The U.S. economy is in anarchy. The stock market is plunging, oil is collapsing, and world markets are in jeopardy. So where can you invest in a troubled world? The answer is self-storage. It’s one of the few niches that actually performs as well in times of turmoil as it does in times of economic vibrancy.
Performs well in times of crisis
When you lose your job and have to move, you put your belongings and furniture in a self-storage locker. When you get evicted from your house, you put your material goods in self-storage. In times of crisis, all roads lead to the self-storage facility. As a result, the demand for self-storage is always high during recessions and depressions.
Considered a necessity, not a luxury
Although self-storage began as a tool for wealthy people to store their abundance of goods, it has changed over the years from a luxury to a necessity. Most Americans have a self-storage unit to keep the things that they can’t get rid of, yet don’t fit in their homes. Christmas decorations, family antiques, there are a thousand uses that can’t be avoided.
Great revenue diversity
Self-storage facilities are made up of tens and hundreds of individual income units. Unlike a shopping center, which only has a handful of tenants and go bankrupt if even one leaves, self-storage facilities have a huge diversity of tenants, so that you can lose several and still be on budget. And the power of volume also works when you raise rent. If you have a 100 unit facility and raise the rent $10 per month, you have an extra $1,000 per month in your pocket. If you owned that shopping center and raised the rent $10 per month, you’d have an extra $50.
Low operating costs
Nobody lives in a self-storage facility (except maybe the manager) so there is very little utility cost. The typical facility is made of durable metal and there are no expensive amenities to maintain. Other than road repair, paint, replacing roll-up doors occasionally and a small amount of electricity, the operating costs on a self-storage facility is relatively low, and this gives the owner much greater profit margins.
Can be purchased at reasonable rates of return
You can buy self-storage facilities at attractive cap rate levels – around 8% or so. This gives the buyer a healthy margin of profitability that protects the owner from interest rate increases or reductions in occupancy. Unlike apartment complexes that sell for around 5% cap rates, self-storage facilities have good rates of return that provide a protective barrier to unexpected bumps in the road.
Self-storage facilities are an excellent hedge to recession, yet also the correct choice for periods of economic prosperity. It’s like real estate with shock-absorbers against economic declines, yet a strong engine to take advantage of economic opportunities. The world can fall to pieces, but self-storage facilities stay solid performers as income properties. At times like these, that’s a very important quality.