Using "Value-Add" Method to Boost Revenue Potential

Today we will be discussing a recent real estate deal where a storage facility was purchased for $6 million, and the income generated from the property was increased by over 4.4 million in just one year. This is a perfect case study for those interested in investing in real estate and understanding the potential for profit through value-add strategies.

Off-Market Deal

The storage facility in question was an off-market deal, which means that it was not publicly listed for sale. The property was located on the outskirts of a major market and was a mom-and-pop-run storage facility with 80,000 net rentable square feet, equating to around 600 storage unit doors. The condition of the facility was in good shape, but nothing had been done in terms of operations to improve the facility. The owners wanted to sell the property, but they didn't want to go through the hassle of listing it publicly. They simply wanted their asking price of $6 million and to walk away.

Cap Rate Analysis

When analyzing the potential of this deal, we used a tool called a cap rate. A cap rate is an evaluation tool that helps investors understand the return on their investment. In this case, the $6 million asking price, when compared to the current existing revenue and expense ratio, equated to a 7 cap. This means that the return on investment would be 7%.

Breakdown of Numbers

To understand the potential of this property, it's important to break down the numbers. The property was generating gross revenue of $630,000. Expenses for the property were around $200,000, leaving a net income of $430,000. This does not include any debt that may be associated with the property.

Value-Add Strategy

The strategy used in this deal was a value-add strategy. This means that the property was purchased with the intention of increasing the revenue and therefore increasing the value of the facility. This is done through capital expenditures, which are the funds put into the facility to improve it. In this case, the storage facility had very low capital expenditure needs. The facility needed to move some gates, put in new doors, and pave the parking lot. These improvements allowed for an increase in rent and an increase in the value of the facility.

Results

The results of this deal were impressive. After implementing the value-add strategy, the property generated an additional $4.4 million in income in just one year. This is a testament to the potential for profit through value-add strategies in real estate investing.

Conclusion

Investing in real estate can be a great way to generate income and create wealth. Understanding the potential for profit through value-add strategies, like the one used in this storage facility deal, can be a valuable tool for any investor. By purchasing a property, improving it, and increasing the revenue, investors can see significant returns on their investments. This storage facility deal is a perfect case study for anyone interested in investing in real estate and understanding the potential for profit through value-add strategies.

• According to the National Association of Realtors, the median existing-home price for all housing types in the U.S. was $313,000 in November 2020, up 14.6% from November 2019.
• According to Zillow Research, the US home value appreciation rate in 2020 was 8.4%
• According to the Mortgage Bankers Association, the average interest rate for a 30-year fixed-rate mortgage was 3.09% in December 2020, which is the lowest rate on record.
• According to data from the National Council of Real Estate Investment Fiduciaries, the average cap rate for self-storage properties in the U.S. was 7.2% in 2020.