What’s It Worth?

To view the charts that accompany this article, click HERE.

Have recent events in the financial markets affected your property’s value? If so, what is your facility actually worth?

Maybe you're considering selling or refinancing or want to know value for estate-planning purposes. Regardless of the reason, the methodology of determining your property’s value is the same. Ready to start figuring out where you stand?

Value

Value is not based on how much you paid for the property when you bought it, how long you’ve owned it ,or how much it cost to build. It’s based on cash flow. Hopefully your property is worth more today than it was when you bought or built it, but time alone does not cause income property to appreciate.

In fact, only two factors affect property value: net operating income (NOI) and the capitalization rate (cap rate). NOI is calculated in exactly the same way now as it has always been. On the other hand, recent turmoil in financial markets will have a changing effect on cap rates.

NOI is the money left after all operating expenses are paid, excluding debt service and depreciation. Figure A depicts a typical self-storage facility’s unit mix and rents. As you can see, monthly potential rent flows into annual potential rent, to which other income is added and economic vacancy is subtracted. The resulting figure is effective gross income (EGI).