Many buyers think of a self-storage facility investment as being something in the millions of dollars. In the heart of the city that’s typically true. But if you look at storage properties in suburban and exurban markets you’ll find that storage facilities come in all types of shapes, sizes and price points. And that means that adding a storage property to your portfolio is attainable. So would that be a good decision for you? Here are some things to think about.
Not a huge amount of risk
Income-producing real estate holds its value extremely well. Its value it based on an income stream, not just a perception of value like Tesla. So if you buy a storage facility and hate it, it’s not hard to re-sell it at the price you paid for it at a minimum. This is very different than buying a franchised business in which you walk away with no tangible assets of value and if you decide you hate it you pretty much lost your whole investment with little to recover.
Even small properties create a significant amount of money
Given normal assumptions on rents and expenses, even a small 40 unit facility would produce around $30,000 per year in income to the owner. That’s a significant enough sum to pay full tuition at college, double your retirement income, and to fund a whole bunch of luxuries along the way. The reason that even a small storage property can produce such strong earnings is from one simple word: volume. Unlike a duplex or single-family home of the same price point, a storage facility of 30 or 40 units has a significantly higher level of revenue yet an expense ratio that is lower.
Easy to manage
If you are used to investing in single-family home rentals or apartments, then you know how intensive the management is. All the time things break and you spend a huge amount of money on plumbing problems, electrical issues, roofs and foundations and regular repair and maintenance between each tenant. With self-storage you have zero preparation between tenants, zero toilets to fix or utilities, period. And you have a simple metal building that lasts for decades without any repair and no moving parts but a roll-up door.
Easy to finance
Self-storage properties have one of the lowest default rates of all real estate sector loans. That’s because the revenue is super steady and the costs are contained. Even in times of economic uncertainty – like right now – banks are still interested in making loans on safe, profitable storage deals (unlike single-family rentals). This also serves to guarantee safety in your investment, as banks don’t look at it as a fad but instead an institutional-quality opportunity.
Perfect hedge to inflation and stagflation
If you look in any economics textbook you’ll see that the best performing assets during times of inflation and stagflation are income-producing real estate and precious metals. While you can’t eat gold or silver, you can eat with the regular cash income that storage properties provide. The reason that inflation and stagflation don’t hurt self-storage is the simple fact that rents can be raised to match inflation. In addition, most of the time you are buying from moms and pops and have a built-in “free kick” of increasing occupancy due to the old owner’s lack of internet marketing ability and general bad business practices.
Works in good and bad times
Self-storage – although only about 50 years old as an asset class – has been through enough booms and recessions for scientific measurement to be made of the results. And the answer is that self-storage does well during both for multiple reasons:
- In bad times, people want to safely store their stuff while they move around to find new work or housing.
- In good times, people buy lots of stuff and need some place to store it.
So storage has plenty of demand in both good times and bad.
There’s no reason to hold back on buying a self-storage facility as even a small one can make a significant contribution to your income and net worth. With properties of all sizes and price-points, there’s no reason you can’t get a storage property into your portfolio over the next twelve months.
For information on how to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate self-storage properties consider our Self Storage Home Study Course!