By Ritehly Quimbo. Posted on September 8th, 2023 in Self Storage Business and Investment.

Investing in self-storage units has become an increasingly popular choice among individuals looking for a reliable and potentially lucrative investment opportunity.

These facilities offer a secure and steady income stream, making them an attractive option for seasoned investors and real estate market newcomers.

In this comprehensive guide, we will explore the ins and outs of investing in self-storage units, providing valuable insights and strategies to help you make informed decisions in this exciting venture.

Understanding Self Storage Units

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Before delving into the investment strategies, it’s crucial to understand what self-storage units are and how they function. Self-storage units, often called storage facilities or storage lockers, are spaces that individuals and businesses can rent to store their belongings. These units come in various sizes, from small lockers to large warehouse-like spaces, providing flexibility to cater to a wide range of storage needs.

Why Invest in Self Storage Units?

man thinking in container yard

Investing in self-storage units offers several compelling advantages that make it an attractive choice for investors:

1. Steady Income Stream

One of the primary benefits of investing in self-storage units is the consistent and reliable income stream they can generate. Unlike other types of real estate investments, self-storage units tend to have low vacancy rates, ensuring a steady flow of rental income.

2. Recession-Resistant

Self-storage is often considered recession-resistant because people continue to require storage space even during economic downturns. This stability can give investors peace of mind, knowing that their investment is less susceptible to market fluctuations.

3. Minimal Maintenance

Compared to residential or commercial properties, self-storage units require relatively low maintenance. Tenants are responsible for their individual spaces, reducing the landlord’s maintenance and repair responsibilities.

4. Diverse Tenant Base

Self-storage units attract a diverse tenant base, including individuals, families, businesses, and even students. This diversity helps spread the risk and minimizes the impact of a single tenant’s non-payment.

Steps to Invest in Self Storage Units

Now that you understand the advantages of investing in self-storage units, let’s explore the steps to get started:

1. Research the Market

Begin by researching the self-storage market in your desired location. Evaluate factors like demand, competition, and rental rates. A thorough market analysis will help you identify promising investment opportunities.

2. Choose the Right Location

Location is a crucial factor in the success of your self-storage investment. Look for areas with a growing population, high traffic, and limited competition. Accessibility and visibility are key considerations.

3. Property Acquisition

Once you’ve identified a suitable location, you must acquire a self-storage property. You can choose to purchase an existing facility, develop a new one, or invest in a partnership with an established operator.

4. Facility Management

Effective facility management is essential for maximizing your returns. Consider hiring a professional property management company or oversee the operation yourself. Ensure the facility is well-maintained and secure.

5. Marketing and Promotion

Promote your self-storage facility through various marketing channels, such as online listings, signage, and local advertising. Highlight the security features, accessibility, and competitive pricing to attract tenants.

6. Tenant Screening

Implement a thorough tenant screening process to minimize the risk of delinquent tenants. Verify credit histories, conduct background checks, and establish clear lease agreements.

7. Pricing Strategy

Set competitive rental rates based on the local market conditions. Monitor rental prices in the area and adjust your rates accordingly to remain competitive.

8. Security Measures

Invest in robust security measures, including surveillance cameras, access control systems, and well-lit areas. A secure facility will attract tenants concerned about the safety of their belongings.

See also: Why is Self-Storage Security Important?

9. Regular Maintenance

Ensure the facility is well-maintained and clean. Regular inspections and maintenance will help extend the life of the property and keep tenants satisfied.

 

How to Invest in Storage Units

Investing in storage units can be a lucrative venture if done right.

To start, research local storage facilities and their occupancy rates. Assess your budget and decide between buying an existing facility or developing your own.

It’s crucial to understand the legalities and regulations in your area, such as zoning laws and permits. Diversify your investment by considering different types of storage units, such as climate-controlled or vehicle storage.

Finally, manage your property efficiently to maximize returns, including regular maintenance and marketing strategies.

