Self Storage Underwriting 101: A Practical Guide for Smarter Investing

When it comes to investing in self storage, underwriting isn’t just a financial exercise—it’s a decision-making framework. The difference between a good deal and a bad one often comes down to how well you underwrite.

Whether you’re new to storage or scaling your portfolio, understanding how to break down underwriting into actionable steps will help you buy smarter, pay the right price, and build a plan that works.

In this guide, we’ll walk through the three essential stages of underwriting, show you how to evaluate monthly income and expenses, explore cap rates and valuations, and help you calculate expected cash flow and ROI with clarity.

The goal? Make confident investment decisions based on data, not assumptions.

The 3 Stages of Self-Storage Underwriting

Underwriting boils down to answering three big questions:

• Should I buy this facility?
• What should I pay for it?
• What should I plan for after I own it?

Each question represents a different stage of underwriting, and each requires a unique approach.

1. The Buying Decision

This is your starting point—the moment when you’re evaluating whether a deal is worth pursuing. It’s not about what could be but about what the asset is doing right now and whether there’s any upside you can act on.

Ask yourself: is this facility underperforming due to mismanagement, poor marketing, or outdated pricing? Are there high delinquencies or deferred maintenance? If so, those are red flags and opportunities—signs of “money on the table.”

But be careful. Don’t just assume you can fix everything. You need to be able to measure and verify the upside. If you can clearly see how the facility could perform better under your management, and you know what steps you’d take to get there, then you’re looking at a potential win.

2. What Should You Pay?

Here’s where many investors slip up. Just because a property has potential doesn’t mean the seller should get paid for it. What you pay should reflect what the facility is doing today, not what you think it could do in the future.

In other words, price and value are not the same. Price should be based on real data—current net operating income (NOI), verified expenses, and local cap rates. Let future upside be your reward, not a premium the seller builds into the asking price.

This part of underwriting is about staying grounded. You’re buying the facility’s current performance, not a dream. Stick to what you can prove.

3. Planning for the Future

Planning is the trickiest stage—because it deals with uncertainty. Market shifts, interest rate changes, and local economic conditions are all out of your control, but they still matter.

This is where you zoom out and ask: What could affect this investment long-term?

• Is the market growing or shrinking?
• Are there new competitors coming in?
• Could taxes or insurance spike after closing?
• Are there real value-added plays—like expansion or automation—that you can realistically pursue?

Good planning involves building a roadmap for the facility’s future. It's not just about whether you can buy it—it’s about what you’ll do after you own it, and whether the long-term vision makes sense in a changing market.

Step-by-Step: Monthly Income Analysis

Once you’ve determined the asset is worth looking into, the next step in your underwriting process is building a clear and measurable picture of monthly income.

This isn't about guessing what might happen in the future—it's about understanding where the facility stands today and what’s realistically possible under your management.

Scenario A: Income Under Current Ownership

Begin by examining the income the facility is generating right now under the current owner's management. This is your baseline—what you’re truly buying.

Break it down like this:

• List each unit type (e.g., 4x8, 10x10, climate-controlled, etc.)
• Record the quantity of each type
• Add the current rent charged per unit

Sounds simple, right? But here’s where many investors go wrong—they assume the rent shown on paper is the rent actually collected. That’s rarely the case.

Why? Because:

• Not all units are rented at the same price
• Some tenants may be receiving discounts or concessions
• There may be delinquencies impacting actual cash flow

That’s why you must distinguish between:

• Physical Occupancy – how many units are rented
• Economic Occupancy – how much rent is collected

When underwriting, always work off economic occupancy. That’s the income that pays your mortgage and keeps the lights on—not what’s hypothetically due.

Scenario B: Market-Adjusted Income Under Your Management

Now it’s time to build a scenario that reflects what the facility could be doing under your management—but only if you can back it up with data.

Look at comps in the area:

• Are similar units renting for more?
• Are other facilities in better condition or better locations?
• Are competing facilities full at higher rates?

If market comps support higher rents, this is where you create your “Scenario B”—a new income projection based on what you can reasonably expect to achieve. But there’s a catch: don’t just jump to best-case numbers.

Use a probability funnel to keep yourself grounded:

• 95% Probability – Strong comps, low vacancy, easy to justify
• 70% Probability – Market supports it, but there’s some uncertainty
• 50% or Less – Risky; do not include in your base case underwriting

For example:

Say the current owner is charging $45 for a 6x8 unit, but the market shows these units are going for $85 elsewhere. If those higher-priced competitors are full, you may assign a 95% probability that you can achieve similar pricing.

