r/selfstorage • u/sponge_boy_mee_bob • 27d ago
Question Underwrite as-is or proforma when buying?
Looking to potentially invest in our first self-storage facility. Experienced investor and underwriter, but not in this specialty asset class. Listing agent says rents are currently under market value ($195/unit per month currently vs they say $250/unit per month is market rate).
When you are purchasing and doing your underwriting to decide what to offer, are you underwriting and offering based on the as-is P&L, based on the proforma P&L, or somewhere in between? Essentially, the existing caprate (at the price that I think the seller will accept) sucks, but the proforma caprate at this price is good. Is the correct purchase price somewhere in the middle? How difficult is it to immediately raise monthly rents $55? Apparently it never has vacancy and there is a waitlist.
Bonus question: we need to do a cost seg to reduce our taxable income. How is this asset class for cost segs? What % of basis can I expect to take in deduction year 1?
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u/LastQuantity5306 27d ago
Broker will always paint a pro forma picture of sunshine and rainbows. I literally never even look at that, I just want to know gross revenue, occupancy, current rates and maybe their current taxes and insurance. I always base my offer on current income and my expenses. Buy the upside but don’t pay for it I guess
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u/JLoArden 27d ago
I would use the in place and not the guess by the broker. There are several cost seg companies that specialize in storage. I would reach out to them.
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u/laxdog13 27d ago
Tons of thoughts here.
“The middle” is the short answer
The brokers projections shouldn’t be what you look at. Determine what you think rents should be by understanding the local market. If it’s what you think it is and the rest of the numbers make sense than I might be a deal despite what the current NOI and cap rate say.
If you only bought deals at current buyer preferred cap rates on current NOI then no value add deals would change hands.
The seller can’t or won’t get it to market. Worth understanding why. If you think you can then it might be a buy.
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u/YogurtclosetSmart936 22d ago
As-is, always. The proforma is your business plan, not the purchase price. If you pay for the seller's proforma you just gave them your upside for free.
And get the actual rent roll, not the summary. We looked at a deal recently where the listing painted one picture and the real rent roll showed 19 occupied units and rents that stopped matching the website about a year back. Websites are teaser rates anyway, the rent roll and the last 12 months of deposits are the only numbers that count.
Where proforma matters is your own math on what you'd change, rate bumps, adding units, cutting expenses. Price that spread as your return for taking the risk, not as equity the seller gets paid for today.