Investing in Self-storage Facilities: What you Should Know

Investing in Self-storage Facilities: What you Should Know

Demand for storage facilities is on the rise in the US. According to news sources in the real estate industry, one in ten American households is looking for storage facilities. A $39 billion industry has since cropped up, presenting unique investment opportunities.

The industry is especially enticing to investors looking to generate passive income to supplement their other income channels.

The self-storage industry seeks to provide customers with safe facilities for storing household goods, among other items such as business materials, vehicles, or valuables. The industry generates over $20 billion in revenues every year with about 50,000 storage facilities. The total rental space currently stands at more than 1.7 billion square feet.

Amid the growth, demand for storage facilities is on the rise. The growth has also attracted investors, both big and small. There is also consolidation in larger markets.

Types of self-storage facilities

There are four types of storage facilities that one can look to set up or invest in. They include:

Outside storage

It is the most basic form of storage and the easiest to set up. It is the most popular among individuals as it only requires ample open space. In this case, you only require an area to be demarcated with something like a wire mesh. It is ideal for items that are not sensitive to water and other elements.

Drive-up storage

They come in the form of garage spaces with doors that fold and close. The facilities are set up to make it easy for people to drop and pick their items easily.

Indoor storage

Mostly located inside buildings where people get to store their items. The storage facilities can vary from small closets boxes to huge rooms for storing big items. The facilities come with added features tailored to offer safe and secure storage for various items.

For instance, climate-controlled storage units are tailored for items that are prone to climate change.

Mobile storage

They offer storage for the short term. They are common with people who are renovating their houses and would wish to store their items until they complete the renovation works.

How to invest in self-storage

Investing through real estate syndicates

Real estate syndicates stand out partly because they allow investors to pool their capital and invest in self-storage facilities as a whole. In this case, investors succeed in combining skills, resources, and capital in purchasing self-storage facilities they couldn’t purchase individually.

Additionally such investment vehicles make it easy to get access to better investment opportunities in the self-storage business. In addition, some investors have been able to lean on other people’ experience and expertise in running the business.

REITs

Real Estate Investment Trust provides a perfect avenue for anyone looking for a passive investment and generate significant returns in the self-storage business. They are simply passive investment products or firms that handle or develop real estate products. In this case, storage REITs are mainly focused in developing and managing storage facilities.

By investing in shares of self-storage REITs, one gets to earn passive income depending on the REITs’ rental income generated from their facilities. REITs stand out partly because they allow investors to avoid additional risks of owning and managing the storage facilities. REITs come with a good level of risk tolerance, making them some of the best.

Additionally, REITs stand out partly because they allow people to diversify their investment portfolios. In addition, one does not participate in the management part of the storage facilities but gets to take in income every month.

What you need to establish a successful storage business

Cash flow

Cash flow is essential for anyone looking to invest or start a successful self-storage business. Cash flow is especially for anyone looking to manage their facilities. In this case, money will go towards expanding existing operations and developing new properties.

Additionally, cash flow is important for anyone not looking to miss out on an existing profitable opportunity in the industry.

Occupancy information

It is important to have accurate information on the occupancy levels in the storage business Physical occupancy, in this case, details the actual number of storage units currently occupied by people. On the other hand, economic occupancy details the income generated by the units rented out.

Anyone looking to remain profitable and track growth metrics must maintain an authentic method of pricing each type of occupancy.

Market analysis

Before investing in any self-storage opportunity, it is important to carry out a detailed market analysis. The market in which you intend to invest in must be growing and profitable. In this case, you will have to collect data on the average home sizes and rental rates to gauge the viability of the opportunity at hand.

In addition, it is important to do some research into the demographics of the area you wish to set up a self-storage business. The area must be projected to have continued population growth, and whether it is an area where you consider storing worthy possessions. It is also vital to pay close watch to factors like job and population growth as they affect the greater property market a great deal.

Competition

Additionally, it is important to have a clear understanding of the underlying competition standing in the way of hitting specific targets in the self-storage business. For instance, chances of success will always be minimal when starting a self-storage business in areas where big companies and REITs have already accrued substantial market share.

When setting up a self-storage business, you would want to settle in a market with minimal competition and expected to remain in that situation for the foreseeable future. Some of the best markets, in this case, are smaller cities and rural areas, as big companies and players often overlook them.

Bottom Line

Self-Storage facilities have given rise to profitable passive investment opportunities. One can invest in the burgeoning industry through a syndicate to enjoy the benefit of a diversified portfolio ate minimum risk. Additionally, one can develop a storage facility from scratch or buy one and generate fees whenever storage space is so rented out.