The delinquency rate is a snapshot of who is late today; the cost depends on how many cases end in payment, a quiet move-out or an auction.
Delinquency costs a self-storage store the rent it never collects from customers who leave or are sold up, plus the cost of the sale, less the late fees paid by those who catch up. On an illustrative 520-unit store where 4.0 per cent of customers fall 30 days behind each month, the reported delinquency rate is 3.1 per cent of units, but the net cost is £13,728 a year, 2.32 per cent of rent, worth about £228,800 at a 6.0 per cent cap rate. The delinquency rate on the operator's report is a snapshot; the cost depends on how the cases end.
Worked in full in Self-Storage Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A storage customer has no lease to enforce for years ahead. When one stops paying, the operator overlocks the unit, adds a late fee, and after a period set by the storage agreement and local law can sell the contents to recover the debt. Most delinquent customers pay. Some clear their unit and disappear. A few end in a lien sale or auction. Each route costs a different amount, and that is what an underwriter has to price, not the percentage on the management report.
| Input | Value |
|---|---|
| Occupied units | 520 |
| Average rent per occupied unit, a month | 95 |
| Customers newly 30 days late, share of occupied units a month | 4.0% |
| Of those: pay up in full, with a late fee | 75% |
| Of those: vacate without paying | 10% |
| Of those: go to auction | 15% |
| Further months spent delinquent: payers / leavers / auctions | 0.5 / 1.0 / 2.0 |
| Months of rent lost: leavers / auctions | 2 / 4 |
| Late fee | 20 |
| Auction: proceeds applied to the debt / cost of notices, cutting and clearance | 150 / 110 |
| Cap rate, illustrative | 6.0% |
The months of rent lost include the month already unpaid at the 30-day mark. A leaver costs that month and the next; an auction costs three months of unpaid rent before the sale and roughly one more while the unit is cleared and re-let. Auction proceeds here are below the debt, so nothing goes back to the customer.
Step 1: the flow of new cases. 520 × 4.0% = 20.8 customers a month fall 30 days behind, 249.6 a year. Of these, 187.2 pay, 25.0 leave and 37.4 go to auction.
Step 2: the delinquency rate the report shows. The report counts customers delinquent on one day, which is a stock. By Little's law, the stock equals the inflow times the average time in the state.
Average time delinquent = 75% × 0.5 + 10% × 1.0 + 15% × 2.0 = 0.775 months
Units delinquent on any day = 20.8 × 0.775 = 16.1, or 3.1% of 520
Step 3: the cost of each route.
Leaver: 2 × 95 = £190; 25.0 a year = £4,742
Auction: 4 × 95 + 110 − 150 = £340; 37.4 a year = £12,730
Late fees from payers: 187.2 × 20 = −£3,744
Net cost = 4,742 + 12,730 − 3,744 = £13,728 a year
As a share of rent: 13,728 ÷ (520 × 95 × 12 = 592,800) = 2.32%
Excel: =Units*Inflow*12*(MO*LostMO*Rent+AU*(LostAU*Rent+Cost-Proceeds)-Cure*Fee)
The store loses £13,728 a year net, 2.32 per cent of the rent roll. Capitalised at 6.0 per cent, that is £228,800 of value. Auctions are 15 per cent of the cases and 73 per cent of the gross loss: £12,730 of £17,472. The late fees on the three customers in four who pay recover £3,744, about a fifth of it. Every point of reported delinquency costs this store about 0.75 per cent of rent, a ratio that holds only for this outcome mix.
| Scenario | Reported delinquency | Net cost | Share of rent | Value lost |
|---|---|---|---|---|
| 2% fall behind each month | 1.5% | 6,864 | 1.16% | 114,400 |
| 4%, base case | 3.1% | 13,728 | 2.32% | 228,800 |
| 6% fall behind each month | 4.6% | 20,592 | 3.47% | 343,200 |
| 8% fall behind each month | 6.2% | 27,456 | 4.63% | 457,600 |
| 4%, auctions 5%, leavers 20% | 2.7% | 9,984 | 1.68% | 166,400 |
| 4%, auctions 25%, leavers 0% | 3.5% | 17,472 | 2.95% | 291,200 |
The cost is linear in the inflow: double the customers falling behind and the loss doubles. The outcome mix matters almost as much. Moving ten points of cases from quietly leaving to auction raises the reported rate only from 3.1 to 3.5 per cent, but the cost from 2.32 to 2.95 per cent of rent, because an auction runs longer and loses two more months of rent, which the sale proceeds, net of their costs, offset only slightly. An operator who chases delinquent customers early, so that more of them clear the unit or pay before the sale process starts, is worth more than one with a high late-fee income.
The common mistake is to read the delinquency rate as a loss rate. The 3.1 per cent on the report is customers late on one day, most of whom will pay; the loss is 2.32 per cent here, and with a quarter of cases going to auction a 3.5 per cent rate costs 2.95 per cent. The opposite error is to net the late fees against the delinquency and call it nil. Ask the operator for twelve months of outcomes, cured, vacated and sold, with the rent written off on each, and rebuild the number.
Price delinquency from the flow, not the snapshot: new cases a month, how each ends, and the rent and costs each route loses. On this store that is £13,728 a year, 2.32 per cent of rent and about £228,800 of value, most of it from the auctions. In a valuation, carry it as a bad-debt line inside REVPAF rather than inside occupancy, since a delinquent customer still occupies a unit; the distinction between occupied and paying is the one drawn in physical vs economic occupancy. The companion files include the free workbooks for this case, with the cohort model the book builds its rent roll from.
Operators usually report the share of units more than 30 days past due on a given day, and the level varies widely by market and management. The rate alone does not say what it costs: on an illustrative store, 3.1 per cent of units delinquent costs 2.32 per cent of rent, because three in four late customers pay with a late fee.
Rarely in full. Contents of an average unit often sell for less than the arrears, and the sale has its own costs. In the illustrative case an auction loses four months of rent, £380, plus £110 of costs, against £150 of proceeds, a net £340 per case. Surplus proceeds above the debt generally belong to the customer.
No. A delinquent customer still occupies the unit, so it belongs in a bad-debt line deducted from rent, not in physical occupancy. Capitalised at an illustrative 6.0 per cent, a net cost of £13,728 a year is about £228,800 of value.
This article is one calculation from Self-Storage Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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