8 Ways Self Storage Syndications Make Money
Self Storage has become an increasingly popular asset class in recent years as investors have sought passive income opportunities with strong risk-adjusted returns.
Syndications are a common way for passive investors to get into self storage deals without actively doing the work themselves. Syndication allows passive investors leverage the experience of experienced sponsors, who find, operate, and ultimately sell properties for a profit.
Self Storage is not a particularly well understood asset class by most new investors. It presents unique opportunities compared to residential real estate. In this article we’ll go through 8 unique ways self storage syndications make money and add value to their properties.
1. Raising Rates Regularly
The self storage industry is still largely dominated by Mom and pop owners. These Mom and Pop owners are typically most concerned about keeping their properties at 100% physical occupancy (note, not 100% economic occupancy). This means Mom and Pop owners let their customers remain at the same unit rental rate for years.
Professional self storage investors will make sure the unit rents keep pace with market and are consistently updated.
I once heard a very successful self storage investor (>$100 Million in assets in his portfolio) call his long-term storage renters ‘survivors’ because they’d ‘survived’ regular rate hikes. Kind of rough, but it gets the point across!
2. Using Automated Management Technology
Innovation and technology have taken the self storage space by storm.
The old way of doing it was by pencil and paper, without using automated booking, reservation, billing, and bookkeeping systems. That’s the way the Mom and Pops do it, and they’re leaving a significant amount of money on the table. That’s where the new wave of self storage investors comes in.
Leading Self storage facilities use a variety of software tools to manage their day-to-day operations. These tools can include anything from customer relationship management (CRM) software to property management software to accounting software.
Property management software is one of the most important tools for self storage operators. This software helps managers keep track of all the units, which ones are rented, delinquent on rent, and vacant. The best software will also enable people to easily rent a unit on their own, 24/7, without having to interact with an employee.
Example: Easy Storage Solutions
There are a number of self storage management software packages out there. Easy Storage Solutions has some of the best reviews I’ve seen, both online and in discussion with multiple self storage operators.
No matter what software package you use, be sure to do your research and consider multiple options!
3. Useful, Revenue-Generating Websites
A business’s website should always be its leading salesperson. This is another area where Mom and Pop owners have fallen behind, and savvy self storage investors can add considerable value.
Think about the perspective of someone looking for Self Storage to Rent:
When someone is looking for self storage to rent, they want to find a facility that is convenient for them to use and convenient for them to find. This means they will likely search online, likely on Google Maps, for a facility close to their home or work.
Many self storage facilities simply do not have Google Maps entries! This means those facilities are losing a ton of leads and potential renters. When we buy these underperforming facilities we gain the ability to improve things like this and thereby add value!
4. Adding Units, Space, or Square Footage
Many areas have a shortage of self storage units, meaning demand exceeds the supply. Investors can target that shortage and add new units to existing storage facilities. Generally speaking this means targeting facilities that have at least a partially empty lot that is properly zoned (or may be brought to the proper zoning).
There are a number of reasons why an area may have developed a shortage of self storage:
- Zoning and Planning: This could be due to zoning laws that restrict developers from constructing too many self storage units in one area.
- Unique location: Another reason is because they’re primarily located on the outskirts of suburban and rural areas, while people are leaving cities.
- Shifting Housing Dynamics: Yet another reason could be just because there are more renters today than homeowners: More people live in apartments rather than houses with
How to find out if an area has a self storage shortage
This search can first start with general statistics, but must be informed by real, local data gathered by secret shopping. It is commonly understood that the average demand for self storage in the US is roughly 5.9 square feet per capita.
Many investors will begin their self storage search by looking for areas which do not meet that supply level. Be careful doing that, however, because the average demand in a market can vary highly! Always dig deeper into the details of each market you’re considering.
Self storage vacancy can be determined by doing a secret shop. This is where you go to a self storage facility and take note of the availability of units. If there are no vacant units, then the facility is likely full. Don’t stop there! You’ll need to research all of the nearby self storage facilities to find out if they are also full (or nearly full). If they are, that is a strong signal that there may be a shortage of supply in the area.
