How to underwrite self-storage: from the rent roll to NOI, value, and loan size

Why storage is underwritten by unit type

A self-storage facility rents hundreds of small spaces on month-to-month terms. A 5x5 locker and a 10x30 drive-up unit have very different rents per square foot, fill at different speeds, and attract different tenants. Averaging them together hides most of what matters, so storage underwriting starts with the unit mix: one line per unit type with its count, size, street rent, in-place rent, and occupied units.

Month-to-month leases cut both ways. Rents can move up quickly when demand is strong, and tenants can leave quickly when they are not. That is why storage buyers watch the gap between street rent and in-place rent so closely, and why the same facility can be worth very different amounts as-is and stabilized.

Step 1: street rent, in-place rent, and loss-to-lease

Street rent is the rate a new customer is quoted today. In-place rent is what existing tenants pay. Operators commonly raise existing tenants over time, while street rents move with the market and with move-in specials, so the two drift apart. When existing tenants pay less than street, the shortfall is loss-to-lease. When they pay more, which happens after street rents fall, loss-to-lease turns negative.

Mark-to-market is the plan to close that gap. It is real upside, but it is also the riskiest part of a storage pro forma, because a tenant facing a large increase can move out. The calculator lets you choose how many years it takes existing tenants to reach street rent, or set it to 0 to keep them where they are.

Step 2: physical vs. economic occupancy

Physical occupancy counts what is rented: occupied units divided by total units, or occupied square feet divided by rentable square feet. The two differ when small and large units fill at different rates. Public Storage, for example, reports occupancy and rent per occupied square foot rather than per unit.

Economic occupancy divides the rent you actually collect by gross potential rent. Vacancy, loss-to-lease, concessions, and bad debt all pull it down. A facility can be 83% physically occupied and under 70% economically occupied, and NOI follows the economic number, not the physical one.

Example

Illustrative example. These are example inputs so the math is visible, not a real facility, a market average, or a benchmark. The facility has 480 units and 51,500 rentable square feet in six unit types, from 5x5 lockers to 10x30 drive-up units. 397 units are occupied, so physical occupancy is 82.7% by units and 79.8% by square feet.

Every unit at street rent for a year is $874,800 of gross potential rent. The 83 empty units are $168,480 of vacancy. Existing tenants pay below street on every unit type, a loss-to-lease of $76,716, so scheduled rent is $629,604.

Concessions at 2% ($12,592.08) and bad debt at 1.5% ($9,444.06) leave net rental income of $607,567.86. That is economic occupancy of 69.5%, about 13 points below physical occupancy.

Other income: 60% of tenants carry a protection plan that nets the owner $10 a month, or $28,584 a year. Admin and late fees at 3% of scheduled rent add $18,888.12, truck rental $6,000, and retail $4,000. Other income totals $57,472.12, and EGI is $665,039.98.

Expenses: property tax $62,000, insurance $18,000, payroll $85,000, utilities $16,000, repairs $14,000, marketing $12,000, software and office $9,000, and other $6,000, for $222,000. The 6% management fee on EGI is $39,902.40 and the reserve at $0.15 per square foot is $7,725. NOI is $395,412.58, a 59.5% margin on EGI.

Step 3: as-is value, stabilized value, and the loan

At a 7% cap rate, $395,412.58 of NOI points to an as-is value of about $5,648,751, or about $109.68 per rentable square foot. At a $5,600,000 price, that is a 7.1% going-in cap.

Stabilized, the facility reaches 90% occupancy and every tenant pays today's street rent, with no growth. Stabilized NOI is $545,293.16, and economic occupancy rises to 86.8%. At a 7% cap that is a stabilized value of about $7,789,902. The difference, about $2.14 million, is the value of lease-up and mark-to-market you would still have to achieve.

The lender sizes the loan three ways. At 65% loan-to-value on the lower of price and as-is value, the loan is $3,640,000. At a 1.30 minimum DSCR, 6.75% interest, and 25-year amortization, NOI supports about $3,668,626. At a 9% minimum debt yield, it supports about $4,393,473. The LTV test is lowest, so the loan is $3,640,000.

That loan costs $25,149.18 a month, or $301,790.15 a year. The DSCR is 1.31 and the debt yield, NOI divided by the loan, is 10.9%. Equity is the price plus 2% closing costs and $50,000 of day-one capital, $5,762,000, minus the loan: $2,122,000. Year-one cash flow after debt service is $93,622.43, a 4.4% cash-on-cash return.

Step 4: the hold, the exit, and the IRR

In the calculator's example, occupancy rises in a straight line to 90% over two years, existing tenants reach street rent over three years, and rents and expenses grow 3% a year. NOI climbs from $395,412.58 in year one to $613,732.25 in year five.

