Investors looking for opportunities in the real estate market should explore extensively. Fortunately, the real estate market features a diverse portfolio of investment opportunities, including self-storage businesses. However, being a relatively new venture, most entrepreneurs don’t know how the self-storage industry works. Read on to learn how to invest in the self-storage market, the benefits, and key points to keep in mind.
Investing in Self-Storage: What is It?
A self-storage business is a form of real estate investing where investors buy or construct self-storage units for lease to renters. Self-storage facilities solve short and long-term storage needs for homeowners and business owners. For instance, homeowners can rent a self-storage unit to store excess items that can’t fit in their house. They can also be used during renovations and relocations.
Self-storage facilities can store household items like lawn care equipment, old clothes, household appliances, and furniture. Some customized units can store motorcycles, cars, and trucks. However, they aren’t meant to house plants, pets, and people. Living in self-storage facilities is illegal and a solid ground for eviction.
What are the Types of Self-Storage Facilities?
You should understand the various types of storage facilities and invest in one that meets your target population’s needs. The four types of self-storage units include:
1. Drive-up or Outdoor Units
Outdoor units are what come to the minds of most people when self-storage units are mentioned. They are storage buildings stacked in rows with upward rolling metal doors. Tenants can drive to the doors to offload or load their properties into the unit. Apart from the steel metal doors and high-end locks, these units often have surveillance cameras and a guard to boost security. These units are cheap due to minimal staffing and maintenance requirements.
2. Mixed-use Storage Units
Mixed-use storage facilities are a growing trend that combines storage facilities with retail and commercial businesses. For instance, a storage unit can be attached to office buildings to allow office holders to store and access crucial materials faster. They are also convenient for moving suppliers.
3. Climate-controlled Storage Units
As the name suggests, climate-controlled units protect climate-sensitive items from extreme temperatures and humidity. These facilities are expensive because they provide services beyond basic storage.
4. Vehicle Storage Units
These units serve people with extra RVs, cars, boats, and other vehicles. Vehicle storage units are majorly concentrated in racetracks, harbors, and airports.
Why Invest in Self-Storage Business?
You should consider investing in a self-storage business for the following benefits:
1. Growing Demand
The surging demand for self-storage units is a convincing reason for getting into this venture. Heavily populated areas and regions experiencing rapid population growth have strong demands for storage units. A high population translates to high occupancy, steady cash flow, and long-term profits. These are crucial determinants of success in the real estate realm.
2. Minimal Management Required
Landlords and management agencies typically enjoy minimal supervision of most real estate investments, provided they are operational, and tenants can access the units. For instance, common maintenance issues for commercial and residential units, such as failing appliances and plumbing, occur rarely. This makes real estate investments; self-storage units included, a perfect source of passive income with limited commitment.
3. Low Overhead Costs
Self-storage units also have significantly low overhead. However, the overhead of these units generally depends on the quality. For instance, some self-storage units are simple structures with no electricity. Such minimalistic structures have brick or concrete walls, roofs, and sliding metal doors.
However, with increasing demand, some investors have upgraded their units by installing electricity, heating and cooling units for climate control, and surveillance cameras for safety purposes. These features attract clients who want to store climate-sensitive items, such as artwork, clothing, and furniture, which degrades if exposed to extreme temperatures and humidity.
Interestingly, self-storage facilities can withstand different economic cycles. Unlike other real estate businesses, self-storage units performed exceedingly well during the 2008 recession and the 2020 pandemic. Most homeowners prefer downsizing into small homes during harsh economic times. As such, they turn to storage units to keep excess items that can’t fit in their new homes.
Storage units also remain in demand if the economy improves. Most homeowners schedule renovations or relocate during this period. As such, they move their items temporarily to storage units. Those starting their businesses also lease storage units to keep their supplies.
How to Invest in Self-Storage Business
These benefits make the self-storage business a lucrative idea for real-estate investors. You can get into the self-storage business by:
Building a Self-storage Facility
This is probably the most difficult way of getting into the self-storage business. It requires buying a plot to construct the facility or converting an already existing business into self-storage units. Evidently, building self-storage units from scratch are resource-intensive.
Besides buying land, you should check your local government to ensure that you adhere to business developments within the area. You should consider this option only if you understand construction and business development.
Buying a Self-storage Facility
A common way of venturing into the self-storage business is buying existing facilities. Unlike building from scratch, you won’t have to deal with buying land, seeking clearance, and construction costs. You’ll also inherit the already built customer base, making it easy to generate revenue with minimal marketing.
The only downside of buying self-storage units is the potential of inheriting an already failing business. You can also buy a business with extensive structural damage or bad customer reviews. Therefore, you should conduct due diligence to avoid such traps.
Investing Through REITs (Real Estate Investment Trusts)
Investing through REITs is the easiest and most secure way of getting into the self-storage business. REITs are investment companies that buy publicly traded properties and offer their consumers shares. Unlike other investment options, REITs offer an opportunity for hand-free investing.
With REITs, you are free from managing the day-to-day operations of self-storage units. You simply buy shares from REITs that buy self-storage units and earn from dividends and capital gains. Even then, you should read every company’s prospectus to understand the properties, fees, and restrictions of the RIET. You should also evaluate the company’s growth over time.
Rent Unused Storage Space at Home
Renting out unused storage space is another alternative source of income. If you have an empty garage, attic, or basement, you can provide storage solutions to your friends, neighbors, and other members of the community. However, this may necessitate minor repairs. Like other investment options, consider drafting contracts and taking an insurance policy to protect your property from theft and damage.
The Bottom Line
Venturing into the self-storage business is an excellent opportunity for stable cash flow, assured property appreciation, and recession-resistant investment. With the self-storage industry growing rapidly, there are opportunities that entrepreneurs can leverage for decent revenue. Knowing the basics mentioned above can help you get started.