Is Self Storage a Good Investment?
Self storage has become increasingly popular as an investment asset in recent years. More and more new investors are wondering whether self storage is a good asset and industry in which to place investment capital. Here we’ll go through a few of the pros and cons of the self storage investing model so you can decide for yourself!
Pro: Lots of Opportunity in the Market
The self storage market has more mom-and pop owners that most other types of real estate. Self storage is one of the few types of real estate that has yet to be fully institutionalized.
While this may seem like a con at first glance, it’s actually a pro in disguise. The lack of institutional ownership provides individuals and small groups the opportunity to get in on the ground floor and capitalize on the expected market growth.
Mom and Pop owners are less likely to upgrade their properties with the latest technology, meaning they are leaving a lot of money on the table. That is where we find opportunity – find mom and pop self storage owners who are ready to retire, buy their properties, and add the best technology available. These technologies can massively increase income and decrease expenses.
Pro: Easier to Manage than Rentals
Self storage is generally less management-intensive than residential rental properties. This is because self storage customers are typically month-to-month with no long-term leases. If (and when) a customers don’t pay, you have a number of options to
There is also less turnover cost in self storage units than in rental units. Rental units can require repainting, new carpets, new appliances, and other expensive repairs. Self storage doors? Clear the stuff out, that’s about it.
Pro: Demand is Increasing
Self storage is in high demand due to the growth in urban populations and the increasing number of people who are downsizing. Millennials are now ‘aging into’ self storage, and baby boomers continue to downsize. Self storage is a transition business, meaning renters tend to use storage when they’re in a life transition. Moving, upgrading, or downsizing.
Pro: It's commercial real estate!
Commercial real estate is valued primarily based on the income it generates. This is in contrast to residential real estate like single family properties, which are valued based on comparables. So why does that matter?
The income-based valuation allows self storage owners to force the value of their properties higher by improving operations. Increasing gross rents, reducing expenses, and generally improving operations can drastically increase the value of a piece of commercial real estate.
Con: Some markets are overbuilt
Unfortunately, self storage properties are relatively easy to build. That means some areas have too much competition. And when there is too much competition, prices drop and profits disappear. The best way to combat this con is to do your research. Find out where the self storage market is undersupplied and invest in those areas.
Con: Higher Barrier to Entry
It’s a bit harder to get into self storage investing compared to single family rentals. There are a number of ways to get into single family rental investing: many investors start by buying their own house and renting out a room or by moving out, buying another, and renting out the first one. Then, rinse and repeat!
Self storage is a little more complicated than that. Investors can start by working with brokers or researching on Loopnet or Crexi. Compared to buying a single family the process gets quite a bit more complicated from there.
You need to find financing through commercial lenders, figure out your property management strategy, find service providers for maintenance and construction, and much more. The market for rental property service providers is more transparent and mature, which makes that process less complicated.
So, is Self Storage a good investment?
Overall, we believe the pros far outweigh the cons in self storage. However, that does not mean every self storage property is worth investing in. You must know how to evaluate deals and markets to determine if they fit your goals and criteria. Self Storage is NOT a good investment if you don’t know what you’re doing!
Getting started in Self Storage
So after reading all of that, you want to get moving forward? Good for you!
In our opinion, the best place to dive deeper into your Self Storage education is by joining the Storage Rebellion. They provide a free 7-Day course to get you started. Their forums are filled with experienced self storage investors who started just like you. Join today by going here.
Interested in Self Storage investing but don’t want to do all of the work yourself? Apply to join our Investor Club and we may be able to help you out.