Self-Storage Investment Analysis…
…Doesn’t need to be complicated. This is for owners, operators, and investors who want to understand what a self-storage facility is worth, how it performs under debt, and whether it belongs in their portfolio. Self-storage underwriting comes down to a small set of levers that determine value, risk, and returns. Those are the levers that matter—and the numbers worth focusing on. Below are the core metrics used to evaluate any self-storage deal, financing structure, or investment pitch.
Potential Gross Income (PGI)
Potential Gross Income (PGI) represents the maximum rental income a self-storage facility could generate if every rentable unit were occupied at full assumed rental rates, with no vacancy, concessions, or bad debt. PGI reflects the facility’s unit mix, unit sizes, and assumed market rental rates by unit type.
In a perfect world, a facility with 500 units averaging $120 per unit per month at 100% occupancy would generate:
500 units × $120 per unit per month × 12 months = $720,000 of annual potential gross income.
PGI is a ceiling, not an expectation of revenue.
In self-storage, PGI is especially easy to overstate. Aggressive assumptions around market rents, rapid rent growth, or uniform pricing across unit sizes can inflate PGI early and make everything downstream appear stronger than it truly is. PGI should be conservative, boring, and easy to defend.
PGI is the starting point for calculating the next metric: Effective Gross Income.
Effective Gross Income (EGI)
Effective Gross Income (EGI) adjusts Potential Gross Income for vacancy, economic loss, concessions, and other forms of unrealized revenue. In self-storage, this primarily reflects physical vacancy, rent discounts, delinquency, and the gap between advertised rates and achieved rents.
EGI matters more than many investors realize because it captures how the facility actually performs, not how it should perform on paper. Issues at the EGI level usually indicate underlying problems with demand, pricing strategy, competition, or operations—not high expenses (which have not been accounted for yet).
In self-storage, EGI can diverge materially from PGI due to occupancy friction, seasonal demand shifts, tenant churn, or aggressive headline pricing that is not fully realized in practice. Assumptions around stabilized occupancy and economic vacancy should be realistic and defensible, not optimistic.
Once operating expenses are deducted from Effective Gross Income, the result is the Net Operating Income (NOI)—the single most important metric in valuation and financing.
Net Operating Income (NOI)
Net Operating Income (NOI) is what remains after normal operating expenses are paid, before debt service, capital expenditures, and ownership-level costs. In self-storage, NOI supports debt sizing, drives valuation, and ultimately determines investor returns. It is the most important performance metric in underwriting, and one of the most frequently misunderstood.
Unlike PGI or EGI, NOI is highly sensitive to operations. Small changes in occupancy, pricing discipline, staffing, or controllable expenses can materially impact NOI, which is why lenders and buyers focus on it so heavily.
The NOI of a self-storage facility can be calculated in several different ways. When underwriting a potential acquisition, it’s critical to understand which NOI you are looking at, how it was derived, and whether it reflects historical performance and market trends or assumptions.
T-12 NOI — Net operating income for the trailing 12 months. This is the clearest indicator of current, in-place performance and reflects how the facility has actually operated under recent market conditions.
Annualized NOI — Similar to T-12, but annualized from a shorter operating period (such as T-6 or T-3). This can be useful when recent changes have occurred, but it requires careful scrutiny to ensure short-term performance is representative and not distorted by seasonality.
Forward NOI — A projected NOI based on assumed rent growth, occupancy improvements, or operational changes. Forward NOI is commonly used in underwriting but is inherently uncertain. Growth assumptions should be conservative and grounded in local supply, demand, and competitive behavior.
Acquisition Cap Rate NOI — The NOI used to calculate the “going-in” cap rate. While the true acquisition cap rate may not be fully known until after closing, thorough diligence should narrow the gap between projected and realized NOI.
The primary risk with NOI in self-storage is its operational sensitivity. Changes in staffing costs, insurance, property taxes, marketing spend, tenant churn, or even pricing discipline can meaningfully shift NOI. Because storage operations are often lean, modest misestimates can have outsized effects on value.
