Self Storage: Real Estate Portfolio Diversification & Risk Mitigation

 

"Don't put all of your eggs in one basket." iStock-875244274

This philosophy revolves around the risk of losing everything when we become dependent upon one person, plan, or resource. While this advice applies in many scenarios, it is particularly relevant to real estate investment portfolios.

A diversified portfolio can protect against significant loss by spreading risk across multiple investments, markets, and/or industries. If something goes wrong with one investment, other investments can offset the losses.

How Can Self-Storage Help to Diversify Your Portfolio?

Diversification helps to mitigate risk, but it does not eliminate it altogether. One must take measures to introduce low-risk investments to a portfolio in order to counterbalance high-risk investments.

The relatively low risk of self-storage investments make them an ideal solution for passive investors looking to diversify a portfolio. Self-storage facilities are an ideal investment opportunity for the following reasons:

  • Low vacancy - Self-storage units generally boast low vacancy rates, especially when compared to their traditional real estate property counterparts.
  • Diverse customer base - The average self-storage unit serves a wide variety of customers, including millennials, baby boomers, businesses, military personnel, and more.
  • Performs well in volatile markets - The self-storage industry has repeatedly outperformed other real estate sectors, even in times of economic downturn.
  • Strong, reliable cash flow - The self-storage industry has been a safe bet for investors for the past 50 years. Occupancy has held steady and value has continued to increase over time. 

Mitigate Risk by Delegating Managerial Duties   

iStock-827615404Real estate investments rely on tenant’s rents to produce income for their investors. The upkeep of each property must be maintained in order to preserve the quality of each investment. If the quality declines, tenants may no longer be interested in the property and its valuation will fall. 

Hiring a property management service to perform tasks related to customer service, sales, property maintenance, and daily operations can help to mitigate risk. This removes the responsibility from the owner and allows the experts to facilitate the relationship with the tenants.

In turn, hiring a professional management company will also allow more time to scale the portfolio. Coda Management Group uses a top 3 nationwide operator to manage their properties to do just that, scale the business. Well worth the cost.