When you're investing in a self-storage facility, the debt you take on can either be a source of stability—or a potential weak spot. As a long-time real estate investor, I have observed again and again that using financing smartly is one of the most important tools to protect your investment and improve your chances of success.
Choose Longer Term Notes
One of the largest risks in debt is simply the need to refinance when the term ends. In the self-storage business, you'll often see loans amortized over 30 years, but the actual term might be only 5 to 10 years. That means you may need to replace the loan two or three times before the amortization is complete.
Instead, when possible – select a note with the longest feasible term. That provides you a longer period of certainty and less exposure to shifts in the lending market, appraisal requirements, legal fees and new underwriting criteria.
Fixed Rates are No Longer the Best Option
There was a time in which everyone was obsessed with fixed-rate loans. But that was back before 2022, when rates were at historic lows. Now that we are clearly at the top of the interest rate cycle and it appears rates are poised to start their descent, variable rates may be a better option for you, particularly if you can buy caps that restrict risk if rates rise.
Since 1950, the average interest rate decline during recessions has been three points. If the U.S. is entering a period of recession – which most economists believe to be imminent – then a variable rate loan will appear very intelligent indeed.
Seek Non-Recourse Terms
With non-recourse debt, if the asset fails, the lender's recovery is limited to the property—your personal assets are protected. With recourse debt, you may remain personally liable for the shortfall.
While default is less common in self-storage than in other property types, for a professional investor it's wise to take the non-recourse option when available.
Stick With Traditional, Regulated Financing
High-risk debt — such as "hard-money” or non-bank loans — often carries loosening underwriting standards, elevated costs and misaligned interests. Some lenders may even prefer a scenario where you can't keep the payments, so they can take back the asset.
By financing through a commercial bank or other regulated institution, you enjoy better oversight, more reliable terms and typically stronger protection for the borrower.
Summary
Debt isn't something to shy away from—it's a fundamental component of acquiring and operating a self-storage facility effectively. But the key is to use that debt in a structure that reduces unnecessary risk. To recap, when you are reviewing financing proposals consider:
- Long term duration
- Variable or fixed interest rate
- Non-recourse terms
- Regulated lender
With these features in place, you place your investment on firmer footing and give yourself a better chance at long-term success in the self-storage industry.