Self Storage- Gotta love Inflation, How much PI equity buildup

[Henry Clark]

Was wondering with each month how much equity we were building up as we did our P/I payments to the bank.

Forget the downpayment.  This is just relative to the P/I payments.  Did an amort table for the following info.  Use the following baseline info.

Balance $1,000,000

Int rate   6%

25 year amort

Year Equity buildup

1  22,000

2  44,000

5    122,000

10   288,000

15   511,000

Above is project to date equity buildup $511,000 after year 15.  Not including original downpayment.  Self storage has very little deterioration of the physical asset, so no devaluation is assumed.

The good thing about the above is they are the Current day NPV equity.  In future dollars with inflation, it will be a lot larger number.  Asset value will INCREASE with inflation.

Then I looked at Debt.  Debt value will decrease with inflation.  Used an annual 3% inflation rate.  The interest cost in year 15 in the above scenario will be $46,000.  But in Future dollars with 3% inflation it will only be 55% of that or $25,300 in current day dollars.

The above is a very favorable outlook  based on the standalone deal.  It is a negative outcome from a Cash on Cash return as the equity builds up with the same income stream.  Using a 65% bank Collateralization, just on the equity valuation and not the Operating Income.  We should have cross collateralized and started another deal around year 10 or 15.

The above is just a baseline discussion, not taking into account downpayment, interest rate changes, different inflation rates, market shifts.