How To Calculate ROI For Self-Storage Units

Self-storage remains one of the strongest performing commercial real estate sectors, offering steady cash flow, low operating costs, and recession-resistant demand. For developers and investors in Central Texas, calculating return on investment (ROI) accurately is essential for choosing the right site, building the right unit mix, and ensuring long-term facility profitability. At Merck General Contracting, we design and build modern storage facilities that deliver strong financial performance for owners.

Step 1: Determine Total Development Costs

ROI starts with understanding your total upfront investment. Key development costs include land acquisition, design and engineering, permitting, construction, utilities, roadwork, paving, fencing, lighting, climate-control equipment, and security systems. Operational startup costs must also be included, such as software, staffing, insurance, and marketing. In Texas, construction costs vary based on unit mix, climate control levels, and site prep requirements. A clear development budget is the foundation of accurate ROI forecasting.

Step 2: Estimate Gross Potential Revenue

Gross potential revenue (GPR) is the total amount your facility could earn if all units were rented at full market rate. To calculate it, multiply the number of units by the average monthly rental rate and then multiply by 12. Market rental rates are affected by location, occupancy levels in nearby facilities, unit sizes, and whether you offer climate-controlled spaces. In high-demand markets like Waco, properly designed facilities reach strong revenue potential quickly, especially when the unit mix matches local demand.

Step 3: Calculate Operating Expenses

Typical operating expenses for self-storage facilities include property taxes, insurance, utilities, maintenance, marketing, and management. Climate-controlled facilities have higher utility costs, but they also command higher rental rates. Many self-storage businesses operate with low labor costs because most facilities require only one on-site manager or can be partially automated through access control systems and web-based leasing. Operating expenses usually range from 25% to 40% of revenue depending on facility size and automation level.

Step 4: Determine Net Operating Income (NOI)

Net operating income is the most important metric in commercial real estate. To calculate NOI, subtract operating expenses from gross potential revenue. A strong NOI indicates a profitable facility and can significantly increase the property’s market valuation. Since self-storage has predictable monthly cash flow and comparatively low maintenance needs, NOI is often more stable than in other commercial sectors.

Step 5: Calculate ROI

ROI is calculated by dividing your annual net income by your total project cost. For example, if your NOI is $500,000 per year and the total cost to develop your facility was $5 million, your ROI would be 10%. Investors typically target ROI between 8% and 15%, depending on location, unit mix, and competitive landscape. Climate-controlled facilities and well-located properties in growing markets can exceed these benchmarks.

Step 6: Consider Long-Term Appreciation

ROI isn’t limited to cash flow. Self-storage properties appreciate with increased occupancy, consistent rent growth, and facility improvements. Adding more units, upgrading to climate control, installing better access systems, or enhancing security can all boost property value. A facility with rising NOI becomes significantly more valuable when appraised using income-based valuation methods.

Build Self-Storage That Delivers Strong ROI

Building the right facility from day one is the key to maximizing your investment return. At Merck General Contracting, we design and construct high-performance self-storage buildings that align with market demand, minimize operating costs, and maximize long-term revenue. Contact Merck General Contracting today to discuss your next self-storage development and learn how to structure your project for maximum ROI.