Anyone own self-storage? rate my idea
Looking to do a version of self-storage in a light industrial park. 


The plan is for a 20,000 sqft, wood frame building (100x200x18) 


Half (10,000 sqft) will be heated with a proposed 10 units (1000sqft) each. I won't be putting up all the walls until needed in order to leave options. 

The market rate is $1150 month for 1000 sqft heated units or $138,000 a year when full.

The other half will be cold storage will be approx 12 units @ 650 sqft and 2 @ 1000 sqft (the 2x 1000sqft cold will link up with 2 x1000 sqft heated units) 

The market rate for cold it $530 x 650 sqft or $975 for 1000sqft 
or $117,000 a year when full


All costs will be paid by the building owner. 

The land is owned already up to grade. 

My goal is to build this unit as cheap as possible but take into consideration some value-added things since we will be paying heating and power ( in Canada -40f/c is not uncommon). Has anyone put solar in a new build yet? 

Any suggestions on how to approach the bank about this? The norm for this type of unit in my area is no lease, month to month contracts. This obviously doesn't sit well with the bank, I do have at least 3 or 4 I could pre-lease, More if I Taylor the units to cannabis growing. 

Does anyone want to chime in? Am I missing something? the numbers seem to be right$$?





Gross rental income	255, 000

%15 Vacancy allowance	38, 250

Gross operating income:	216, 750

20% Operating expenses	43, 350

Net operating income:	173, 400
 	 
Net operating income	173, 400

÷ Property value	1,600,000


Capitalization rate:	10.84%




[{"id": "e06g94k", "text": "You need to add in all construction costs into the land value if you haven't already to determine cap rate. ", "replies": [{"id": "e06gax2", "text": "Also make sure to work on a lease structure where there are rent bumps every five years or so. ", "replies": [{"id": "e06gxzd", "text": "agreed, although The norm in my area for this type of unit is month to month lease,", "replies": [{"id": "e06hc5t", "text": "I think you may have trouble securing a loan without some prior bank relationships. Obviously I'm saying this without any information on your financial situation or background. Maybe you could look into finding a buyer for your development up front where you would lease it up and sell it to them somewhere around an 8 cap. And walk away with a quick profit around $500k.   Another option would be to pitch the site to some medium sized storage operators and try to work out some kind of NNN lease. Just a couple thoughts. ", "replies": [{"id": "e07v4hg", "text": "I did leave out that this unit is 2.36 acres and currently has a 4000 sqft building. It has a 5-year NNN lease that includes only 0.5 acres of the 2.36 total. Hence the leftover land for this project. I  appreciate the ideas and will consider them moving forward. Thanks ", "replies": [], "depth": 5}], "depth": 4}, {"id": "e071tmr", "text": "Honestly, this sounds pretty dicey to me unless you really know what you're doing with leasing. 15% economic vacancy seems pretty low both for that leasing structure and for self-storage in general. What's your 5 and 10 year IRR look like? \n\n/u/fuqit24 is right, you're going to have a hell of a time talking a lender into this. They also have some really good ideas regarding other leasing options. To add on to what they already said and you've referenced elsewhere, maybe you could outfit the structure specifically for marijuana cultivation and NNN lease it to a grow op. Without knowing much about cannabis production, I would imagine there have to be some highly specialized power and interior requirements for cultivation, so you could conceivably command more favorable lease terms and have a sticky tenant.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "e06gstg", "text": "Yes, land is valued @ approx 600k and I hope to build for $1m&lt; ", "replies": [], "depth": 2}, {"id": "e06nkhk", "text": "The cap rate comes from market sales.  His calculated cap rate is fiction.", "replies": [{"id": "e06qq5u", "text": "I wouldn't say the cap rate is fiction but that it doesn't mean anything until we know what the general cap rates are in his market.  Maybe 10% is unheard of and this deal is a grand slam or maybe 10% is horseshit. ", "replies": [{"id": "e06rznl", "text": "You get cap rate COMPS from analyzed closed sales.  No one will be able to provide 3 verifiable cap rate COMPS.  It is fiction.  Prove me wrong.", "replies": [{"id": "e06sl26", "text": "What is a cap rate comp ?  I'm not sure how you're using the term.\n", "replies": [{"id": "e06ts6c", "text": "A third party, such as Korpacz, analysis of a closed sale.  The third party will talk to buyer,seller and brokers.  The comp will report the financials including the break down of each expense category.  This will result in a calculation of the cap rate that the NOI was purchased at.", "replies": [{"id": "e0avs2v", "text": "I read a lot of your posts regarding Cap rates and although I generally agree with most of them, I think you take it too far.  