29 Jan 2020
The self storage market offers investors high-profit potential, recession-resistant growth, regular income, and minimal management when compared to residential, retail, and hotel properties- but how exactly do you get started investing in the self storage market? Let's find out.
Self storage businesses exist to offer their customers a safe place to store household goods, business materials, vehicles, and anything else that the customer needs to stow away. Consumer and business-facing self storage facilities are seeing tremendous growth- almost 10% of American households use a storage facility each year. Currently, the sector is generating over 20 billion dollars in revenue, with roughly 50,000 storage facilities in the US and total rental space of more than 1.7 billion square feet. This growth in storage facilities has not gone unnoticed by the media. Numerous storage-based reality shows like Storage Wars dominate television networks, and the self storage facility has profoundly entered the American cultural lexicon.
All of this growth has attracted investors, big and small, with the majority of facilities still being in the hands of individual owner-investors- all though there is a move towards consolidation in some larger markets like SF, NYC, and other high cost of living regions. The property class is not what you think of when you think of commercial real estate. Most people think of gleaming skyscrapers or McDonald's locations- not storage facilities that sit in industrial areas on the periphery of town.
Rather than the long-term and single and triple net leases that come standard in the commercial RE world, self storage tenants can usually end their tenancy on a short term basis, and tenant turnover is higher than traditional leasing- although turnaround costs are significantly less than most commercial buildings. Although the sector is not exactly glamorous, it has seen substantial growth recently, even thriving during the last recession.
You can invest in the self storage market through REITs (real estate investment trusts), shares in public self storage companies, or as an independent owner-investor. In this guide, we will show you how to acquire and analyze a self storage facility as an owner-investor. Your level of direct management in the property is up to you, some investors like to take an active hand in day to day business, and others prefer to outsource the duty to an outside management firm. The steps for getting started are as follows:
You can use online resources like Loopnet.com, ReMax.com, or a licensed commercial real estate broker to find properties that fit your criteria. When you begin your search, you can designate your ideal price range, physical location, age and size of the property, and more. Many investors like to limit themselves to properties near their geographic location. Whether you want to be an active or passive investor in your self storage facility should be the most significant determining factor for your market choice- with active investors tending to stay local, and passive investors having an extensive range to work with.
(self storage facilities)[https://www.radiusplus.com/tags/self-storage-facilities] are categorized by their condition, size, and style of construction. Some facilities are purpose-built to act as a storage center, and others have undergone a conversion process that shifted the facility from other uses, like warehouse storage, small-scale manufacturing, or other commercial purposes.
Cash flow is king in the self storage industry. If you are financing your facility, as most owners do, your ability to obtain credit to expand operations or acquire new properties is driven by cash flow
Market analysis is critical for any commercial real estate investment.
When you invest in a self storage business, in most cases you will be competing with other operators in the region.
Financing for self storage units is available through conventional lenders, government agencies like the SBA (Small Business Administration), new construction loans, hard money loans and others.
As in the rest of the commercial real estate sector, the self storage industry has a wide range of borrowed capital options.
Self storage is an asset class that offers property appreciation, stable cash flow, and is also a uniquely recession resistant asset. All of these factors make a self storage investment a compelling addition to your diversified portfolio.
Thumbnail: Original Photo by Pixabay from Pexels
