Unlocking the Power of Value-Adds in Self-Storage: A Path to Increased Asset Value

The first time I heard the term "value-add" applied to self-storage, I couldn't help but feel skeptical. Coming from a background in single-family and multifamily real estate, where value-adds were more tangible, I struggled to envision how they applied to the realm of self-storage. However, as I delved deeper into the industry, I realized the immense potential for value-add strategies in driving up the asset value of self-storage facilities. In this article, we will explore ten common self-storage value-adds and their potential impact on asset value.

Lease 40 vacant storage units

Imagine you have 40 vacant storage units in your facility, each with a lease rate of $125 per month. By successfully leasing out all 40 units, you would generate an additional annual revenue of $60,000. Applying a conservative cap rate of 6%, this increase in Net Operating Income (NOI) would lead to a significant $1,000,000 increase in the overall asset value of your self-storage facility.

Raise unit rent by 10%

A seemingly modest 10% rent increase can have a profound impact on asset value. Suppose your facility currently charges $125 per unit per month, and you decide to implement the rent increase. With 500 units in your facility, a 10% rent increase would result in an additional annual revenue of $75,000. Applying the 6% cap rate, this increase in NOI would contribute to a $1,250,000 boost in the asset value.

Add truck leasing

By offering truck leasing services to your tenants, you not only generate additional revenue but also enhance customer convenience. Let's say you earn $2,000 per month in commissions from leasing U-Hauls. Annually, this amounts to $24,000 in revenue. Applying the 6% cap rate, this increase in NOI would lead to a $400,000 increase in the asset value of your self-storage facility.

Ancillary retail sales

Diversifying your revenue streams through retail sales can significantly impact your bottom line. Assume you generate $1,000 per month in retail sales, totaling $12,000 in annual revenue. Applying the 6% cap rate, this increase in NOI would contribute to a $200,000 increase in the asset value.

Billboard lease

Utilizing available space for erecting a billboard or leasing it to an operator can be a lucrative value-add opportunity. Let's assume a monthly revenue of $1,500 from this lease arrangement, resulting in an annual revenue of $18,000. Applying the 6% cap rate, this increase in NOI would contribute to a $300,000 increase in the asset value.

Add tenant insurance

Partnering with insurance companies to offer tenant insurance provides a valuable revenue-sharing opportunity. Suppose your facility has 500 units, and you charge $5 per month for tenant insurance. This generates an annual revenue of $30,000. Applying the 6% cap rate, this increase in NOI would result in a substantial $500,000 increase in the asset value.

Charge late fees

Enforcing payment policies, including charging late fees, can significantly impact your revenue. Let's assume you have 25 delinquent tenants who incur a late fee of $15 per month. Annually, this amounts to an increase in revenue by $4,500. Applying the 6% cap rate, this increase in NOI would contribute to a $75,000 increase in the asset value.

Boat and RV parking

Leveraging unused land by offering boat and RV parking can be a lucrative value-add option. Assuming you charge $100 per month for each parking space and have 20 available spaces, this translates to an additional annual revenue of $24,000. Applying the 6% cap rate, this increase in NOI would contribute to a $400,000 increase in the asset value.

Install solar panels

Embracing sustainable energy practices not only reduces operating costs but also appeals to environmentally conscious customers. Suppose installing solar panels saves you $2,000 per month in electricity expenses, totaling $24,000 annually. Applying the 6% cap rate, this increase in NOI would contribute to a $400,000 increase in the asset value.

Expand with additional buildings:

Expanding your self-storage facility by adding new buildings can exponentially increase your asset value. Let's assume the construction cost for a new building with 100 units amounts to $500,000. If each unit rents for $150 per month, you would generate an additional annual revenue of $180,000. Applying the 6% cap rate, this increase in NOI would result in a $3,000,000 increase in the asset value.

These ten value-add strategies represent a fraction of the potential avenues for increasing the asset value of your self-storage facility. From optimizing existing space to diversifying revenue streams, each strategy presents an opportunity to drive up your NOI and, ultimately, the overall worth of your investment. By carefully implementing and executing these value-adds, you can unlock the full potential of your self-storage facility in today's competitive