5. Removing Unnecessary High Cost/Low Revenue Services
Many older storage facilities have offices which are staffed during normal business hours. On average, most of these offices do not generate significant revenue, but do come with high costs in the form of full time staffing.
One way to prove a high-cost office into a high-earning asset is to change the office into a rented space. Rather than having the cost of an office, investors can turn the office into a rental, which adds considerable value!
Experienced self storage investors will optimize for revenue and eliminate high cost, low income services.
6. Using Aggregator Sites like Sparefoot
Sparefoot.com is a website that allows people to search for self storage facilities. Facilities can list their units on the website and people can search for storage based on their location and the size of unit they need.
Earning revenue from Sparefoot.com is fairly straightforward, and mom and pops just aren’t doing it! Facilities simply need to list their units on the website
Sparefoot can also be incredibly useful for market surveys! They have the most up to date rents and unit availabilities. A great way for investors to learn about the competition!
7. Seller Financing
Real estate can be purchased without a bank! Seller financing is one of the most common ways it’s done. Basically, instead of taking a loan from the bank, you pay the seller over time to buy the property from them and they ‘hold the note.’
You can buy with seller financing instead of using a bank loan or in addition to a bank loan. Seller financing can reduce the initial investment, reduce loan fees, or provide other benefits. Not all sellers will accept seller financing, but when they do it can help boost your returns!
Where to learn about seller financing
A number of guides have been written on seller financing, but most of them are centered around single family investing. Self storage sellers have different circumstances and priorities than distressed single family sellers, so the details you need to consider will be different.
Inside Self Storage (ISS) provides a helpful introduction to seller financing self storage deals here. This information will be most relevant if you’re focused on actively investing, rather than passive. More on that below!
8. Adding New Services
Adding new services to a self storage facility is a great way to increase revenue and attract new customers. Some of the most popular services to add include:
- Packing supplies: Offering packing supplies is a great way to generate extra revenue, and it’s something that most self storage facilities don’t offer. Supplies can be sold at a mark-up, so this is a great way to make some extra money.
- U-Haul and other Moving Rentals: Offering moving rentals is a great way to generate extra revenue, and it’s something that most self storage facilities don’t offer. U-Haul is the most popular option, but there are others out there.
- Auto storage: Auto storage is a great way to generate extra revenue, and it’s something that most self storage facilities don’t offer. This is a great service to offer if you have the space!
- Boat storage: Boat storage is a great way to generate extra revenue, and it’s something that most self storage facilities don’t offer. This is a great service to offer if you have the space!
- Delivery service: Many people don’t have time to go to the self storage facility to pick up their belongings. A delivery service can be a huge convenience for these customers and can generate a lot of business.
Get creative and look at the market! Remember that modest increases in income can drastically increase the value of the facility.
Want to get started in self storage?
There are two basic paths you can take: Active or Passive.
Active Investing:
There are a number of great ways to learn and break into the self storage industry.
My favorite resource is the Storage Rebellion. They have created a fantastic community centered around self storage investing, and have a number of free and paid resources that will help you take the next step into self storage.
The #1 Lesson If You Want to be Active
Too many investors miss out on this, and as a result fail to get their investments off the ground. Here it goes:
If you’re going the active route, be ready to work for it! Remember that deals aren’t found, they’re made through hard work.
Passive Investing:
Syndications are the most common way to passively invest in self storage. Passive syndication investors need to know how to vet operators and evaluate deals, which are both topics I cover on the Passive Wealth Strategy Show. Check it out, new episodes every Monday, Tuesday, and Thursday!
If you’re looking to learn more about deals we do, apply to join our Passive Investor Club.
Wrapping it up
Self storage syndications can provide a great stream of income and long term wealth growth for investors, but you need to know what you’re doing!
It’s important to be aware of the various ways to make money in this market, and the ways in which self storage differs from other types of real estate like residential. Self storage is still largely run by Mom-and-Pop operators who typically to not optimize the systems, teams, and functions within their business, which means opportunty for us!
By understanding how aggregator sites like Sparefoot work, being familiar with the importance of maximizing net revenue, and keeping an eye on your topline revenue, you’ll be well on your way to profiting from self storage investments!