It seems like your definition is so nuanced that you simply end up playing  semantics.\nWhen a bank loans me shit load of money based on a 7% CAP rate .... I assure you .... it's very real.  But I'm sure you'll still be right.", "replies": [{"id": "e0azx06", "text": "I would be happy to talk to your loan officer if you think they are using cap rates in a way that is different from what I am educating people here.  It is NOT MY made up definition of cap rates but that which is taught by the American Appraisal Institute.   NOI/Market Value, how easy is that yet the introductory course by the Appraisal Institute is a 5 day 40 hour course.  Hmmm.  For Cap Rate to mean anything there has to be a specific method and definition.  It needs to be \"nuanced\" otherwise it is just a FAKE number thrown around by ignorant people on the internet.  ", "replies": [{"id": "e0b5446", "text": "Again, I get it and I'm in agreement with you almost all of the time.  It's just that you're this bullhorn of negativity, every. single. time. anyone mentions cap rates.  Yes, many people use the term too loosely but ease up a little bit.  \nIn this instance, OP wasn't using the cap rate to say what a great deal it is.  He simply showed the math to come up with the number.  That's not fantasy, it's simply the cap rate number.  Now if he started spouting off, that it was such a great deal because the market is full of 9 caps and his is amazing because it is a 10.84, then I would be in full agreeance with you, that he has now entered fantasy land.  \n\nI enjoy reading your posts (as I've told you in a PM) and I think we agree that people need to be yelled at, to a certain degree, to help get a message across.  You definitely trump me when it comes to be cynical though.  ", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "e06useb", "text": "It's not fiction. You calculate cap rate by dividing the NOI (rental income) by the total cost. 173400/1600000=10.84%", "replies": [{"id": "e071mxy", "text": "True, but what /u/Honobob is saying is that the cap rate doesn't tell us anything here, especially without sales comparables. It's based on an arbitrary purchase price and pro forma NOI, thus it's not really founded on something concrete like a closed sale. And he's right, a cap rate ought to be used to impute a purchase price, not the other way around.", "replies": [{"id": "e0725zt", "text": "The 10.84 would essentially be his build cap rate in development terms. True it doesn't mean much without comps on what cap rate they are selling for. ", "replies": [{"id": "e0890r3", "text": "EXACTLY!  There is no reason to calculate FAKE cap rates.", "replies": [{"id": "e08zndm", "text": "it is not a fake cap rate. It is a build cap rate.  He estimated what he would receive in rent and estimated his costs.  So if you are having a problem it shouldn't be about some fake cap rate but rather his estimates which we have no idea where he got them from meaning they could be accurate or not.  If his estimates are correct then this is what the build cap would be nothing fake about it.  This is how developers determine if they have a deal worthwhile, by comparing their estimated build cap to comparable properties exit or sale cap. Say If a similar storage unit was listed for sale at an 8 cap then this would be a good deal to do. ", "replies": [{"id": "e0991by", "text": "Oh my God!  Developers don't do all this back ward figgering!!! It is SO Much easier to use a market based cap rate instead of some made up \"build\" crap rate.  Where do you get this shit, the internet?   Developers don't need some fake ass calculation.  If they can't sell for more than the cost to build they ......um, don't build.  ", "replies": [{"id": "e09kav1", "text": "You my friend are a moron. ", "replies": [{"id": "e09ozrp", "text": "And yet way more knowledgeable than you on real estate valuation.  \"Build\" cap rate indeed!  LOL", "replies": [{"id": "e09qxh5", "text": "Not valuing the real estate solely. Its valuing the DEVELOPMENT. Looking at your comment history it looks like you run around these investing or real estate sub reddits spouting bullshit so I'll let you carry on your way. Have a good one. ", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}, {"id": "e09kmu1", "text": "How the fuck do you think developers model these deals? You clearly do not understand. We create a budget using estimated costs then we are usually given a rent number from the Tennant we are building for. This is usually agreed to before the project is under construction.  so then we get our build cap number from that. I work at a merchant developer so we flip all our deals. So if we were able to build to a 10 cap and sell at an 8 you make money. Look at my example below unless you are still to thick to understand how math works. ", "replies": [], "depth": 10}, {"id": "e0bvzwl", "text": "As a developer, I absolutely use calculations like OP has.  Of course it's layered in with a bunch of other data points but still, estimating a cap rate is just another small bit of information which will help with the final decision.  \n\nNow if what you're harping on is that OP is a newbie and that if they're using only an estimated cap rate to base their decision on, that they are an idiot .... then I'm with you but I think when it comes to cap rates .... you paint with too broad of a brush.", "replies": [], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "e0889kq", "text": "I guess if you want to fact check my deal I can give you the links. Im not hear to impress you and give pumped up numbers lol. I pulled my information for the cap rate from market research in my direct area based on sales and lease rates. I already own and pay taxes etc on the land. \n\nAll that I got from the current cap rate calculations is I have a hefty margin for error in regards to the vac rate or the op costs before I start having to worry. right? Im not betting on that as being the final over all ROI \n", "replies": [{"id": "e088p41", "text": "Geez, First your cap rate seems to be based on real estate and a business within the real estate.  A cap rate should be based on the real estate alone.  Second, please provide 3 verifiable CAP RATE COMPS to support your claims.  C.  Why did you switch from NOI to ROI?  You are confusing yourself.", "replies": [], "depth": 4}, {"id": "e090hu4", "text": "This guy is wrong.  I work at a development firm and this is exactly how we do it.  We estimate ALL costs to develop an entire building including the real estate value (this would be the 1,600,000 in your case) Since you have researched rent numbers you can estimate what your NOI would be (174,000 in your case It seems like some others in the comments have noted that your expenses seem low so I would dig into that more).  You calculated it correctly dividing Rent over Total Cost which gives you 10.84%.  Ok so now you would want to go look into what these types of properties are selling for on the market.  Lets just say 8% for now.  To calculate what your development would sell for you take your NOI divided by the exit cap rate of 8% which gives you $2,175,000.  Take the difference and that is your profit.  Obviously this example is assuming you pay using all cash.  2,175,000-1,600,000= 575,000 profit.  This is a very basic back of the napkin example and doesnt lay out the option of you holding the proerty but i just cant take this guy saying shit about fake cap rates anymore. ", "replies": [{"id": "e09tt5n", "text": "OK, AGAIN what is the purpose of calculating a FAKE cap rate?  You have your costs $1,600,000 and you have a sale based on a market cap rate ($174,000/8&amp;#37;) $2,175,000.  You build for $1.6 and sell for $2.175 you make $575,000.  SEE, no where did we have to do a FAKE cap rate calculation?  What would be the point except maybe to keep you out of the way.  \"Hey fuquit24, here's some crayons why don't you go sit and make up some \"build\" cap rates for your Grandma.  she thinks you are so smart.\"  Now that you see the needed analysis NEVER required your time wasting FAKE calculations for a FAKE \"build\" cap rate maybe you can ask your boss to stop giving you busy work.  LOL", "replies": [{"id": "e09u3g4", "text": "You are an idiot. It's not fake. You have no idea what you are talking about. He is developing property which means he is creating an income stream and the 10.84 build cap is the value of that income stream when compared to the cost to develop the property. You obviously have some pent up issues coming into comment sections and screaming like a 12 year old with autism when op was just asking for some help. You offered no help no suggestion and no expertise. The only thing fake here is your dumb ass ", "replies": [{"id": "e09uxp3", "text": "OK, so I'm a better builder than you so I can build at $1,500,000 costs.  Now the FAKE \"build\" cap rate is 11.6%.  FAKE, FAKE, FAKE  Just like your 10.84 FAKE cap rate.  EVEN YOU can't give a real reason for the calculation!!!  I think it is obvious who the dumb ass is.", "replies": [{"id": "e09whc8", "text": "You have completely missed the point of op's post.  He is working on MODELING a potential development.  I am assuming OP has done his due diligence and maybe even bid out the project to see what his costs would be. in this case the cap rate he calculated is exactly correct.  Obviously the costs are not exact but for this case I am assuming they are.   If you can offer to build it for 1,500,000 great! better return for OP.  but we aren't talking about construction costs here buddy.  He is simply modeling his development like any smart person would do before they dive head first into a project. you just came in here and are still screaming like a child for what? trying to prove some arbitrary point about how his estimates could be wrong?   Calling costs estimates FAKE FAKE FAKE is just ignorant.  ", "replies": [{"id": "e09xlft", "text": "Geez, it is the cap rate calculation that is FAKE and unnecessary.  I already proved that.  You are unable to prove me wrong but I'll give you one more try.  