Buying a Self Storage Facility: Due Diligence, Valuation and Takeover
Buying a self storage facility gets you revenue on day one. You also inherit its tenants, its condition and its records. Some of those records will be wrong. Whether you buy a self storage business with one site or several, this guide covers finding a deal, checking the numbers against each other, valuing the property and taking over operations.
Finding facilities for sale
Listed facilities come through commercial brokers. Many smaller facilities sell off-market, to buyers who contacted the owner directly.
- Commercial real estate brokers who handle self storage
- Direct letters or calls to independent owners in your target market
- County property records, to find owners of facilities you would buy
- Industry events, such as those run by state self storage associations
Before you call sellers, know your market. The same research used for a new build applies. See self storage feasibility study.
Expect to sign a confidentiality agreement and a letter of intent before you see full records. The SBA lists both among the key documents in a business purchase.
Reading the financials
Ask for at least the documents below. The SBA advises reviewing contracts, leases, existing cash flow, financial statements and tax returns.
- Current rent roll, with unit, tenant, rent, move-in date and paid-through date
- Monthly operating statements for the past two or three years
- Business tax returns for the same years
- Bank deposit statements
- Delinquency and lien sale reports
- Property tax bills and insurance policies
- Service contracts, such as software, gate, trash and landscaping
- Any ground lease, cell tower lease or billboard lease
Check the records against each other
The rent roll should add up to the revenue on the operating statement. Deposits should match that revenue. Tax returns should be close to both.
Look for tenants far behind on rent who are still counted as occupied. Look for units rented to the owner or family at no charge. Both overstate occupancy. See physical vs economic occupancy.
Walk the property with the rent roll. Check that units listed as vacant are empty and units listed as rented are locked.
Physical due diligence
Hire inspectors for the roof, paving, doors, HVAC and gate system. Ask for repair estimates, not just condition ratings.
Order a Phase I environmental site assessment. The EPA says buyers generally must complete All Appropriate Inquiries before acquiring property to claim certain CERCLA liability protections.
Confirm zoning and permits. The SBA advises buyers to check zoning and confirm licenses and permits will transfer. Ask the planning office whether the facility is a legal use.
Order a survey and a title report. Check for easements and encroachments.
Red flags during due diligence
Some problems are worth walking away from. Others are worth a lower price. Sort what you find into those two groups.
| Finding | What it may mean | Typical response |
|---|---|---|
| Rent roll total does not match deposits | Overstated revenue or poor records | Value on deposits, not the rent roll |
| Many tenants over 60 days late | Weak collections or occupancy padding | Exclude them from revenue |
| No signed agreements for some tenants | Lien rights may be hard to enforce | Have an attorney review before closing |
| Roof or paving near end of life | Large capital cost soon | Get bids and reduce the price |
| Use does not match zoning | Possible legal nonconforming use, or a violation | Confirm with the planning office |
| Seller will not share tax returns | Records may not support the claimed income | Ask why, and consider walking away |
Keep your inspection and financing contingencies open until these are resolved. Your attorney can set the deadlines in the purchase agreement.
Write down every price adjustment you ask for and the evidence behind it. Sellers respond better to a repair bid than to an opinion.
Due-diligence checklist
Use this table to track requests and checks during your due-diligence period. Mark each row done only when you have the document and have checked it yourself.
| Area | What to request | What to check | Done |
|---|---|---|---|
| Rent roll | Current rent roll by unit, plus month-end rolls for the past 12 months | Units, rates and occupancy match the management software and the bank deposits | ☐ |
| Income | Profit and loss statements and bank statements for the same periods | Reported rent and fee income ties to deposits month by month | ☐ |
| Delinquency | Aging report and list of units in the lien process | How many tenants are past due and how far; which sales are pending | ☐ |
| Rental agreements | Current agreement form and a sample of signed agreements | Lien and default clauses fit your state's statute; see rental agreement clauses | ☐ |
| Expenses | Tax bills, insurance policy, utility bills, payroll and service contracts | Which costs change after the sale, such as reassessed property tax and new insurance | ☐ |
| Physical | Property condition report, roof and door age, maintenance records | Deferred repairs and their cost, from your own inspector | ☐ |
| Environmental | Phase I environmental site assessment | Recognized environmental conditions your lender will ask about | ☐ |
| Title and zoning | Title commitment, survey and zoning confirmation | Easements, encroachments and whether the current use and any expansion are allowed | ☐ |
| Security and systems | Gate, camera and access-control equipment list and contracts | What transfers, what is leased and what needs replacing; see security basics | ☐ |
| Contracts | Software, marketing, tenant protection or insurance and vendor agreements | Which contracts transfer, which end at closing and any termination fees | ☐ |
Valuation
The SBA lists five ways to estimate a fair price, including capitalized earnings and cash flow. For storage, buyers usually start from net operating income (NOI).
NOI is revenue minus operating expenses, before debt payments. Rebuild it yourself from the verified records. Do not use the seller's version.
Get cap rates for your market from an appraiser. We do not print them here. [SOURCE NEEDED: authoritative cap rate data]
The Self Storage Association runs a valuation and acquisition course for buyers who want more depth.
Financing a purchase
SBA 7(a) loans can be used for changes of ownership and real estate, up to $5 million. SBA 504 loans can fund the purchase of existing buildings or land.
Bank and other commercial lenders also finance purchases. Each lender sets its own down payment and debt coverage requirements. [SOURCE NEEDED: lender documentation]
Lenders will want your verified NOI, an appraisal and your experience. See financing a self storage facility.
Use an attorney for the purchase agreement and an accountant for the numbers. The SBA recommends both when buying a business.
Taking over operations
Plan the first 30 days before closing. Tenants should notice as little change as possible.
- Get a final rent roll and a prorated rent and deposit statement at closing.
- Send tenants a written notice of the new owner and where to pay.
- Move autopay and payment processing without missed charges.
- Change gate codes and admin passwords on all systems.
- Migrate the software data and check it against the final rent roll.
- Review your rental agreement with a local attorney, and plan how existing tenants move to it.
- Review any pending lien sales against your state's lien law before continuing them.
Get a new EIN if your structure requires it. The IRS says a change of ownership or structure can require a new EIN. Ask your accountant.
Frequently asked questions
Is it better to buy a self storage business or build one?
Buying gives revenue now but you pay for it up front. Building can cost less per unit but takes years to fill. Compare both in your market.
What is the most common problem in seller records?
Occupancy that counts delinquent or free units as rented. Match the rent roll to bank deposits.
Can I use an SBA loan to buy a storage facility?
Possibly. 7(a) and 504 loans can fund real estate and ownership changes. Ask an SBA lender about eligibility.
Do I need a Phase I environmental assessment?
It is the usual way to complete All Appropriate Inquiries, and lenders usually require one.
How long does due diligence usually take?
It depends on the deal and what your purchase agreement allows. Set the inspection period long enough to get the rent roll audit, inspections, environmental report, survey and title done. Ask your attorney to tie each deadline to delivery of the seller's records, not just the signing date. [SOURCE NEEDED]
Do existing tenant agreements transfer?
Usually the agreements stay in force after a sale. Have a local attorney confirm before you change terms.