Hello World! Welcome Friends! A self-storage business allows individuals and organizations to rent secure storage units to store goods and personal belongings. These storage units include lockers, boxes, rooms, containers, and outdoor spaces, usually, let out monthly.
Currently, self-storage facilities are around 50,000 in the US, covering 1.9 billion square feet and generating over $30 billion in revenue annually. The growth and unique model of the self-storage business keeps attracting investors into the industry.
If you’re seeking new investment options, consider the self-storage sector. Read on to learn how to invest in storage units, what it’ll cost, and the benefits of this investment.
Types of Self Storage Facilities
Before investing in storage units, it’s essential to understand the different types, their use, or function. There are four common kinds of self-storage facilities with unique options to meet individual needs, and they include:
Climate Control
Climate-controlled storage facilities are usually within an enclosed building. They have temperature and humidity control features that protect stored items from extreme heat, cold, and moisture. These facilities specifically hold items like electronics, furniture, documents, wine, and classic cars.
Indoor Storage
This type of storage facility is in an enclosed building but without climate control features. Their sizes can range from a narrow closet that stores small items to large rooms that accommodates heavy tools.
Outdoor/Drive-up
Drive-up storage is probably the most common type of storage. This self-storage facility features rows of storage units of different width and height and having doors that roll up like garage doors. Clients can drive up to the doors of the storage units to drop or pick items.
Some specialized outdoor storage facilities only allow for the storage of items like cars, RVs, tractors, boats, dirt bikes, and other kinds of automobiles. These facilities are usually called Vehicle Storage. Travelers and adventurers who have vehicles they use seasonally often rent a RecNation RV & Boat Storage to keep their vehicles safe when not in use. This shelter for their belongings ensures they do not deteriorate or get stolen.
Mobile Storage
Mobile storage companies usually bring storage units like containers or other kinds of items to clients. These movable units will remain with the clients for an agreed period to fill them with their valuables. Afterward, the storage company picks it and stores it in their facility. When the clients need their items, the company will send the units to them.
Ways to Invest in Self Storage Units
The majority of self-storage unit owners are small investors with one or two facilities. However, they account for 73 percent ownership of all self-storage facilities. Here are three ways you too can participate in this business:
Invest With REIT
Real estate investment trust (REIT) denotes a passive investment option that allows you to buy shares with large self-storage companies. You can invest in a publicly-traded REIT or through mutual funds or exchange-traded funds. Over time, you’ll receive a return on investments (ROI) on your dividends.
The benefit of investing through REIT is that it requires less time and effort on your part. It also provides high returns and low overall risks.
Build a Self Storage Facility
Building your self-storage facility is one of the few ways to invest in the industry actively. It requires knowledge, experience, and the right resources to develop a self-storage facility from scratch. However, when built, it’ll likely be considered a class A facility and have a higher market value.
Your first step is to purchase land in a location that has a high demand for storage units but low supply. For instance, areas with smaller homes may need self-storage units. Additionally, coastal regions may have a high demand for boat storage. Then, you might need to find out about zoning and permits for self-storage facilities in that locality.
When building, it’s best to construct a facility that’ll appeal to self-storage REITs. Consider their amenities, building design, and standard, and follow suit. But most importantly, you’ll want to build a facility that meets the local demand for storage units.
The cost of building a storage unit will depend on the intended size and features. It’s essential to keep this cost as minimal as possible to get a better return on investment.
Purchase an Existing Facility
Buying existing storage units is another way of actively participating in self-storage investing. You can search for storage facilities to purchase online using platforms like Crexi and List Self Storage. Some commercial brokers can also help you find and buy self-storage facilities. Additionally, you can reach out directly to facility owners who might be interested in selling.
Before purchasing a self-storage facility, it’s essential to consider its net operating income (NOI). The property’s NOI is its cash flow, less income, and expenditure. The higher the property’s cap rate, the higher the rate of return on your investment.
However, many existing self-storage facilities up for sale are class B and class C properties with low market performance. You might need to add value by making repairs and renovations if you want to increase cash flow.
It’s vital to consult a self-storage investing expert who can help you carry out a cash flow analysis before purchasing a facility.
Pricing for Self Storage Units
After setting up your storage unit – whether you built or bought one- it’s essential to fix the right rental price. As with any other investment, your self-storage business aims to generate reasonable returns.
The cost of renting a storage unit will depend on its features, size, and location. Therefore, you’ll need to compare the rates of similar self-storage units around your area. You can search online for “storage units near me and prices” to get a list of local storage facilities and their charges.
Generally, cheap storage units don’t incorporate amenities like climate control, and one of 5” X 10” can cost between $60 to $65 monthly. However, for metro areas like Los Angeles, it can get up to $150. Climate-controlled storage units of similar size cost between $75 to $80, and in metro areas, up to $170.
Why Invest in Self Storage Units?
The self-storage market offers investors and real estate professionals an opportunity to diversify their investments within the commercial real estate industry. It’s one of the most profitable property businesses, with high resistance to an economic downturn.
In other words, people will always use storage units, whether the economy is good or bad, making them highly flexible. For instance, businesses will need a place to keep excess products in the short-term during economic booms. In economic downturns, homeowners often move to smaller apartments, needing a place to store extra belongings.
Since no tenants reside on the property, storage units only require minimal repair and low ongoing management. Additionally, with monthly leases, owners can earn income quickly. If tenants default on their payments, auctioning their items is a standard way for owners to recover unpaid rent. The per-month tenancy also allows for a rental rate increase.
self-storage market offers a low-risk investment, as it has a lower rate of foreclosure than other assets. Furthermore, investing in self-storage units is an excellent alternative source of income. It can come in handy if an ailment or any challenge affects your cash flow from other investments.
Final Thoughts
Self-storage investing is one of the most lucrative investment options in the commercial real estate industry. It’s a fast-growing sector, recording 50 percent growth since 2010. Also, experts have predicted that the market will be worth $115.62 billion in 2025. As such, now is the best time to invest in storage units.
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