Self-storage is the fastest-growing sector in real estate. Although it has been around for years, the growing need to store items for future use has created new investment opportunities. Currently, about 1 in 10 American households utilize self-storage facilities at least once a year. There are over 50,000 self-storage facilities in an industry that generates $39.5 billion per annum.
The success of the self-storage sector continues to attract the attention of large and small investors. Popular TV shows like Auction Hunters and Storage Wars have added to the appeal of this sector. The total amount of rentable storage space available in the US now is thought to be three times the Manhattan Island size. The demand for storage space continues to go up, and you can join the growing number of self-storage investors. You can learn more about storage unit investments at selfstorageinvesting.com.
Why You Should Invest in Self-Storage
Self-storage investments are highly appealing for several reasons:
Today’s ease of online shopping has made it difficult for people to resist acquiring items, whether they have where to keep them or not. This development means more people need storage space. The COVID-19 pandemic appears to have amplified what industry experts call “the 4Ds of self-storage” – death, downsizing, dislocation, and divorce.
The self-storage market is highly fragmented. Small and private owners control about 70% of the market. This group of owners typically own one to three storage units, presenting a low-entry barrier and affords opportunities to any interested investor.
Positive Cash Flow
Self-storage units are rented out on a month-to-month basis, so owners can raise or lower rent as local market forces dictate. Tenants usually would not leave a storage facility because of a slight increase in rent as rates would be similar elsewhere.
Self-storages properties require lower operating expenses than other types of commercial real estate. Capital expenditures are not much, and you usually know when they’re coming. Net operating income around these types of facilities is typically around 60% to 70%. A good NOI will, in turn, lead to significant ROI.
Self-storage investments are not as vulnerable to economic downturns as other types of real estate assets. The need to store valuable items is not necessarily affected by the recession.
Types of Self-Storage
There are several self-storage niche options for a potential investor:
These are low-maintenance buildings that allow easy storage and retrieval of belongings. The storage units are typically constructed on the outskirts of the building. Most investors opt for this type of storage unit as they are easier to set up. They can be fitted with security equipment or operated by a team of guards.
Indoor storage units are typically within a larger building and are accessible through hallways. They are suited to storing valuable items and can be fitted with climate-control units.
These types of storage units are more expensive to set up. You will have to invest heavily in temperature and humidity control equipment. You will also need security gadgets like high-definition cameras and other surveillance equipment. You’ll typically have to charge more if you invest in this type of facility.
Investing in mobile storage will require the acquisition of mobile containers and vehicles for transporting customers’ items to and from your storage location.
How to Find and Invest in Self-Storage
The type of self-storage investment most suitable for you is dependent on whether you want to be actively or passively involved in running the business. Once you’ve sorted out your financing, there are three principal ways of investing in self-storage:
Real Estate Investment Trusts (REITs)
Storage REITs are companies that own and operate self-storage facilities. These companies are traded on stock exchanges. You can invest in passive income storage units by simply buying a REIT stock. Your ROI is the dividends you receive on your stock. You can invest in stocks by engaging the services of a real estate broker who specializes in self-storage investing.
Buying an Existing Storage Facility
Small private owners are often willing to let go of their investments for the right amount. You can find self-storage facilities for sale on websites like Crexi and LoopNet. You can also reach out to owners by direct mail or through a commercial broker.
A self-storage facility’s cost will be calculated based on the amount of cash flow the property generates (NOI). You will have to do a cash flow analysis to know how much you’ll need to pay. You’ll also have to consider expenses like insurance, taxes, maintenance and repairs, advertising, office supplies, utilities, and other miscellaneous payments.
Some existing facilities may not be performing up to market standard, and you will have to figure out ways to improve and better manage the facility for better performance.
Developing a Storage Facility
Developing a self-storage facility requires your active participation. It is more capital and labor-intensive than the other two investment methods. However, it is also the most potentially rewarding. Successfully developing your facility requires a great deal of research and experience.
The first thing you’ll need to do is acquire land in a location with a low supply and high demand for storage facilities. You can maximize land space by constructing multi-story facilities. You also have to ensure that local regulations permit you to build your intended structure.
You should also consider developing a building that a REIT can acquire in the future. Minimizing construction costs is crucial to your long-term profitability. You can hire an experienced project manager to oversee the day-to-day running of the project.
You also have to plan for advertising when your facility is up and running. You need to develop a strategic marketing plan and price at the current market rates. You can hire a facility manager if you don’t want to be involved in the daily operations of the storage unit.
You can hold and run your facility long-term, use it to finance another property’s acquisition or sell it to a REIT.
Self-storage opportunities give investors the chance to enter into the real estate sector at relatively lower costs. The dynamics of the sector make it a very viable source of building wealth. Past and present trends show that the sector is on an upward trajectory. Potential investors can make a real profit by going taking advantage of available opportunities.