Self-storage investors have definitely chosen a special type of commercial real estate investment. The self-storage sector is unique, provides high returns on investment and is a high-performing investment sector. Therefore, many people may be interested in becoming self-storage investors, but don’t know where to begin. Our friends at SVN Percival Partners recently published an article providing advice for self-storage investors. We have included a snippet of the post below, and we encourage you to click the green button to continue reading.
Self-storage is certainly not winning any awards for glamour and looks, and is a unique commercial real estate asset class. This sector holds a reputation for providing high returns and being “recession proof”. Starting in the 1960’s, there are now over 54,000 self-storage facilities in the United States. In addition, 2017 is set to see an additional 950 stores, for a growth rate of 2.3%.
Self-storage is a top-performing and popular sector among investors for reasons beyond its stable cash flow. Facilities see reduced costs from low tenant turnover (no broker fees or tenant improvement costs), immediate reusability (zero to low re-lease time) and a lean operating structure (minimal management staff, low maintenance).
When you add it all up, self-storage is an investment class that should be included in any investor’s portfolio. Below we outline our best advice to anyone thinking about investing in this top-performing asset class.
Advice #1: Do Your Research
There are several ways to invest in the self-storage sector: (i) Investing in a REIT, (ii) Developing, (iii) Acquiring or (iv) Crowd funding. No matter which way you choose, it’s important that you do your due diligence. Make sure you study the deal and its fundamentals. Below we outline the more important aspects to think about:
- Supply and Demand: Be sure to research what other self-storage facilities may be located within a three to five-mile radius of a potential investment. These facilities aren’t like retail where many stores can be supported in a given market. While there may be amenities and price differences, you want to ensure you have a safe geographical buffer between you and competition.
- Economic Occupancy Rules: In commercial real estate, we are programmed for a high-occupancy preference. Although, in self-storage this doesn’t always point to high returns. Say a potential investment facility has an occupancy rate of 90%. This looks great, but do some digging into bank statements and you find the economic occupancy rate is actually 70% because rent has not been raised for a few years. Bottom line? Always see how much money is going into the bank each month…