How Self Storage Valuation Works: 4 Methods Every Owner Should Know
Key Takeaways
- There are four primary methods for valuing a self storage facility: Income Approach, Sales Comparison, Cost Approach, and Discounted Cash Flow (DCF).
- The Income Approach (NOI ÷ Cap Rate) is the gold standard for stabilized facilities and drives 90%+ of real-world transactions.
- The Sales Comparison Approach provides a reality check using recent comparable sales, but no two facilities are identical.
- The Cost Approach matters most for newer facilities where replacement cost sets a ceiling on value.
- Discounted Cash Flow analysis is how private equity and institutional buyers underwrite value-add and lease-up deals — and it often yields the highest valuations.
- Understanding which method applies to your facility is the first step to knowing what it’s actually worth.
If you own a self storage facility and you’ve ever wondered what it’s worth, you’ve probably gotten a range of answers. Your accountant might give you one number. A local real estate agent might give you another. And the private equity buyer who cold-called you last month probably hinted at something different entirely.
The reason for the confusion is simple: there isn’t one way to value a self storage facility. There are four. And depending on who’s doing the valuation, why they’re doing it, and what kind of facility you own, the method they choose — and the number they arrive at — can vary dramatically.
As brokers who specialize exclusively in self storage transactions, we use all four methods regularly. More importantly, we know which method matters most for your specific situation. In this guide, we’ll walk through each approach in detail, with real numbers and worked examples, so you understand exactly how buyers and appraisers determine what your facility is worth.
Method 1: The Income Approach (NOI ÷ Cap Rate)
The Gold Standard for Stabilized Facilities
If your facility is operating at stabilized occupancy — generally 85% or higher — and generating consistent revenue, the Income Approach is almost certainly how a buyer will determine your value. It’s the most widely used method in commercial real estate, and in self storage specifically, it dominates transactions.
The formula is deceptively simple:
Property Value = Net Operating Income (NOI) ÷ Capitalization Rate (Cap Rate)
But every component of that equation carries enormous weight.
Understanding NOI
Net Operating Income is your facility’s gross revenue minus operating expenses — but not including debt service, depreciation, or income taxes. It represents the actual cash the property generates before financing.
Here’s a simple breakdown:
- Gross Potential Revenue: All units rented at current rates × 12 months = $600,000
- Minus Vacancy Loss (10%): -$60,000
- Plus Ancillary Income (insurance, late fees, retail): +$45,000
- Effective Gross Income: $585,000
- Minus Operating Expenses (40%): -$234,000
- Net Operating Income: $351,000
The NOI figure is where most of the negotiation happens. Buyers will scrutinize every line item. They’ll want to see trailing twelve-month (T-12) financials, not projections. They’ll normalize for one-time expenses and add back anything that’s a personal expense run through the business. And they’ll make their own assumptions about vacancy, management fees, and reserve requirements.
Understanding Cap Rates
The capitalization rate reflects the market’s required rate of return for that type of asset in that location. It’s determined by supply and demand among buyers, interest rates, risk perception, and market conditions.
As of mid-2026, self storage cap rates generally range from:
- Class A, Primary Markets: 4.75% – 5.75%
- Class B, Secondary Markets: 5.50% – 6.75%
- Class C, Tertiary Markets: 6.50% – 8.50%
Lower cap rates mean higher values. A 5% cap rate on $351,000 NOI yields $7,020,000 in value. A 7% cap rate on the same NOI yields $5,014,286. That’s a $2 million difference on the exact same income stream — driven entirely by market perception and buyer demand.
Worked Example
Let’s say you own a 45,000 square foot Class B facility in a secondary market:
| Line Item | Amount |
|---|---|
| Gross Potential Revenue | $540,000 |
| Vacancy Loss (8%) | -$43,200 |
| Ancillary Income | +$38,000 |
| Effective Gross Income | $534,800 |
| Operating Expenses (42%) | -$224,616 |
| Net Operating Income | $310,184 |
At a 6.25% cap rate (mid-range for this class and market):
$310,184 ÷ 0.0625 = $4,962,944
At a 5.75% cap rate (if the facility attracts institutional interest):
$310,184 ÷ 0.0575 = $5,394,504
That 50-basis-point difference in cap rate? It’s worth $431,560 in sale price.
Strengths and Weaknesses
Strengths:
- Directly tied to the property’s income-generating capacity
- Universally understood by buyers, sellers, lenders, and appraisers
- Allows apples-to-apples comparison across markets when applied consistently
Weaknesses:
- Relies heavily on accurate financial reporting (garbage in, garbage out)
- Cap rate selection is subjective and market-dependent
- Doesn’t capture future upside — it values the property as-is today
- Can undervalue facilities with below-market rents, low occupancy, or expansion potential
Who Uses It
Everyone. Appraisers, lenders, institutional buyers, individual investors, and brokers all use the Income Approach as the primary valuation tool for stabilized self storage. It’s the number that goes on the offering memorandum and the number that closes deals.
