With more people recognizing the potential of self-storage facilities, there’s a burgeoning interest among investors. A key part of effectively managing these investments is developing a thorough pro forma, a document that outlines projected financial performance. This guide will delve into what a pro forma entails, its importance for self-storage investors, and how Copper Storage Management can assist you by creating a free pro forma for any active deal.
What Is a Pro Forma?
A self-storage pro forma is a financial tool that predicts the potential income and expenses associated with a property. By integrating current market data with informed assumptions, investors gain a clearer picture of their investment’s economic viability over the next five to seven years. While it may appear similar to a financial overview, it holds strategic value, revealing the property’s potential performance and value to lenders and investors alike.
“We believe transparency is the most important aspect of choosing a management company. Too many companies over promise and under-deliver. It’s vital to understand the expectations of how your facility will be managed and what your true expenses will be. Owners need to see a clear estimate for how the facility will perform and cashflow to ensure this is a good Partnership for both the Owner and the Management Company,” said Brett Copper, Partner at Copper Storage Management.
Why Investors Need a Pro Forma
Creating a comprehensive pro forma is essential for self-storage investors for several reasons:
1. Establishing Current Income
The pro forma begins with the existing rent roll, providing a foundation for understanding current income. A thorough analysis of occupancy rates, unit sizes, and rental prices is essential for projecting future revenue. When it comes to income, pro formas examine various components, including rental income, administrative fees, late fees, tenant insurance, convenience fees, and other applicable fees.
2. Analyzing Unit Sizes and Square Footage
Data on unit sizes and total square footage clarifies how each type of unit drives income. Understanding the revenue contribution from different unit types is crucial for effective financial forecasting.
3. Projecting Cash Flow
Many lenders require detailed monthly income and expense projections to assess risk. This projection should outline expected financial performance until the investment stabilizes, including anticipated rent increases and timelines for achieving full occupancy.
4. Yearly Performance Insights
Incorporate a yearly summary to provide a clearer visualization of performance over time. This summary highlights the anticipated growth and operational adjustments that will be required as the investment matures.
5. Financial Clarity for Lenders
Transparency is key when dealing with lenders. The pro forma should detail acquisition costs, management expenses, closing costs, and operating reserves needed post-purchase.
6. Competitor Landscape
A proper competitor analysis highlights other self-storage facilities within the area, showcasing their pricing, unit types, and vacancy rates. This contextual information bolsters your projections and strengthens your negotiation position.
7. Operator and Deal Summary
Conclude your pro forma with a summary of the deal and operator background. This concise presentation enables investors to quickly grasp key details, including the qualifications of the personnel involved, thereby fostering trust in the investment.
Expenses Breakdown
When it comes to expenses, a pro forma analysis should examine various costs associated with operating a self-storage facility. This includes tenant insurance, computer software, office and administrative expenses, management fees, credit card fees, internet and phone services, advertising and marketing, maintenance and repairs, onsite management, property taxes, property insurance, travel, and utilities. A thorough assessment of these expenses is essential for ensuring the investment’s sustainability and profitability.
Crafting Your Pro Forma
A well-organized pro forma serves not only as a tool for securing funding but also as an ongoing reference throughout your investment journey. It should evolve in tandem with your investment strategy, aiding in informed decision-making and aligning stakeholders. By focusing on accuracy, clarity, and relevance, you can create a compelling pro forma that strengthens your position in the self-storage market. Contact us to learn more about how we can assist you in this process.
