Explore How Investing in Self-Storage Can Unlock a Profitable Future
When it comes to real estate investment properties, there are a variety of options available. Each asset class has different benefits and drawbacks, requiring thorough assessment.
For example, multifamily homes offer greater cashflow opportunities but may come with more risk than other investments. For those looking for predictable income streams, office space may be the better option; however, it requires a more significant upfront investment. Self-storage facilities, on the other hand, offer a low failure rate and are worth considering when it comes to real estate investments. Investing in self-storage can be a great way to realize maximum returns while mitigating risks associated with other real estate investments.
Why Self-Storage Facilities?
Self-storage facilities are becoming a common sight in cities across the country. They offer valuable services and appeal to people from all walks of life as they go through different life stages. Some clients may only need access to a storage unit for a few months, while others may take up long-term residence there. This widespread attraction and utilitarian value make investing in self-storage a potentially lucrative venture.
Positioned to Pivot
The main attraction of investing in self-storage facilities is their flexibility. Due to their simplistic design, investors can quickly and easily adjust the facility’s services to meet the changing needs of the local neighborhood. For example, they may provide boat or RV parking for people needing additional storage options. Furthermore, as demographics change, so too can the facility’s capability, allowing investors to capitalize on potential new sources of income. All these factors make self-storage facilities an attractive option for real estate investors.
Because of their simplicity, self-storage units generally have much lower overhead costs than other buildings. Facilities are often constructed from inexpensive shipping containers with no windows or special siding to worry about. The inherently low overhead allows investors to upgrade their self-storage site to make it more appealing, like enhancing lighting or security features.
A Responsive Resource
Self-storage facilities possess the distinct advantage of being able to cater quickly to changes and niche markets. For example, some storage companies provide spaces specifically designed for wine collectors, while others offer climate-controlled units that can benefit antique collectors looking to safeguard their valuable items. This shows how essential it is for investors to listen carefully to customer requirements. Supportive of this, requests often come from more affluent neighborhoods where it is possible to charge higher rents. Thus, investors should take note of these potential opportunities and consider how to include them in their overall strategy.
Self-storage can be a great addition to an investor’s portfolio. Let us explore the various ways it can offer value:
- Steady performance
- Stable tenants
- Simple upgrades & value-adds
- Opportunity for substantial business value
The self-storage industry is booming. People need storage space regardless of the economic climate, and this asset class is more willing to accept rent increases than tenants in other asset classes. The industry is comparable in size to Starbucks, McDonald’s, and Subway combined. The current trend is to buy privately-owned facilities, and upgrade and enhance their curb appeal, increasing their value. Investors can then refinance or resell them to an institutional investor or real estate investment trust. Or continue to profit through value-add tactics such as late fees, admin fees, raising rent, selling moving supplies, and putting in a showroom.
In short, money can be made in the self-storage industry throughout the process — from buying to managing to selling. Additionally, the value of commercial real estate is calculated differently than residential, as it is determined by the net operating income divided by the rate of return (cap rate), which can significantly increase the value of your assets. With the right strategies and tactics, investors can expand their portfolios and reap substantial rewards from this growing asset class.
Self-storage investment can be lucrative, but it is important to understand the potential downsides and pitfalls before investing. Every investment carries its risks, and self-storage is no exception:
- Location requirements
- Staffing appropriately
- Upgrading and enhancing to meet customer demands
- Managing security and possession safety
- Achieving a high occupancy rate
Potential investors must do their due diligence to ensure they invest in high-traffic locations and away from competitors. Investors should be prepared for rigorous market research to determine the correct mix of units and amenities that should be offered based on the demands of the surrounding community, as well as hiring reliable help to manage the facility. Security is paramount, so features such as locks and security cameras must be present to protect customers’ items. Managerial staffing is key, requiring individuals capable of providing excellent customer service even during stressful or dramatic interactions. Lastly, storage unit companies should aim for a 90% occupancy rate to measure their annual income, but that number is not always easy to come by.
In conclusion, self-storage offers a unique opportunity for investors to make money even in a slow real estate market. The size of the industry, combined with strategies like increasing rent and selling moving supplies, makes it an attractive option for both residential and commercial investors. With the right tactics, self-storage investors can maximize their returns while paying closer attention to their bottom lines.
About Our Lending Products
AVANA | Extensia Financial provides conventional financing to businesses in various asset classes. Our Commercial Real Estate loans range in size from $1MM to $30MM and amortization of up to 30 years.
Our SBA 504 1st Mortgage Loan is designed to help entrepreneurs acquire, renovate, build, or purchase commercial real estate. These loans allow the small business owner to own their building with a reduced down payment and still retain a low long-term fixed rate while preserving working capital that can be used to grow the business.
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Extensia Financial is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate.
Our lending experts have a wealth of experience in the Commercial and Multifamily sector and can guide you through each stage of the process.
Our loans range in size from $1M to $30M and generally have terms of five to ten years with amortization of up to 30 years.