Method 2: The Sales Comparison Approach
Using Comparable Sales as a Reality Check
The Sales Comparison Approach works exactly like it sounds: you look at what similar properties have sold for recently and adjust for differences. It’s the same logic behind residential appraisals — your house is worth what the neighbor’s house sold for, plus or minus adjustments.
In self storage, comparable sales are evaluated on metrics like:
- Price per square foot of net rentable area
- Price per unit
- Cap rate at time of sale
- Revenue per square foot
How It Works in Practice
Let’s say three comparable facilities in your region sold recently:
| Comp | Size (SF) | Sale Price | Price/SF | Cap Rate | Occupancy |
|---|---|---|---|---|---|
| Comp A | 50,000 | $5,250,000 | $105 | 6.00% | 92% |
| Comp B | 38,000 | $3,420,000 | $90 | 6.50% | 88% |
| Comp C | 55,000 | $4,950,000 | $90 | 6.75% | 85% |
Your facility is 45,000 SF with 90% occupancy in a similar market. Based on these comps, a reasonable price-per-SF range is $90–$105. That puts your value somewhere between $4,050,000 and $4,725,000.
But the adjustments matter enormously. If your facility has climate-controlled units and Comp B doesn’t, you’d adjust upward. If Comp A is on a major highway and you’re on a secondary road, you’d adjust downward. If Comp C was a distressed sale, you might exclude it entirely.
Strengths and Weaknesses
Strengths:
- Grounded in actual market transactions — real money changed hands
- Provides a sanity check against income-based valuations
- Useful when income data is limited or unreliable
Weaknesses:
- Self storage facilities vary widely — true “comparables” are rare
- Transaction data can be hard to find (many sales are private)
- Doesn’t account for the specific income characteristics of your property
- Comps age quickly in volatile markets — a sale from 18 months ago may not reflect today’s conditions
Who Uses It
Appraisers use the Sales Comparison Approach alongside the Income Approach in formal appraisals. Lenders reference it for underwriting. Buyers use it as a gut check. But in self storage, it’s almost never the primary method — it’s supplementary. The income stream matters more than what the building next door sold for.
Method 3: The Cost Approach
Replacement Cost Minus Depreciation
The Cost Approach asks a straightforward question: what would it cost to build this facility from scratch today, and how much has it depreciated since it was originally built?
The formula:
Value = Land Value + (Replacement Cost of Improvements − Depreciation)
Breaking Down the Components
Land Value is typically determined by comparable land sales in the area. For a well-located self storage parcel, land might range from $3–$15+ per square foot of land area depending on the market.
Replacement Cost includes everything it would take to build the facility today: site work, foundations, steel buildings, concrete, HVAC for climate control, doors, security systems, paving, landscaping, soft costs (architecture, engineering, permits), and developer profit. In 2026, all-in construction costs for self storage typically range from:
- Drive-up only: $45–$65 per rentable SF
- Climate-controlled: $75–$110 per rentable SF
- Multi-story urban: $100–$160+ per rentable SF
Depreciation accounts for physical deterioration (roof age, pavement condition, door wear), functional obsolescence (outdated unit mix, no climate control, poor layout), and external obsolescence (market oversupply, zoning changes, declining demographics).
Worked Example
A 50,000 SF drive-up facility built in 2010:
| Component | Amount |
|---|---|
| Land Value (3 acres at $250,000/acre) | $750,000 |
| Replacement Cost (50,000 SF × $55/SF) | $2,750,000 |
| Physical Depreciation (15 years, 30-year life = 50%) | -$1,375,000 |
| Functional Obsolescence (no climate control) | -$200,000 |
| Cost Approach Value | $1,925,000 |
Compare that to the Income Approach: if this facility generates $200,000 in NOI at a 7% cap rate, its income value is $2,857,143 — nearly $1 million more than the Cost Approach suggests.
This discrepancy is common and reveals an important truth: the value of an income-producing property is driven by its income, not its bricks and mortar.
When It Matters
The Cost Approach is most relevant for:
- Newer facilities (built within the last 3–5 years) where depreciation is minimal and replacement cost is close to market value
- Expansion analysis — determining whether building additional units makes financial sense
- Insurance purposes — establishing replacement cost for coverage
- Special-purpose facilities where income data is limited
For older, stabilized facilities, the Cost Approach typically produces the lowest value of the four methods. That doesn’t make it useless — it provides a floor and helps identify when the market is paying a premium for income.
Who Uses It
Appraisers include it in formal appraisals (they’re often required to), but they typically give it the least weight for income-producing storage facilities. Insurance companies use it to set coverage amounts. Developers use it to evaluate build-versus-buy decisions.
Method 4: Discounted Cash Flow (DCF) Analysis
How Institutional Buyers Model Value-Add Deals
If the Income Approach is the gold standard for stabilized facilities, the Discounted Cash Flow analysis is the weapon of choice for value-add and lease-up properties. It’s also the method that private equity buyers and institutional investors use to underwrite almost every acquisition, regardless of stabilization status.
The DCF approach projects the property’s cash flows over a hold period (typically 5–10 years), includes a terminal sale value at the end, and discounts everything back to present value using a target rate of return.
