Self Storage Cap Rates And Why They Are Important

Somebody asked me the other day about cap rates and whether they're important and so forth. And we admittedly said that cap rates are in fact very important, but they're by no means the only thing that we pay attention to when looking at a facility's value.

Cap rates, of course, are the net operating income divided by the purchase price. The percentage that is the result of that equation is essentially the rate of return a new investor would be generating if they were to purchase your facility or a facility, all cash, using no debt.

While that's an important equation, what we actually believe is more important is the equation that precedes it. That equation is the net operating income: revenue minus expenses. That equation is simple on the surface, but beneath the surface, there's a bunch of broader conversation that needs to go into determining what the NOI truly is.

And there's a variety of factors that have to do with who your buyer is, where your facility is located, what year it was built, how big is it, what's the quality of the demographic, what's the competitive landscape. All of those things are different from property to property. And that is precisely why we are advocates for engaging in the conversation to take a deeper dive into what your facility may be worth.

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