising, and the actual revenue generated associated with the rent from the real estate property. Once you have gained the actual numbers, you go through the necessary calculations to evaluate the gross potential of a self-storage facility. It is imperative to understand that using estimates will not allow you to determine the gross potential of a self-storage facility on an exact and realistic basis. Once all the cost heads have been identified, and actual figures have been attained. Then you can calculate the gross and net profits that can be generated by the investment of self-storage. In this method, the gross potential of self-storage potential can be calculated by taking help from the property owner.

Evaluating the gross potential of self-storage facilities can become a tedious job if the property owners fail to disclose such information. But still, you can get information if you want to calculate the gross potential of self-storage facilities, by going through the industry journals and published annual reports of real estate companies. Calculating the gross potential in the self-storage business and bookkeeping both play an essential role as it records the business transactions through which required data can be retrieved.

Determine a Capitalization Rate

Two factors can affect the property value, which includes: Net Operating Income (NOI) and the capitalization rate (cap rate). NOI can be calculated in the same way as it has always been. Still, recent chaos in the economy and financial markets have pushed the cap rate higher that is why identification of capitalization rate is one of the significant steps to calculate the gross potential in a self-storage facility. However, it is essential that NOI should be calculated for the facilities of self-storage by using the industry-standard parameters for other income and operating expenses. It is defined as the money left after all the operating costs are paid, in which the debt services and depreciation are excluded. You can look at the potential monthly rent flows from the annual reports in which other incomes are added, and economic vacancy is subtracted. The resulting figure is known as the effective gross income (EGI). To calculate the NOI, the operating expenses are subtracted from EGI.

To estimate a return on investment (ROI), the cap rate should be calculated first. This cap rate may be lower in the areas where tenants with a strong profile are common. A higher cap rate may be fixed in the areas that are low in popularity so that the maintenance and repair services can be covered when required. These features can help you to choose a cap rate of any area; however, it is crucial to acquire a property owner because the emphasis has been on the actual figures and not the estimated ones. Fit can also be calculated by using the net operating incomes and the recent sales prices of comparable properties. The calculated rate is then used to calculate the current market value of the self-storage facility. The gross potential or value of the self-storage facility can be determined, once you have calculated both operating income and cap rate, by putting these figures in the valuation formula. The essential aspects that you must keep in mind include monthly cash flows, value appreciation over time, tax advantages, etc. that are considered to be significant expenses of a business.

 

 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file, critical financial documents and back office tools in an efficient and secure environment. Complete Controller’s team of US based accounting professionals are certified QuickBooks™️ ProAdvisor’s providing bookkeeping, record storage, performance reporting and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay services. With flat rate service plans, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Empty storage unit with opened door. 3d rendering
Self-storage has gained much acclaim as a valuable commercial real estate investment in recent times.  This is partly due to the increasing storage and warehousing needs of individuals and businesses. Let us briefly explain what self-storage means in the world of real estate. Self-storage deals with renting out storage space to individuals or businesses, usually on a short-term basis. The storage facility can uphold household goods and equipment as well as inventory and archived records. If you are looking for a self-storage facility to purchase, it is essential to evaluate its gross potential or the value that it is likely to be worth in the market. Here, we list a few ways to calculate gross potential in a self-storage investment.

Get The Actual Figures

Here, the emphasis will be upon assessing the actual figures; figures relate to payment made for self-storage regarding utilities, maintenance, advertising and the actual revenue generated regarding rent from this real estate property.  Once you have the actual numbers, you can make the necessary calculations. Using estimates will not allow you to calculate gross potential in a self-storage on an accurate and factual basis. Once the various cost heads have been identified and actual figures have been acquired, you can calculate the gross and net profits that may be generated from the self-storage investment. This is one method to calculate gross potential in a self-storage, with help from the property owner. Property owners that fail to disclose such information make valuing a self-storage property a tedious job. However, you can get your hands on the information needed through industry journals and published annual reports of real estate companies.

Determine a Capitalization Rate

To calculate gross potential in a self-storage, identifying the capitalization rate is another significant step. Cap rate is a must in order to estimate a return on investment (ROI) and it may be lower in popular areas and locations where strong-profile tenants are common. For areas that are low in popularity, comprising mostly of older buildings and weak-profiled tenants, a higher cap rate may be fixed in order to cover for maintenance and repair services, as and when required. These factors can help you with deciding a cap rate in any given area; however, since the emphasis has been on actual figures and not forecasted ones, you may inquire a property owner for cap rate prevalent in a given area where the self-storage is located. Cap rate can also be calculated by using the net operating incomes and recent sale prices of comparable properties. The determined rate may then be used to calculate the current market value of the self-storage facility. The value calculation, in this case, is essentially how we can calculate gross potential in a self-storage property.

Now that you have both the operating income and cap rate, the value of the self-storage property may be calculated by putting the figures in the valuation formula. A few of the important aspects to keep in mind comprise of monthly cash flows, value appreciation over time,  tax advantages, tax breaks from depreciation and any and all significant expenses that are usually involved in a business. These expenses span from mortgage interest, insurance, advertising, bookkeeping, and management all the way to repairs and maintenance.

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About Complete Controller® – America’s Bookkeeping Experts
 Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.