The Mechanics
A DCF model includes:
- Year-by-year revenue projections — factoring in occupancy growth, rate increases, and ancillary income growth
- Year-by-year expense projections — accounting for inflation, management efficiency, and capital improvements
- Capital expenditure budget — immediate and ongoing investments
- Terminal value — the projected sale price at the end of the hold period, typically calculated using a terminal cap rate applied to projected Year N+1 NOI
- Discount rate — the investor’s required rate of return, which reflects risk and opportunity cost
Worked Example: A Value-Add Facility
Consider a 60,000 SF facility currently at 70% occupancy with below-market rents. Current NOI is $180,000. A PE buyer models a 5-year hold:
| Year | Occupancy | Revenue | Expenses | NOI | CapEx | Cash Flow |
|---|---|---|---|---|---|---|
| 1 | 75% | $420,000 | $193,000 | $227,000 | $150,000 | $77,000 |
| 2 | 82% | $485,000 | $204,000 | $281,000 | $50,000 | $231,000 |
| 3 | 88% | $540,000 | $216,000 | $324,000 | $25,000 | $299,000 |
| 4 | 91% | $575,000 | $224,000 | $351,000 | $15,000 | $336,000 |
| 5 | 93% | $600,000 | $232,000 | $368,000 | $10,000 | $358,000 |
Terminal Value: Year 6 projected NOI of $385,000 ÷ 6.00% terminal cap rate = $6,416,667
Total Cash Flows to Discount:
- Years 1–5 cash flows: $77K + $231K + $299K + $336K + $358K
- Year 5 terminal value: $6,416,667
At a 12% discount rate (typical PE target):
The present value of all future cash flows comes to approximately $4,500,000.
This means the PE buyer would pay up to $4.5 million today for this facility, expecting to earn a 12% annualized return over 5 years through operational improvements and a stabilized exit.
Compare this to the current income approach value: $180,000 NOI ÷ 7.5% cap rate = $2,400,000. The DCF gives the buyer room to pay a significant premium over the as-is income value because they’re underwriting the future, not just the present.
IRR Targets by Buyer Type
Different buyers have different return thresholds, which directly affects what they’ll pay:
- Private Equity / Institutional: 12%–18% levered IRR
- Regional Operators: 15%–22% levered IRR
- Individual Investors: 8%–15% cash-on-cash return
- REITs: 6%–10% unlevered yield (but they pay the highest prices due to low cost of capital)
Why PE Buyers Love DCF
Private equity firms don’t buy self storage based on today’s NOI. They buy based on what they believe they can create. They see a facility at 70% occupancy with $8/SF rents in a market where competitors charge $12/SF, and they don’t see a problem — they see a business plan.
The DCF model lets them:
- Quantify the upside and assign a specific value to it
- Stress-test assumptions (what if occupancy only reaches 85% instead of 93%?)
- Compare returns across multiple investment opportunities
- Justify paying more than income-approach value to win competitive deals
Strengths and Weaknesses
Strengths:
- Captures future value creation that the Income Approach misses
- Allows sophisticated sensitivity analysis
- Accounts for capital expenditures and their impact on returns
- Reflects how institutional buyers actually make decisions
Weaknesses:
- Heavily dependent on assumptions — small changes in growth rates or terminal cap rates swing values dramatically
- Requires detailed market knowledge to build credible projections
- More complex and subjective than the Income Approach
- Sellers sometimes distrust it because the buyer controls the assumptions
Who Uses It
Private equity firms, REITs, institutional fund managers, and sophisticated individual investors. If a buyer shows up with a DCF model, they’re usually well-capitalized and serious. They’re also the buyers most likely to pay a premium for well-positioned value-add opportunities.
Which Method Applies to Your Facility?
The right valuation method depends on your facility’s characteristics:
| Facility Type | Primary Method | Secondary Method |
|---|---|---|
| Stabilized (85%+ occupancy, market rents) | Income Approach | Sales Comparison |
| Value-Add (low occupancy, below-market rents) | DCF | Income (for floor value) |
| Lease-Up (recently built, filling up) | DCF | Cost Approach |
| Newer Facility (< 5 years old) | Income Approach | Cost Approach |
| Distressed or Special Situation | Case-by-case | Multiple methods |
In most transactions, appraisers and brokers will use two or three methods and reconcile the results. But the Income Approach carries the most weight for stabilized properties, and the DCF carries the most weight for value-add opportunities.
The important thing is this: the method determines the number, and the number determines your outcome. Using the wrong method — or applying the right method with bad inputs — can cost you hundreds of thousands of dollars on a sale.
The Bottom Line
Every self storage owner should understand how their facility is valued. Not because you need to do the math yourself, but because you need to recognize when a buyer is undervaluing your property — or when you’re overvaluing it.
The four methods aren’t competing answers. They’re different lenses that reveal different aspects of value. A skilled broker uses all four to build the most complete picture possible, then positions your property to attract the buyers who will pay the most based on the method that favors your facility’s strengths.
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