A client of ours called us the other day and we were looking at loans. She was thinking about buying one of the properties that we had listed and so I thought I would bring this topic here to discuss as well, that topic being cash on cash return.
So what is cash on cash return? How is it relevant to me, et cetera? Well, a couple of weeks ago we talked about cap rate. Cap rate is the rate of return that a buyer would generate if they were to purchase the property all cash. Most properties don't get purchased with all cash. Most buyers do in fact, go out and get a loan.
The cash on cash return then becomes far more important to them as a result, the cash on cash return, being the cash that the buyer shelled out of their pocket originally in the form of the down payment, versus the cash that they received back in their pocket after they paid their mortgage. And that relationship between the two should amplify the returns at a rate of two or three basis points above the cap rate and so that's why debt is introduced into the conversation to begin with. And this particular conversation is one that we would love to have with you if you're thinking about buying a facility or just want to talk about it in general, you can reach us at Karrselfstorage.com.