Self-Storage Investing Basics

Self-storage investing involves purchasing, developing, or managing storage units. It offers a steady income stream and potential for capital appreciation.

Researching the local market, understanding the financial aspects, and identifying your investment strategy – whether through REITs, public companies, or owning a facility is essential.

Always consider the location, demand, and competition when making investment decisions.

The Self-Storage Market

The self-storage market has shown resilience, even during economic downturns. Its demand is driven by various factors, including downsizing, relocation, and business needs.

Understanding local market dynamics is crucial. Monitor the area’s occupancy rates, rental prices, and new construction. A strong market analysis will guide your investment decisions.

container self storage investment

Types of Self-Storage Facilities

Self-storage facilities come in various forms to cater to different needs:

    • Climate-Controlled Storage: Ideal for items sensitive to temperature and humidity fluctuations.
    • Drive-Up & Outdoor Storage: Convenient for quick access to belongings.
    • Mixed-Use Storage: Combines storage units with retail or office spaces.
    • Vehicle Storage: Designed for storing cars, boats, RVs, and other vehicles.

Understanding these types will help you target the right market niche.

How to Invest In Self-Storage

There are several ways to invest in self-storage:

    1. Purchase Shares in a Real Estate Investment Trust (REIT): A passive investment option with exposure to the self-storage market.
    2. Invest in a Publicly Traded Storage Business: Buy stocks of companies operating storage facilities.
    3. Buy an Existing Facility: Direct ownership of a storage facility, which requires active management.
    4. Develop Your Own Facility: Start from scratch, involving land acquisition, construction, and management.

Choose the approach that aligns with your goals and risk tolerance.

Drawbacks of Investing in Self Storage

While self-storage can be profitable, it’s important to acknowledge potential drawbacks:

    • Market Saturation: Oversupply in some areas can increase competition and lower occupancy rates.
    • Economic Downturns: Self-storage isn’t entirely recession-proof; economic downturns can affect occupancy rates.
    • Management Challenges: Direct ownership requires active management, including dealing with delinquent tenants and maintenance.
    • Regulatory Issues: Local zoning and regulations can impact facility development and operations.

Self-Storage Investing for Beginners

If you’re new to investing and considering self-storage as an option, it’s crucial to start with a solid foundation.

Begin by learning the basics of real estate investing and how self-storage fits into this landscape. Understand the potential risks and rewards, and assess your financial readiness.

Research local markets to identify opportunities and consider partnering with experienced professionals. Self-storage investing can be rewarding for beginners with the right knowledge and approach.

What Is Self-Storage Investing?

Self-storage investing involves purchasing, managing, or developing storage facilities where individuals and businesses rent space to store their belongings.

Investors can generate income through rental payments, and properties can appreciate over time. It’s a subset of real estate investing, offering various investment strategies,

including direct ownership, REITs, or publicly traded storage companies. Successful self-storage investing requires a keen understanding of the market, location, and property management.

Why Invest in Self-Storage?

Investing in self-storage offers several compelling reasons. Firstly, it provides a consistent income stream due to ongoing demand for storage space.

Moreover, self-storage often outperforms other real estate sectors during economic downturns, making it a resilient investment.

It’s a relatively low-maintenance option compared to other real estate types, and it can be a passive investment through REITs or an active one with direct ownership. Additionally, it allows for portfolio diversification, reducing overall investment risk.

Ways to Invest in Self-Storage

There are multiple avenues to invest in self-storage:

  • Direct Ownership: Purchase, own, and manage your self-storage facility. This provides maximum control and potential for higher returns but requires active involvement.
  • Real Estate Investment Trusts (REITs): Invest in self-storage REITs, which offer shares in a diversified portfolio of storage properties. This is a passive investment with regular dividend payouts.
  • Publicly Traded Storage Companies: Buy stocks of publicly traded companies that specialize in self-storage. This approach provides exposure to the sector’s performance without direct ownership.
  • Partnerships: Collaborate with experienced investors or operators in joint ventures, sharing the responsibilities and rewards of self-storage investments.