The facility sells after five years at a 7.5% cap on year-six NOI of $632,144.22, a sale price of about $8,428,590. After 2% selling costs and a loan payoff of about $3,307,518, the equity gets back about $4,952,499.

Put the five years of cash flow and the sale together and the example shows a 25.5% levered IRR, a 15.2% unlevered IRR, and a 2.86x equity multiple. Most of that comes from lease-up and rent increases, not from year-one income. Those are outputs of example inputs, not a forecast.

Other income: count only what the owner keeps

Tenant insurance and protection plans can be a meaningful line. Extra Space Storage reports tenant reinsurance as its own business segment, with $352.9 million of tenant reinsurance revenue in 2025 next to $2.9 billion of property rental revenue. A smaller facility that sells a third-party plan usually keeps only a share of the premium, so enter the owner's net per participating tenant, not the price the tenant pays.

Fees are a separate line for a reason. Public Storage's definition of realized rent excludes late charges and administrative fees and reports them separately. Keeping fees out of rent keeps your rent per square foot comparable with how large operators report it.

Common pitfalls

Paying for stabilized value. If the price is close to stabilized value, the seller is getting paid for the lease-up and rent increases you still have to deliver.

Ignoring new supply. A facility opening nearby can slow lease-up and push street rents and move-in specials the wrong way. Check what is planned and under construction before you trust the lease-up years.

Keeping the seller's property tax. A sale can trigger a reassessment. Underwrite the tax bill you expect, not the one the seller paid.

Counting fees and insurance as rent. They behave differently and are regulated differently by state. Keep them on their own lines and confirm what the facility can charge.

Leaving out management because the seller self-manages. Buyers and lenders underwrite a management fee whether or not the seller paid one.

Run your own numbers

The self-storage underwriting calculator loads with this exact example. Replace the unit mix and inputs with the facility's own numbers and it rebuilds the rent roll, the P&L, the as-is and stabilized value, the loan, the projection, and the IRR, then prints the whole thing. For a quick check on one piece, the cap rate calculator turns NOI into value and the DSCR calculator checks coverage.

These pages run the math on the numbers you type. They do not supply market data, and nothing here is an appraisal, a loan offer, or financial or investment advice. Have a lender, an appraiser, and your own advisors review any facility before you buy.

Sources

Public Storage, Public Storage Reports Results for the Fourth Quarter and Year Ended December 31, 2025, Exhibit 99.1 to Form 8-K (February 12, 2026; accessed October 30, 2026), https://www.sec.gov/Archives/edgar/data/1393311/000162828026007684/psa-021226xex99_1.htm. Defines realized annual rent per occupied square foot as rental income before late charges and administrative fees, divided by weighted average occupied square feet, and reports square-foot occupancy for its same-store facilities.

Extra Space Storage Inc., Annual Report on Form 10-K for the year ended December 31, 2025 (filed February 20, 2026; accessed October 30, 2026), https://www.sec.gov/Archives/edgar/data/1289490/000128949026000011/exr-20251231.htm. Reports tenant reinsurance as a separate segment, with property rental revenue of $2,895,190 thousand and tenant reinsurance revenue of $352,876 thousand for 2025.

Steps

1. Get the unit-level rent roll and the trailing twelve months

   Ask for every unit with its size, street rent, the rent the tenant pays, and the move-in date, plus twelve months of operating statements. Summaries hide the tenants paying far below street.

2. Price every unit at street rent

   Units × street rent × 12 for each unit type, added up, is gross potential rent (GPR). It is the ceiling: every unit full at today's asking rent.

3. Take off vacancy, loss-to-lease, concessions, and bad debt

   Vacancy is the empty units at street. Loss-to-lease is street minus in-place rent on the occupied units. Concessions and bad debt come off what is billed. What remains is net rental income.

4. Add other income to reach EGI

   The owner's net from tenant insurance or a protection plan, admin and late fees, truck rental, and retail sales. Count only what the owner keeps.

5. Subtract expenses, the management fee, and a reserve to reach NOI

   Property tax at the post-sale assessment, insurance, payroll, utilities, repairs, marketing, software and call center, a management fee on EGI, and a capital reserve.

6. Value it as-is and stabilized, then size the loan

   As-is value = year-one NOI ÷ cap rate. Stabilized value = NOI at target occupancy with tenants at street ÷ cap rate. The lender tests LTV, DSCR, and often debt yield, and lends the smallest result.

7. Stress the lease-up

   Add a year to lease-up, assume existing tenants never reach street rent, and raise the exit cap half a point. If the deal only works in the base case, it does not work.

Questions