Self Storage: The Better Investment to Residential Real Estate
Real estate investors have focused on residential properties to help grow their investment portfolios. While residential properties rely on a strong rental market to turn a profit, the type of property you own or where it is located can create great risks subject to the volatility of the market. Below are some of the reasons that self storage make a better investment to traditional residential investments.
Consistent Overhead Costs
Self storage facilities have low and constant overhead costs. There are minimal management costs, electric, air conditioning and maintenance required. Unlike residential units, there are minimal cleaning and repair costs associated with the moving process. There is no need to keep a repairman on staff or provide amenities that quickly drive up overhead costs. Once the startup costs are incurred, there are lower overhead costs for upkeep.
Many Sources of Income Means Lower Risk
Because storage facilities rent hundreds of units, at a lower rate than residential units, it is more likely to have a few unoccupied units. The average cost of a self storage unit depends on the size of the unit but a 10'x15' climate controlled unit can cost anywhere between $115-$150. Compare that to the monthly cost of a residential unit in your neighborhood and you can understand how a tenant would be less likely to gather their belongings to move down the street to a different facility over a small rent increase.
Recourse for Unpaid Rents
In the residential market, the biggest fear is unpaid rents. Unpaid rents, for many investors, can translate into unpaid mortgages. A few unpaid months of rent and you could be facing foreclosure. In many cases, there is no way outside of costly court proceedings for owners to get the money they are due.
In self storage, if a rent goes unpaid, the owner has the right to sell the contents of the storage unit to pay off the debts. Self Storage Industry Statistics estimates that the average price of a storage unit auction is $425 with about 155,000 auctioned annually. This translates to about $65 million recovered annually.
High Demand, Large Profits
In a 2017 report posted by The SpareFoot Storage Beat, it is estimated that more than 9% of the US households rent storage units. Looking at the overall revenue, this means that the industry brings in $38 billion per year in the US with self storage unit construction reaching more than $3 billion this year. Forbes estimates the typical profit margin for self storage owners is around 11%.
Self storage is something that people use regardless of the economy. Many self storage facilities are full of items that were purchased when the economy was on the upswing like new sporting equipment. When the economy takes a downturn and people need to downsize their living accommodations, they look to self storage as a less expensive alternative to storing items than the expensive square footage of living space.
For some renters, self storage is a long term option for delaying difficult decisions. They may be looking to store items from an elderly relative's home who has entered long term care or as a place to store household goods during a divorce. Regardless of the economy, these items will stay in storage until the life events that place them there are settled.
As you start to examine all the options for your long term real estate investment, don't overlook self storage facilities. They provide a great opportunity for high returns at a lower risk than residential real estate investments.