If they're not full, or if their facilities are significantly newer or in a better location, your probability drops to 70% or lower—and your projected rent should be adjusted accordingly.
The goal here is to stay conservative and only project income increases you can measure and defend.

Verify and Adjust

Once you’ve mapped out current and market-adjusted rents for every unit type, tally it up and compare the two scenarios. This gives you:

• The current actual income you’re buying today
• The potential income you could unlock with better management

Be sure to adjust for vacancy loss, especially if you’re planning to raise rents. Higher rates may lead to temporary vacancies, so factor that in.

Also, remember each unit is a product. And just like in retail, your pricing success depends on quality, demand, competition, and presentation. Don’t assume every unit is equal or interchangeable.

Monthly Operating Expenses: What to Watch

Once you've mapped out a facility’s income, the next critical step is analyzing expenses. This is where many investors—especially first-time buyers—get tripped up because the numbers presented by sellers don’t always tell the whole story.

It’s important to remember that the current owner’s reported expenses reflect their management style, not yours. Maybe they’re at the facility daily handling tasks themselves, which artificially deflates the true cost of operations.

That doesn’t mean you’ll want to—or should—run things the same way.

Here’s what to look out for:

• Property Taxes – Don’t assume taxes will stay the same after purchase. Many counties reassess property value based on the sale price, which can lead to a sharp increase in annual taxes. Always confirm how taxes are assessed in your local market (e.g., disclosure vs. non-disclosure states).
• Insurance – Get a real quote. Don’t just accept the seller’s number at face value, especially if they’ve been grandfathered into a lower rate.
• Repairs & Maintenance – This one is tricky. There’s a difference between keeping a facility functioning as-is and upgrading it to your standards. If doors are broken or units are unrentable, those are repair costs. But adding a new gate or tech system? That’s an upgrade—and that’s your cost, not the seller’s.
• Labor or Management Fees – If the current owner is doing all the work themselves, don’t forget to include payroll or management expenses in your projections. If you’re not planning to work the counter every day, someone else will have to.
• Utilities & Marketing – These vary by facility size and location but should always be verified based on your operational plan.

Your underwriting should reflect the expenses you will incur, not just what the seller reports. The question is: can the reported performance be maintained under a fully staffed, professionally managed operation?

Also, as you adjust income projections upward (e.g., raising rents), don’t forget to adjust for potential vacancy loss. Higher rents can result in short-term turnover, so be conservative.

Cap Rate and Facility Valuation

Once you have your projected Net Operating Income (NOI), it’s time to calculate value using a market cap rate. This is where underwriting moves from theory to hard numbers.

The formula is simple:

NOI ÷ Cap Rate = Estimated Facility Value

Let’s say your NOI is $100,000 and the market cap rate is 7%. That would peg the facility’s value at roughly $1.43 million. Easy enough, right?

But here’s the key: run two scenarios.

• Scenario A – Current performance under existing management. This is your baseline.
• Scenario B – Stabilized performance under your ownership. This includes operational improvements, rent increases, and expense adjustments based on realistic assumptions.

This gap between scenarios is your value-add opportunity. But never base your purchase price on Scenario B alone. That’s your upside—not the seller’s. You’re taking on the risk and the work, so you should reap the rewards.

Cash Flow and ROI: Making the Math Work

Now, let’s bring it all together.

Once you know your purchase price and expected NOI, you can project the most important number of all: cash flow after debt service. This tells you how much actual money the facility will put in your pocket—and whether it meets your return goals.

Let’s break down a quick example:

• Purchase Price: $1.2 million
• Down Payment (30%): $360,000
• Loan (70%) at 7% Interest: ~$60,000 annual debt service
• Annual NOI: $90,000

That leaves you with about $30,000/year in pre-tax cash flow, or an 8.3% cash-on-cash return.

That’s your Scenario A. But let’s say under your management, you project NOI will eventually hit $150,000. Now you’re looking at 20%+ returns—but again, that future growth is your reward for doing the work, not something you should pay for up front.

Final Thoughts: Simplicity Beats Complexity

Self storage underwriting doesn’t have to be complicated—in fact, the simpler and more transparent your process, the better. The strongest deals are built on measurable, verifiable, and realistically achievable numbers.

Avoid falling into the trap of overbuilt spreadsheets or justifying prices based on future hopes. Stick to a conservative approach: underwrite based on current performance, plan diligently for improvements, and never lose sight of what’s happening on the ground.

At its core, underwriting isn’t just about deciding whether to buy a facility—it’s about building a clear, actionable roadmap to success.

If you’d like to see exactly how this process works in practice, watch our full breakdown and training video here