Have at it!", "replies": [{"id": "e09xulo", "text": "You did not prove me wrong. I layed out exactly how most development firms model their deals and they use build caps as a tool to see if it is a deal worth pursuing. Say these cocepts were selling at an 11% cap on the market then this would be a bad deal to do. Without the estimated build cap there would be no way to see how a development compares to the open market. Get a clue buddy and learn how to read and think critically. Not just always assume you are correct and put others down. If this doesn't do it for you I guess you're hopeless. ", "replies": [{"id": "e09yw1u", "text": "Sorry I showed you the math that did NOT require a FAKE \"build\" cap rate.  Anyone doing this is wasting their time.  The OP did it and got 10.84.  THAT number is useless and FAKE.  You still have not shown any use for it.  Because you can't?  LOL", "replies": [], "depth": 11}, {"id": "e0a0cg2", "text": "&gt;\" You did not prove me wrong. I layed out exactly how most development firms model their deals and they use build caps as a tool to see if it is a deal worth pursuing. Say these cocepts were selling at an 11% cap on the market then this would be a bad deal to do\"\nHey Einstein,  If the NOI is selling at a 11 cap and it cost $1.6 then $174,000 NOI =$1,581,818 is market value.  How do YOU have to calculate a FAKE cap rate to decide this deal is bad?   Show your work for extra credit!  LOL\n", "replies": [{"id": "e0a0upo", "text": "It still doesn't change the fact that the build cap for this project is 10.84. Market value has no effect on total project cost.  Because we have the total project cost and projected rent we back our way into the build cap of 10.84. So if market comps are at an 11 as a developer I would look and say that my deal is too expensive and go back to the seller for a price reduction or dig into any cost savings to get a build cap higher than 11. If I couldn't do that. I would walk away from the deal. Looking at your comment history it looks like just about everyone on Reddit disagrees with you and you run around screaming FAKE or WRONG or SNOWFLAKE without backing anything up. It seems like the only reading you have done in the last two years is Trump's Twitter. I see you are trying to use his same strategy to win arguments. It may work for Daddy Donald but it sure as shit doesn't work for some ignorant idiot on Reddit. SAD", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "e0736si", "text": "Getting a bank to approve this will not be fun.  In good times they are at 65% LTV on storage.  \n\nB or Private is likely where you'll end up.\n\nAlso, consider the market where you're at and how much they charge.  If you're in an industrial park solicit some of the companies around there and see if they have storage needs. You can start with a fenced in yard and maybe industrial tent solutions.  You have some revenue booked and a bank will start to look at this.\n\nThe retail self-storage industry is very competitive in Canada now - in major metros like Toronto it's all about value add and people have deliveries straight to their storage units and more concierge type service.  I'm familiar with Alberta and new Sentinel storage units at a 1000 sq ft go for that 1100-1200/month price and they have humidity control, indoor loading bays, lifts, secured access, good lighting, pest management, etc.  I'm not saying this isn't doable but the days of simple storage units are numbered - people want value for the chunk of change they are dropping.  \n\nIf you try to tailor a wood framed structure for cannabis growth good luck keeping any lender you find.  Cannabis cultivation on scale needs forethought into strong electrical, HVAC, humidity management, etc. to make it doable.  ", "replies": [{"id": "e07uurt", "text": "Yes, the lot was used for previously leased for the past 10 years, 2.36 acres and 4000 sqft shop. I've put another 5-year lease on the current shop but only .5 acre of the land. Leaves me with a nice lot to develop and the lease almost cash flows the entire lot as it sits. it is already fenced and to grade.  I do agree with the cannabis cultivation comments though.  \n\nI work heavely on Kijiji and have that market locked down. This is the reason for the build. I have found the most value I can ad is having the cheapest price. People will take the wrong space for their business if it saves them a couple bucks. \n", "replies": [], "depth": 2}], "depth": 1}, {"id": "e07qtd5", "text": "For having climate controlled units an expense ration of 20&amp;#37; is pretty low. 22 units is not a lot either. If you want to tailor it to cannabis growing your'll need heavy electric, water, and humidity control. Those are standard in storage units and signification add to cost. I'm also going to take your word of $1150/month, that just seems outrageous to me.", "replies": [{"id": "e07tyy6", "text": "[http://www.albertabigstorage.com/](http://www.albertabigstorage.com/)\n\n\nThis is a unit currently running in my area (fully leased). I agree with the cannabis comments. ", "replies": [], "depth": 2}], "depth": 1}]