For this reason, NOI assumptions should be conservative, well-documented, and easy to defend. Everything downstream (valuation, leverage, and returns) depends on it.
Levered vs. Unlevered IRR
For many investors—both casual and experienced—Levered IRR is the primary metric used to evaluate investment performance. This is because it incorporates both time and leverage. Very briefly:
Levered IRR accounts for all cash inflows and outflows to equity, using equity contributions as the basis for calculating internal rate of return. It reflects what the investor’s equity earns after financing effects. The difference between levered and unlevered IRR shows how much of the return is driven by leverage rather than by the underlying operations of the facility.
Unlevered IRR reflects the performance of the self-storage asset itself, independent of financing. It measures returns based solely on operating performance and exit assumptions, without regard to debt structure.
In self-storage, leverage can meaningfully amplify returns due to relatively stable operating margins and predictable cash flow once stabilized. However, when the spread between levered and unlevered IRR is wide, it indicates that debt is doing much of the work. This magnifies both upside and downside exposure—an inherent feature of financial leverage across all real asset investments.
For apples-to-apples comparisons across different self-storage opportunities, Unlevered IRR is generally the more appropriate metric. Levered IRR is deal-specific and highly sensitive to financing terms, interest rates, amortization, and hold period assumptions.
Debt Service Coverage Ratio (DSCR)
Debt Service Coverage Ratio (DSCR) is a stress test. It measures how comfortably a property’s Net Operating Income covers its annual debt service. The formula is straightforward:
NOI ÷ Annual Debt Service = DSCR.
Lenders focus on DSCR because it answers a simple question: can this self-storage facility pay its mortgage? Traditional lenders typically require a minimum DSCR in the range of 1.20x to 1.35x, though this varies based on facility type, stabilization status, market dynamics, loan structure, and borrower strength.
In self-storage, DSCR can be particularly sensitive to occupancy assumptions and achieved rental rates. Coverage that appears adequate at underwriting can deteriorate if lease-up stalls, tenant churn increases, or operating costs rise faster than expected. For this reason, lenders often include covenants requiring periodic reassessment of DSCR to ensure ongoing compliance.
This is why it’s critical not only to operate the facility effectively, but to understand and respect lender requirements when structuring financing. DSCR is not a one-time hurdle—it must hold up over the life of the loan.
Our Debt Calculator can be used as a quick sanity check when evaluating potential debt structures and loan sizing scenarios.
Equity Multiple
Equity multiple answers a blunt question: how many dollars come back for every dollar invested? Unlike IRR, equity multiple does not account for leverage or the time value of money. A 2.0x equity multiple simply means that invested equity was doubled, regardless of how long it took.
Because of this simplicity, equity multiple is a blunt metric on its own. However, it is particularly useful when viewed alongside IRR. Together, the two metrics help distinguish between deals that generate fast returns versus those that generate larger absolute gains over longer hold periods.
In self-storage, equity multiples can be heavily influenced by exit timing and disposition assumptions. A long-term hold with stable cash flow may produce a strong equity multiple despite a modest IRR, while a shorter hold driven by refinance or sale can generate an attractive IRR with a relatively low multiple.
As with all performance metrics, equity multiple should not be evaluated in isolation. Understanding the relationship between hold period, leverage, and cash flow timing is critical when interpreting the result.
The Point of Cash Flow Analysis
If a self-storage deal still works after the assumptions are understood and the outputs are stress-tested, it may be worth pursuing. If it doesn’t, the analysis has already done its job—and it’s time to move on.
If you want to run your own scenarios instead of outsourcing the work, that’s where an analysis model becomes valuable as a practical gut-check. You can test unlimited self-storage scenarios in just a few minutes each, without rebuilding spreadsheets or relying on third-party assumptions. It costs less than hiring an analyst or consultant, and it keeps control of the underwriting process in your hands.
And it’s not just about cost. A simple, repeatable model saves time that would otherwise be spent chasing courses, certifications, or strategy content that rarely translates into better decisions. Instead, you have a concrete tool to evaluate real opportunities. You can approach negotiations, financing discussions, and investment decisions with clarity—grounded in numbers you understand and can defend.