How to Underwrite a Self-Storage Deal (Complete Beginner’s Guide)

If you're new to self-storage investing, one of the most important skills you can develop is the ability to underwrite a deal. Whether you’re planning to acquire your first facility or you’re looking to expand your portfolio, underwriting is what gives you the confidence to know whether a deal is worth pursuing—or passing on.

At StorageLife, we believe in teaching investors how to analyze deals in a way that’s simple, accurate, and based on real-world experience. In this guide, we’ll walk you through the actual underwriting model we use—developed by my wife and me—and used in deals we’ve closed with members of our self-storage mentorship group.

We don’t syndicate deals or chase fancy internal rate of return projections. Our model is designed for everyday investors using their own capital. It’s beginner-friendly, bank-friendly, and built for action.

Why Underwriting Matters in Self-Storage Investing

At its core, underwriting is how you assess risk and project return. If you’re learning how to invest in self-storage, this is the process that helps answer crucial questions:

• What kind of cash flow can I expect?

• Will this meet my investment goals?

• How much value-add potential is there?

• What will the property truly be worth?

• Will a lender finance this property (or is this a good seller finance opportunity)?

Without solid underwriting, you’re flying blind. But with it, you gain the clarity needed to make smart, confident moves in your self-storage investing journey.

Step 1: Understand the Deal Structure

We keep our underwriting layout simple and clear, using four columns:

1. Seller’s current performance – What is the facility doing now?

2. Year 1 Pro Forma – Projections for the first year post-acquisition

3. Year 2 Projection

4. Year 3 Projection

This setup shows you where things stand and where you can realistically take them.

Step 2: Gather the Essential Data

From the seller, request the following:

• Current rent roll

• Two years of P&L (profit and loss) statements

• Last two years of repairs and maintenance records

• Any Big ticket repairs and CapEx needed in the near future

• Current insurance policy and any claims history

This is the foundation of your analysis. Don’t settle for vague numbers—ask for specific, verifiable documents. If they say “10x10 units rent for $100,” double-check with actual collections on the rent roll.

Step 3: Break Down the Unit Mix and Rent Roll

Analyze how many units they have by size and the actual average rent being collected—not the advertised rate.

This is critical. Sellers often inflate rental income by quoting street rates instead of actual collections. Your underwriting should reflect reality, not hopes and assumptions.

Step 4: Estimate Expenses

Now it’s time to project your operating expenses. Common line items include:

• Property taxes (these may increase after the sale)

• Insurance

• Repairs and maintenance

• Management or VA costs

• Call center and management software

• Utilities and internet

• Marketing

• Legal/accounting fees

• Bad debt (plan for 2%)

If the seller is self-managing or running the property inefficiently, your numbers will be different—usually higher. Always use conservative estimates to protect yourself.

Step 5: Calculate Key Financial Metrics

Now, calculate the core performance indicators:

• Net Cash Flow

• Cash-on-Cash Return

• Cap Rate

• Debt Service Coverage Ratio (DSCR)

• Expense Ratio

Key Definitions:

• Cash-on-Cash Return: Year 1/short-term return based on your actual cash invested (e.g., $60,000 net cash flow in Year 1  ÷ $600,000 cash investment = 10%)

• Cap Rate: NOI ÷ Purchase Price. A measure of value and market performance.

• DSCR: Net income ÷ annual debt payments. Conventional lenders typically require at least 1.2x.

• Expense Ratio: Total expenses ÷ gross revenue. Aim for 35–40%.

With today’s higher interest rates, a 5–6% cash-on-cash return in year one is still very solid—especially when paired with long-term equity growth.

Step 6: Compare with the Local Market

Use nearby competitors to determine if rents are below market. In our model, we include a table that lists nearby facilities by proximity and rent rate.

Even a $5–$10 per unit increase on monthly rent rates can make a huge difference—and tenants are less likely to move over such small changes, especially in larger unit sizes.

Step 7: Project Future Rent Increases

Based on your rent roll and market comps, estimate rent increases in Year 1, 2, and 3. Stay conservative. We often use the following assumptions:

• 15% vacancy in Year 1

• 10–12% vacancy in Years 2–3

• Gradual operational improvements (better lighting, marketing, systems, etc.)

This paints a realistic path forward for revenue growth.

Step 8: Evaluate Equity Growth Potential

Here’s one of the best parts about self-storage as an investment—you can force appreciation by improving the NOI.

Let’s say by Year 3, you’ve increased NOI to $150,000. If comparable facilities are selling at a 7-cap, your facility is now worth:

$150,000 ÷ 0.07 = $2.14 million

If you bought it for $1.1 million, that’s over $1 million in equity gained from smart management, not just market appreciation.

That’s the power of self-storage investing—steady cash flow today and significant equity tomorrow.

Step 9: Use Tools for Fast Screening

Before diving into full underwriting, we often use a simple “Back of the Napkin” calculator that requires just three numbers:

• Purchase price

• Annual income

• Estimated expense ratio (e.g.,  40%)

It spits out:

• Estimated cap rate

• Quick cash-on-cash return

• Rough net cash flow

This tool is perfect for filtering deals fast—ideal if you’re fielding multiple leads each week.

Final Thoughts: Start with Simplicity, Stay Consistent

Underwriting doesn’t have to be complex. In fact, the best models are the simple ones you actually use consistently.

By focusing on real data, staying conservative, and projecting forward with clarity, you can underwrite with confidence—whether it’s your first deal or your tenth.

At StorageLife, our self-storage mentorship program walks investors through this exact process. From using our beginner-friendly templates to working with VAs to handle data input, we help you streamline every step.

In a rising-rate environment, smart underwriting isn’t just helpful—it’s essential. And when you combine it with solid deal sourcing, consistent follow-up, and strong operations, self-storage as an investment can be one of the most powerful wealth-building vehicles out

there.

If you’re ready to take the next step in self-storage investing, start by mastering this underwriting process. It’s the foundation that makes every great deal possible.