Cap rate

Definition

Net operating income over price, how property-heavy deals are quoted.

Why It Matters

An 8% cap rate on $320k of NOI is a $4M price. Self-storage and anything else priced on its real estate trade on a cap rate, not a multiple of earnings, and the two are not interchangeable. A car wash sold with its site sits between them: the sold tables price it on owner earnings, and owning the dirt lifts the multiple. A searcher who quotes an SDE multiple at a storage seller is speaking a different language from the person across the table.

In numbers: The same $320k of NOI is worth about $4.57M at a 7% cap rate and $5.33M at 6%; one point of cap rate moved the price about three quarters of a million dollars.