Self Storage as an Investment: What are the Benefits?

  1. Low Risk: Self-storage investments are considered low risk due to consistent demand. People and businesses always need storage space, making it less susceptible to economic downturns.
  2. High Demand: The demand for self-storage units remains robust, driven by various factors like moving, downsizing, and business needs, ensuring a steady income stream.
  3. Economic Durability: Self-storage has proven to be economically durable, often performing well during recessions, making it an attractive option for investors.
  4. Low Maintenance: Compared to other real estate investments, self-storage requires minimal maintenance, reducing operational headaches.
  5. Flexible Business Model: Self-storage allows for various business models, such as climate-controlled, drive-up, or vehicle storage, providing flexibility for investors.

Risks of Investing in Self Storage

  1. Tricky Market Positioning: Selecting the right location and pricing strategy can be challenging, impacting occupancy rates and profitability.
  2. Need for Active Management: Direct ownership of self-storage facilities demands active management, including tenant relations, marketing, and maintenance.
  3. Risk of Oversupply: In some areas, oversupply can lead to increased competition, lower rental rates, and potentially decreased profitability.
  4. High Tenant Turnover: Self-storage facilities may experience higher tenant turnover than other real estate sectors, affecting occupancy rates and income stability.

Self Storage Classes

  1. Class A: Class A self-storage facilities are typically newer, well-maintained, and located in prime areas. They often offer premium features and command higher rental rates.
  2. Class B: Class B facilities are older but still well-maintained. They may lack some modern amenities but balance affordability and quality well.
  3. Class C: Class C facilities are older, may require more maintenance, and are located in less desirable areas. They offer lower rental rates but may have more vacancy challenges.

Things to Know Before Investing in Self Storage

  1. Choosing the Right Location: Location is critical. Research local markets thoroughly, considering factors like population density, competition, and accessibility.
  2. Know Your Customers: Understand your target audience. Are you catering to residential or commercial clients? Knowing your customers’ needs will help you tailor your facility accordingly.
  3. Mitigating the Risks: Implement risk-mitigation strategies, like diversifying your portfolio, conducting thorough due diligence, and having a solid business plan.

Is Self Storage a Good Investment for 2023?

The potential for self-storage as an investment in 2023 largely depends on market conditions, location, and your investment strategy. Despite uncertainties, its resilience and consistent demand make it a viable option worth considering.

Is Self Storage Investing Right for You?

Whether self-storage investing is right for you depends on your financial goals, risk tolerance, and level of involvement. Consider your preferences, available resources, and the local market’s dynamics before making a decision. Consulting with a financial advisor can also provide valuable insights.

Summary

Investing in self-storage units can be a rewarding and profitable venture. With a steady income stream, recession-resistant qualities, and relatively low maintenance requirements, it’s no wonder why many investors are drawn to this asset class. By following the steps outlined in this guide and conducting thorough research, you can make informed decisions and embark on a successful self-storage investment journey.

FAQs

1. What is the typical size of a self-storage unit?

Self-storage units come in various sizes, ranging from small lockers to larger units that can accommodate furniture and vehicles. The size you choose depends on your storage needs.

2. Are self-storage investments suitable for beginners?

Yes, self-storage investments can be suitable for beginners. They offer a relatively straightforward and low-maintenance investment opportunity, making them accessible to newcomers in the real estate market.

3. How do I find self-storage properties for sale?

You can find self-storage properties for sale through real estate listings, online marketplaces, or by working with a real estate agent specializing in commercial properties.

4. What security features should a self-storage facility have?

A secure self-storage facility should have surveillance cameras, access control systems, gated entry, and well-lit premises to ensure the safety of tenants’ belongings.

5. Is hiring a property management company for my self-storage investment necessary?

While it’s not mandatory, hiring a property management company can help streamline operations and ensure the efficient management of your self-storage facility. It’s a choice that depends on your level of involvement and expertise in property management.