Have you ever talked to someone who is bragging about all the money they’ve made in self-storage investing, and then you come to find out that the story is from the 1980s? Indeed, it would seem that most of the self-storage success stories out there are from an era roughly 30 to 40 years ago. And that’s a problem if you are looking to these stories to help you make money in today’s world.
What was so great about the 1980s?
To see the truth about storage investing, all you have to do is go to Wikipedia and look up the Public Storage story. The largest owner of storage properties in the world began in 1972 and had 1,000 properties by 1989 (as compared to 2,200 today). So the growth from 1972 to 1989 was 1,000 properties and it took 30 years to get to double that amount – which means their fastest growth was in the 1970s and 1980s. Those were the go-go days of what was described by financial magazines as a “goofy” real estate sector in the 1970s yet exploded in growth over the next decade, much of that fueled by heavy fundraising of public funds.
Why do these same people not have recent stories of success?
Many individuals from the 1970s and 1980s who invested in storage succeeded just out of plain luck on their timing. However, they confused raw luck with good investment skills. Many of these same people saw nothing but diminishing returns in all their successive investments because they really had no clue what they were doing. They did the same thing over and over, and the results were a little worse each time because their investing lacked any strategy other than repetition while the market had changed dramatically. Since people like to dwell on only their successes, it’s only natural that these investors get stuck in a time warp of the 1970s and 1980s.
Where are the modern success stories coming from?
The money in self-storage today is not typically coming from those multi-story facilities and expensive properties in the heart of the city. You can’t make any money in over-saturated markets while paying a 5% cap rate. Instead the profitable modern stories are based on a whole different business model. An investor I know in the southeast has made a fortune – over $1 million per year in pre-tax income – through buying good properties in suburbs from mom and pop owners with plenty of room for improvement on occupancy and efficiency. Another owner who has done well is adding on their successful single-story, roll-up door facility they built in a small town with little competition and steady demand. These are all stories that are 180 degrees different than that of Public Storage and have nothing to do with the 1970s and 1980s.
How come you never hear these stories?
The storage industry is dominated by big players. They have a vested interest in ensuring that their narrative is the only one heard. But there is an array of other stories that need to be heard. And a great way is to simply call the owners of self-storage facilities in suburbs and exurbs. Ask them “how did you come to own this storage property and how does it do?” and the answer will be filled with real-time information. You’ll quickly see the commonality of the stories and understand that the money in the storage industry has dramatically changed over time.
There’s still money to be made in self-storage investing but you’ll have to ignore all the stories from the old-timers that show up at every industry convention and clog the airwaves with self-serving nonsense. Make your decisions based on the current stats and not myths from long ago.