Many people would have you believe that population alone is the determining factor in self-storage success. They claim that the only markets worth investing in are those that are large and growing daily. But the truth is that this is far from the key factor to success. In fact, many of these “hot” markets are lacking in a more important trait: profitability. But why?
The bigger issue is over-supply
Self-storage builders have long suffered from an over-abundance of construction energy. They build and build until markets are awash in over-supply. Just look at the five weakest storage markets in the U.S.:
- Nashille, Tennessee
- Raleigh, North Carolina
- Denver, Colorado
- Portland, Oregon
- Boston, Massachusetts
These are all huge metro markets with large population increases over the past decade. But the pace of new construction has outpaced that growth and resulted in declining rents and occupancy.
Why a rural property with healthy demand is better than an urban market with excess supply
If we’re in agreement that supply is as important as demand, then the key is to find markets that have a healthy relationship between these two factors. And, in that case, there’s no reason that a rural property with sizable demand and low supply cannot be more profitable than a facility in Denver where excess supply has wiped out any chance of future profitability.
It’s all about making money – nothing more
The whole point of buying and operating a storage facility is to make money. It’s not about glamour or idle cocktail party chatter. To make money you have to stick with markets that have the right raw material for success: solid demand and lack of future oversupply. Some markets are like a cup with a whole in the bottom of it – no matter how fast you pour water in, it simply runs out the bottom. Those markets should be avoided.
Don’t follow the pack
The key in successful self-storage investing today is to simply not follow the pack. Don’t buy where everyone else is buying and don’t listen to those who promote storage investing in markets that are doomed from overbuilding. Independent thinkers who follow the actual market forces needed to succeed are the ones who are buying storage today that will make money. Be independent.
Yes, Denver is fast growing. But when it comes to making money, that means little. It’s all about supply and demand, and over-supply kills growing demand. To make money it’s essential that you think for yourself and choose markets accordingly.