Determining Your CAP Rate Based on Your Competitors Rates

When you are trying to determine if you want to buy or build in a market, you need to be able to determine what your competition is doing. Part of that process is determining what your competition is charging and whether that is a discounted price or their regular price.

If your competition is using a software program to manage their unit and keep it at maximum capacity, their rates will change from day to day and week to week. You will want to watch rates in an area for several weeks and over multiple properties to see what a fair market value is for your self-storage units. This matters in determining the value of your property and whether or not it is actually worth purchasing or building. If you base your rental units on someone else’s discounted price, then the cap rate for your building will be lower than it actually is. You want to get as close to accurate as possible when you are determining your CAP rate. You need to know if this project is worth pursuing.

You want to have a good software management system to help you track your rates as well as other’s rates. When you are determining what to rent your property for based on your competition, you also want to take into consideration that there are bargain units and there are premium units. Depending on their occupancy levels will depend on which units they are advertising.

If possible, you want to show people where the unit is that you are renting and what other units are available in your online advertising. Show them the pricing so that they can decide on whether or not they want to pay a few dollars more for a better location. Hopefully, your competition is doing this too. If they are, then you can get a better feel for pricing.

The last thing that you will take into consideration when you are determining your own pricing will be the services that you offer. If you are in a better location and you offer more services than your competition, you may be able to charge a little more money. For example, if you offer boat storage with pull out services, that may be more appealing than someone who just rents out boat storage.

Try to be as accurate as possible when you determine your rates, but also remember that you are going to have a feasibility study done to verify your research. You want to buy great opportunities. As always, happy investing.