One thing is for sure about self-storage facilities: they are extremely stable investments. They have very consistent revenues and very high levels of success. But why is that? There are four main reasons.
#1: Americans are huge consumers
The first reason is that Americans love to buy things – they really enjoy material assets. This ranges from furniture and collectibles to seasonal items like Christmas ornaments. Retail is a huge business in the U.S. and for good reason. There is a giant industry just in resale shops and garage sales. People just like the satisfaction and accomplishment in buying things, and the ability to do so is all around them. Think about how much time your family spends at the store each month, and you’ll see that Americans are huge consumers of every type of product.
#2: Self-storage is a necessity
Because we are such huge accumulators, the logical extension of that is the need for storage space. Most people start off storing their material possessions in their closets and garage, and then expand beyond that eventually. As the cost of housing has risen dramatically, it has put further pressure on the storage industry, as it is cheaper per square foot to use a storage unit as opposed to clogging up a garage that costs $300 per square foot as opposed to $10.
#3: Self-storage does well in both good times and bad
The key item learned from the Great Recession in 2007 is that people tend to store their goods for safekeeping when their living accommodations become unstable. Basically, when they lost their closets and garage, rather than sell those items, they lock them up for safe keeping in a storage unit. Before the Great Recession began, some people thought that self-storage was a fad that would crumble when there was a financial setback for the U.S., since it was a young industry and had not been through any great downturn. But the 2007 crash led to even higher occupancy rates, which proved that it is a necessity and not a luxury. So basically storage is a unique sector of real estate that works well in both good times and bad.
#4: Self-storage has abundant financing due to a very low default rate
It’s a little known fact that self-storage has one of the lowest loan default rates of any real estate sector in the U.S. This is because it has such consistent revenues and such low expense ratios. Unlike grocery stores that have an average profit margin of 1%, storage facilities keep around 60 cents of every dollar generated. And because of this low default rate, it is a darling of every type of lending option, from bank financing to CMBS “conduit” debt. This allows self-storage buyers to have the peace of mind that virtually any deal that makes economic sense can be easily financed in today’s market – and at extremely attractive terms.
Self-storage is an extremely stable investment for these four reasons. It is becoming the blue-chip stock of income properties and has risen from goofy beginnings into the ranks of mainstream real estate in only four decades. If you’ve never considered storage investing, you should think again.