Self-Storage Investing Beginners Guide

Self-Storage Investing Beginners Guide

Investing in self-storage units or business opportunities is a smart way of generating passive income at some of the lowest costs. Unknown to most people is that his industry has been around for decades, growing to over 1.7 billion square feet with over 40,000 facilities in the U.S.

The industry generates over $39 billion in revenues annually, presenting a unique opportunity for investors to generate sustainable passive income. Additionally, Self-storage facilities offer a unique opportunity to diversify an investment portfolio. The niche market is especially enticing to investors eyeing opportunities in the real estate industry or looking to generate long-term passive income.

Why invest in self-storage

Anyone should consider investing in self-storage facilities given the promise of large long-term income at some of the lowest overhead and construction costs. With this mode of investment, one only needs a small to the mid-size storage spaces to set up a business.

The fact that tenants do not reside in storage facilities means fewer building components or requirements. In this case, the costs of repairs are minimal and spread over a long period. In addition, self-storage facilities come with some of the smallest leases, making it easy to recapture rental spaces faster.

Additionally, starting a self-storage business is not as complex as is the case when dealing with other forms of real estate investments. There is always a wide pool of self-storage facilities to purchase and establish a successful space rental business. In addition, some websites provide in-depth details of the ball the self-storage facilities up for grabs.

What to consider while investing in self- storage

While planning to invest in self-storage facilities, there are things that an entrepreneur ought to consider. Self-storage facilities are categorized based on their size, condition, and style of construction.

The size of goods to store

When planning to offer storage facilities for  large items  such as cars  boats or other retail items, then setting up an outdoor  storage facilities will be the way to go. Such facilities are ideal as they feature rows of storage buildings with doors that roll up and down. The facilities allow people to drive right up to the doors to make storage or remove an item.

 The conditions and nature of goods to be stored

A climate-controlled storage area is for items that need to be protected from extreme heat, cold, or moisture. These facilities charge a premium as they store precious items such as classic cars, documents, or other items that require controlled space.

Vehicle storage

Vehicle storage are ideal for people in need of storage space for an extra boat, truck, or car. They are the easiest to set up as they don’t require climate and temperature controls. Such facilities are common in harbors, racetracks, or even airports.

Online resources like Loopnet.com and ReMax.com are on offer  to assist in finding a  self-storage facility that meets one criteria. The resources on offer ar also tailored to anyone looking to set  up the business  from scratch

Self-storage Investment options to consider

Buy stakes in self-storage businesses

Real estate syndicates offer some of the best ways of investing in the burgeoning self-storage sector. Such investment vehicles allow one to own and operate a self-storage facility without too much hassle as everything is done by syndicate managers. They operate by simply pooling capital from investors which syndicate managers use to buy and operate prospective projects.

Syndicates such as Puma Investment also make it easy to build a well-diversified portfolio in the self-storage industry while maximizing returns and minimizing risks.  Additionally, they come with real estate tax deductions which optimize returns.

Setting up a self-storage business from scratch

For beginners who cherish the thrill of setting up and running a business to lock up all the returns, then actively participating in running self-storage facilities is the way to go. In this case, there are two options; develop a self-storage facility from the ground up or purchase an existing facility.

Developing self-storage from scratch is costly and labor-intensive when it comes to investing in the burgeoning industry. It also requires a high level of experience and knowledge to set up a facility sure to attract clients.

The best thing about building from scratch is that one gets the opportunity to design and build a facility that meets current market needs. In addition, new facilities are considered Class A and tend to fetch the most rates in the storage market. Setting up a facility from scratch can be lucrative if done properly.

While building from scratch, it becomes possible to set up multiple unit sizes to address various customers’ needs. The facility should also be set up in an attractive building or buildings to attract the desired market target. A website with online rental and payment capabilities will go a long way in marketing the units.

Purchasing an existing facility is another alternative for anyone who wishes to run and operate and facility without having to start from the ground up. Websites such as LoopNet, Crexi, and Arhus Self Storage list some of the self-storage facilities up for sale

Self-storage facilities are normally sold based on their capitalization rates or cap rates, indicating the net operating income that a facility is likely to produce. The higher the cap rate, the higher the amount of return a buyer is likely to generate from the facility.

Self-storage investing drawbacks

While looking to get into the self-storage business or investing, it is also important to consider the drawbacks likely to negatively impact the return rate. Just like any other industry self-storage does come with its fair share of risks.

Storage wars are one of the biggest headwinds that storage owners are always exposed to. The process of auctioning storage facilities can be extremely risky given the strenuous lien process. Some tenants are known to sue storage owners even when all the state laws are followed.

Oversupply is another headwind that can affect one’s ability to generate optimum returns. Opting to set up operations in markets where big players have already established bases would amount to shooting oneself on foot. Stiff competition from big players only limits one’s ability to attract the desired clients and at the desired price points. Oversupply often leads to the flattening of rental rates and increased vacancy rates.