The easiest way to finance a self-storage facility

Self-storage facilities operate as income-generating commercial assets with lease structures that differ substantially from office or retail properties.

When you're looking at purchasing a self-storage facility in Narre Warren North or Narre Warren South, the lending approach reflects the way these properties generate income through multiple short-term agreements rather than a single long-term tenant. Lenders assess the entire revenue profile of the facility, not just one lease document. This changes how they calculate serviceability and structure the loan amount.

Commercial property loans for self-storage facilities

A commercial property loan for a self-storage facility is structured around the business income the property generates. Lenders typically lend between 60% and 70% of the property valuation, with the loan amount determined by both the purchase price and the facility's ability to service debt from rental income.

You'll need to provide occupancy rates, average unit pricing, and operating cost data across at least the past 12 months. Lenders want to see that the facility maintains consistent occupancy and that the revenue exceeds operating expenses and projected loan repayments by a comfortable margin. In our experience, facilities with occupancy rates above 75% and strong local demand tend to receive more favourable interest rate pricing.

Consider a buyer acquiring a self-storage facility on Princes Highway near the Hallam Road intersection in Narre Warren North. The facility operates 180 units across climate-controlled and standard storage, with an average occupancy of 82% over the past year. The buyer structured a commercial property loan at 65% LVR, providing a deposit from the sale of another investment property. The lender assessed serviceability based on the facility's net operating income, accounting for management fees, insurance, and maintenance reserves. The loan was approved with a variable interest rate and a 25-year term, allowing the buyer to maintain cash flow while servicing the debt from rental income.

What lenders assess when valuing a self-storage facility

Lenders commission a commercial property valuation that examines both the physical asset and the business performance. The valuer reviews occupancy trends, average rental rates per square metre, tenant turnover, and the condition of the buildings and security infrastructure.

Location matters, particularly in growth corridors like Narre Warren North and Narre Warren South where residential subdivision and industrial expansion create ongoing demand for storage. Proximity to residential estates such as Merinda Park or industrial precincts near Belgrave-Hallam Road can strengthen the valuation if the facility serves both markets. The valuer will also assess competition within a five-kilometre radius and whether the facility's pricing aligns with local market rates.

The valuation directly influences the loan amount. If the valuer determines the facility is worth less than the purchase price, the lender will base the LVR on the lower figure, which means you'll need to bring a larger deposit to settlement.

Loan structure options for purchasing a self-storage facility

You can structure a commercial loan with a variable interest rate, a fixed interest rate, or a split between the two. Each approach affects your repayment flexibility and exposure to rate movements.

A variable interest rate allows you to make additional repayments without penalty and provides access to redraw if the loan permits it. This can be useful if you plan to reinvest profits from the facility into capital improvements or expansion. A fixed interest rate locks in your repayment amount for a set period, typically between one and five years, which helps with budgeting but limits your ability to pay down the loan early without incurring break costs.

Some buyers use a split structure, fixing a portion of the loan to stabilise core repayments while keeping the remainder variable to maintain flexibility. This approach is common when the buyer expects to increase revenue through occupancy improvements or rate adjustments and wants the option to reduce debt faster as cash flow improves.

How serviceability is calculated for self-storage income

Serviceability is the lender's measure of whether the facility generates enough income to cover loan repayments, operating costs, and a buffer for vacancy or rate changes. Lenders typically apply a serviceability ratio of around 1.25 to 1.35, meaning the net operating income must exceed the annual loan repayment by at least 25% to 35%.

Net operating income is calculated by taking gross rental income and subtracting operating expenses such as insurance, rates, utilities, management fees, and a maintenance reserve. Lenders do not include depreciation or interest in this calculation, as they are assessing the facility's ability to service new debt, not historical accounting profit.

If the facility's occupancy has been declining or if operating costs are high relative to income, the lender may reduce the loan amount or require a larger deposit to bring the serviceability ratio within their criteria. This is where having a clear plan to improve occupancy or reduce costs can support your application.

Using business assets as additional security

If the self-storage facility does not provide sufficient security on its own, or if you want to increase the loan amount beyond what the property can support at 65% LVR, lenders may accept additional collateral. This could include residential property, other commercial assets, or equipment with a clear market value.

Additional security can also improve your interest rate pricing, as it reduces the lender's overall risk. Some lenders offer cross-collateralised structures where multiple properties secure a single loan, which can simplify repayments but ties the assets together legally. If you later want to sell one property, you'll need the lender's consent to release it from the security pool.

Another option is a revolving line of credit secured against the facility and other assets, which allows you to draw funds for capital improvements or acquisition of additional units without reapplying for finance each time. This structure works well if you plan to expand the facility or upgrade security and climate control systems over time.

Pre-settlement finance and timing considerations

Self-storage facilities are often sold as going concerns, meaning the business continues to operate through settlement. If the settlement period is short or if you need to pay a deposit before formal loan approval, pre-settlement finance can bridge the gap.

This is a short-term funding arrangement, typically lasting between 30 and 90 days, that allows you to secure the property while final loan documentation and valuation are completed. The cost is higher than standard commercial finance, but it ensures you don't lose the property to another buyer due to timing constraints.

In a scenario where a buyer identified a facility in Narre Warren South near Shrives Road with strong cash flow and an asking price slightly below recent comparable sales, they used pre-settlement finance to secure the property with a 10% deposit while arranging a commercial property loan through a panel lender. The buyer was able to complete due diligence on tenant agreements and operating costs during the pre-settlement period, and the formal loan settled within 60 days.

Refinancing an existing self-storage loan

If you already own a self-storage facility and want to access equity for expansion or refinance to a lower interest rate, lenders will assess the current performance of the business alongside the updated commercial property valuation.

Occupancy improvements, rental increases, or capital works that enhance the facility's appeal can increase the valuation and allow you to borrow additional funds without selling the asset. Some owners refinance to consolidate debt or move from a fixed interest rate to a variable interest rate as their cash flow stabilises.

Refinancing also allows you to review your loan structure and repayment options. If your original loan included restrictive terms or limited redraw, moving to a lender with more flexible repayment options can improve your ability to manage cash flow and reinvest in the business.

Cairncross Group Capital works with buyers and owners across Narre Warren North and Narre Warren South to structure commercial property finance that aligns with how self-storage facilities generate income. Call one of our team or book an appointment at a time that works for you.

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