Self Storage Financial Model (Construction, Operations & Exit)
Considering investing in a self-storage facility? This might be an easier way for entry-level real estate investors to get into the game. Why?
Because operating self-storage facilities is easier, safer, and more profitable than many other start-up businesses. Additionally, according to a Global Industry Analysts report published in September 2020, self-storage has proven to be recession-resistant, as well as COVID proof. Research forecasts that the return on investment (ROI) and compound annual growth rate (CAGR) on self-storage properties will continue to be high over the next few years. Because of this, many investors are looking for ways to invest in self-storage.
One of the skills among others necessary to succeed in the self-storage sector is the ability to analyze the financial viability of opportunities. It has never been more critical to be able to analyze a prospective deal and project the future cash flow of new space coming online:
- What the construction process and costs involve
- When construction starts and its duration
- How will the Net Operating Income look as it leases up and when it’s stabilized
- The projected future cash inflows from self-storage rentals
- The operating costs involved
- The financing of the self-storage project with debt and equity.
Use our Financial Model to plan the Self-Storage construction, and subsequent rental operations for several years before exiting your investment. The model generates cash flows on a project and equity basis and calculates the relevant metrics to assess the feasibility of your investment (cash on cash, Internal Rate of Return, net present value, loan to value, debt yield, coverage ratio and DSCR). The financing options for the project include equity funding from investors and an amortizing loan.
So, a quick overview of the model, in the contents tab you can see the structure of the model and by clicking on any of the headlines to be redirected to the relevant worksheet.
On the manual tab you can feed the general information for the model such as: model name, responsible, timeline of the model and date and currency conventions.
Additionally, there is a description of the color coding of the model in the same tab. Inputs are always depicted with a yellow fill and blue letters, call up (that is direct links from other cells) are filled in light blue with blue letters while calculations are depicted with white fill and black characters.
There is also a color coding for the various tabs of the model. Yellow tabs are mostly assumptions tabs, grey tabs are calculations tabs, blue tabs are outputs tabs (that is effectively results or graphs) and finally light blue tabs are admin tabs (for example: the cover page, contents, and checks).
Moving on to the inputs tab, you can adjust the various assumptions of the model based on the specifications and requirements of your business (in yellow whatever can be amended as an assumption). So effectively you can adjust a set of inputs such as construction costs (Land & Related Costs, Administrative Costs, Permits and Other, Hard Costs, Building Operations, Closing Costs, Finance Costs), along with monthly rental revenue for each unit, percentage vacancy per unit, rent escalation rates, bad debt and other revenues, debt and equity financing, management expenses, repairs & maintenance, refurbishments, utilities, marketing, and insurance, as well as property taxes. Afterwards you can set debt financing assumptions (interest rates, tenor in years, loan type, and debt issuance costs), and valuation assumptions such as the exit year when the self-storage facility will be sold, the exit cap rate and selling costs, as well as the discount rates used (project and equity).
On the calculation tab, all calculations are performed. The calculations follow the same logical flow as the in the inputs tab. As already mentioned, no inputs from the user are needed here, as all the inputs are fed in the yellow cells on the inputs tab mainly. So, in this tab revenues, expenses, financing flows and free cash flows are calculated.
On the Outputs tab everything is aggregated into a cash flow statement, together with a free cash flow on a project basis as well as on an equity basis. The same is done on a yearly basis on the next Output tab.
The most important investment metrics are presented on the ratios tab where you will find all the relevant KPIs summarized.
Additionally on the charts tab, a series of charts are presented: sources and uses, construction costs, revenues, expenses, net operating income, debt service, debt balance, debt service coverage ratio, debt yield, internal rate of returns, net present values, cash on cash and cap rate evolution.
Finally, the checks tab where the most critical checks are aggregated. Whenever you see an error message in any page, you should consult this page to see where the error is coming from.