How to do a proper Cap-X Budget on a Self-Storage Facility

Every storage facility is different, and has its own unique attributes. And one of those is the appropriate capital expenditure (also called “cap-x”) budget to know how much you have to save for each year to properly maintain all the structures and systems in the storage property. So how do you build a successful storage facility cap-x budget?

Make a list of all basic items

The first step in creating a cap-x budget is to properly identify all the parts of the storage property. Those typically include:
• The building (roof, foundation, office)
• The access doors
• The pavement (roads and parking)
• The electrical system
• The water/sewer system
• The office interior
• The entry sign
So you’re first step is to create a lengthy list.

Figure out what they will each cost to replace

This gets a little more complicated, as you may not have any idea what some things cost (can you really throw out an accurate cost to replace the roof?). As a result this step often requires getting multiple bids from contractors in each category. We typically try to get three bids and then go with the middle one as a budget tool.

Estimate the remaining useful life

This gets even harder, as nobody can properly predict the remaining life of many assets, such as the foundation and electrical system. However, you can make general guesses based on the age of the facility minus the average length of life. For example, if the roofer says the roof will last 30 years and the storage property is 20 years old, then you can guesstimate that you have 10 years left to go on it.

Divide the replacement cost by number of years remaining

You now have all the data you need to create the final cap-x budget. You simply divide the cost to replace by the number of years left of useful life for each item on the list. Then you add these up, and this is the monthly amount you have to put aside to replace these things as they wear out. This is also known as your “reserves” amount (that’s what banks call it).

Other thoughts

While many storage facilities have these cap-x budgets, many fail to use them as they always think they are going to be lucky and escape big bills. Or they feel that they will patch these items along on their “repair and maintenance” budget. While that’s great if it works out that way, you should always prepare for the worst case analysis, as that’s the prudent position. “Better safe than sorry” is a good way to look at it.

Conclusion

All storage facility buyers and owners should field a well-planned cap-x budget to address those big-ticket items. There’s no other safe way to play the potential for key system failures that occur.

Frank Rolfe has been a commercial real estate investor for almost three decades, and currently holds nearly $1 billion of properties in 25 states. His books and courses on commercial property acquisitions and management are among the top-selling in the industry.