Sensei, how much can I pay for land to develop self-storage or boat and RV storage?

This has to be one of the top questions I am asked as a feasibility consultant, and I know the answer sucks because the answer is IT DEPENDS.

What does it depend on?

How much you can pay for land for a self-storage or boat and RV storage facility depends on what customers in the market will pay to rent self-storage or boat and RV storage and the total development cost of your project. This is not as hard to figure out as you might think, and you only have to do a little bit of research to calculate it.

Before I tell you how to do that, I’d like to remind you that just because you find the desirable trifecta of a parcel of land + rental rates + construction scenario that meets your return on investment goals, it does not necessarily mean that the market will support your project. You still need to do a feasibility study to confirm that there is enough unmet demand in your market. If the market isn’t viable and you build it anyway, what will you do with a facility that won’t cash flow, much less turn a profit?

Step 1: Research rental rates

In the submarket you want to build in, find out the going rates for 10 x 10’ and 10 x 15’ units at least three competitive facilities. If you are not sure how to do this, read the article I wrote for Inside Self Storage.

If you are not sure if you want to build climate-controlled or non-climate-controlled storage, or a mix of both, investigate the rental rates for both types. Remember, the online rates are not always the permanent rental rates and are often discounted, so be sure you know the regular rate for each size.

Step 2: Find a calculator to use

The good news is, Trachte Building Systems has a free self-storage calculator I often refer people to that works great. I have begged them to make one for boat and RV storage (and I hope you will too—let’s see if we can get them to do it for us). You can use Trachte’s self-storage calculator to calculate boat and RV storage development projects, and although it won’t be as accurate, it will get you in the ballpark.

I also recommend Mark Helm’s Storage World Analyzer, which is a fee-based product. The Storage World Analyzer is more detailed and is worth investing in if you are serious about evaluating multiple projects—whether for ground-up development or existing facilities for acquisition.

Step 3: Run scenarios

Using the calculator you selected, run the numbers with different variables and the rental rates you’ve collected.

First, pick a price per acre ($50,000 for example). Then run one set of variables for that price and see what the return on investment is.

The rental rates are not a variable because no bank or investor is going to believe you can magically charge more than the competition. You may in fact be able to do that, particularly if this is a submarket with unprofessional competitors, but banks and investors make decisions based on the present, not the future.

Variables include:

• Parcel size: trying different sizes will help you figure out the minimum number of acres you need to build a facility that will meet your return on investment goals.

• Facility type: are you considering single-story drive-up units? Big buildings with interior corridors? Trachte’s calculator will let you choose different options and show you the projected gross and net square footage based on your selection.

• Construction development costs: this is a very, very, very (did I say very enough times?) ballpark number you are inserting here because you have no way of knowing the exact site preparation (grading, excavating, water remediation, etc.) costs yet. Trachte’s calculator gives you ranges to use, and you can also reference the blog post I wrote about average 2020 construction costs.

• Debt service: it is never too early to begin thinking about how you are going to pay for this project. If you go with a local bank, estimate 70-80% loan-to-value and a 20-year note. I suggest getting SBA program options (up to 90% loan-to-value and a 25-year note) from a national lender specializing in self-storage—email Nick Collins at Bank Five Nine and he can send you those super quick. For options beyond that, a broker like Mandy Monson can help you.

• Lease-up options: be conservative here and plan on at least three years.

• Stabilized occupancy: 85% is a standard number to use in our industry.

• Cap rate: this isn’t going to affect how much you can pay per acre to build self-storage or boat and RV storage initially, but it is fun to play with.

I think it is easiest to open an Excel spreadsheet or Word document and use it to keep track of the variables you use to calculate how much you can pay for land for your self-storage or boat and RV storage facility, and the different results they produce.

Danger, Will Robinson. Just because you find a parcel at this price does not mean you are ready to pull the trigger.

Again, what I am teaching you is how to determine the maximum price you can pay for land in a market so that you can evaluate parcels. This is not the same thing as determining if the market will support more self-storage or boat and RV storage.

After you know how much you can pay for land and find a parcel, you can have me do a preliminary report (first one free, subsequent reports are $75) and see if it is worth pursuing the parcel.

If you cannot find a parcel in your selected market and need help finding a different one, you could also have a reverse feasibility study done. In a reverse study, I identify a viable submarket that meets your parameters, and then you go find land in that submarket.

I hope this post helped you calculate how much you can pay for land for your self-storage or boat and RV storage project. Feel free to reach out if you get stuck.