Self Storage: An Alternative Real Estate Investment Opportunity to Multi-Family

 

We have all seen the various ways to invest in real estate. HGTV has made an entire network devoted to flipping houses, purchasing homes with income potential, or finding an investment property at the beach.  As passive observers, the TV show hosts demonstrate how much income you COULD earn if your home were rented or sold at a certain price. However, these forms of real estate investments come with serious risks and the real estate market can be fickle. What a home is worth today may not have the same value tomorrow due to interest rates, market conditions, or the market collapsing altogether.

Meet Self Storage, a Safer Investment Opportunity

If you are unfamiliar with the self storage market as a form of investment, a great place to start is US News and World Reports article from January 2018.  As one self storage investors states, "Self-storage does even better during a recession because people need a place to store their stuff." Another investor states, "When the economy is good and people buy too much stuff they have to put it in storage." This is one of the many reasons why self storage is a great opportunity.

Self Storage vs. Apartments 

Self storage properties offer investors a unique opportunity without the challenges of other types of property. Owning a multi-unit apartment building usually comes with finding a long term tenant. Many issues can arise during the tenants stay like plumbing, electrical or upkeep of the grounds. This includes expenses incurred during and after a tenant leaves the property. In cases where the tenant refuses to pay or leaves the premises, eviction proceedings can take months. Remember, if the property is unoccupied or rent is not paid, no one is collecting any income.

Self storage facilities have very little maintenance involved. You don’t have the plumbing and electrical for bathrooms and kitchens for each individual unit as you would have in apartments. If a tenant does not pay their rent in the self storage facility, goods can be sold at auction leading to a much easier eviction process. This helps protect the owners and investors by turning the unit over in a more efficient manner than with apartments.

Another important factor to point out is self storage is not as price sensitive as apartments. Increasing the price of a locker 4% will not cause someone to take the time to rent a boxed truck and move their belongings to another facility. Raising the rents in an apartment 4% may cause the tenant to look for another apartment.

What is Driving the Demand for the Self Storage Market?

In July 2018, Benjamin Burkhart, the owner of storagestudy.com, notes that many storage facilities have longer term tenants. The need for storage arose out of circumstance, tenants would rather not revisit. Divorce, a death in the family, convenience all lend their hand in these decisions to continue to make payments rather than make a large investment in a moving truck and labor to move items. While these types of renters do not make up all the customers, when coupled with those who have other life events like moving out of college or packing up an apartment for a stint overseas, it does mean that older facilities are more likely to hold on to their clients, creating a demand for space and a need for more storage facilities. 

Another key factor is the location of the self storage facilities. Areas that are densely populated, with a high portion of renters, or near a recreational resort are likely to see greater occupancy rates. For those located in urban environments, space is at a premium, so renting storage space is a more economically sound alternative. For areas with a high portion of renters, storage rental may be a necessity prior to a  lease ending or beginning. For resort areas, storing equipment, tools, boats and vehicles will be a requirement for some second home owners.

The self storage industry is here to stay. If we continue to amass items that we are reluctant to let go, the industry will keep growing as will the need for more facilities.