What You Need to Know About Investing in Self-Storage

  • Approximately 1 in 10 Americans use self-storage facilities for a range of needs
  • Managing a self-storage asset is fairly low maintenance and doesn’t require many overhead costs.
  • Self-storage is seen as carrying lower risk thanks to standard month-to-month leasing structures and consistent demand

When you’re investing in real estate, you want to have a clear understanding of where your money’s going and the industry’s forecast.  Today we’re taking a look at the self-storage sector, the investment opportunities available within it, and the wide-ranging benefits you can quite literally capitalize on.

Self-storage is one of the fastest-growing sectors of the real estate industry.  There are more self-storage facilities than Starbucks, McDonald’s, Dunkin Donuts, Pizza Hut, and Wendy’s locations combined.  Today, approximately 1 in 10 Americans use self-storage and plan to continue.  With strong demand, growing utilization, better operations, and high margins, self-storage is a great asset for those looking to diversify a real estate portfolio.

What should you know about the self-storage industry before making an investment decision? 

1. The average profit margin of the self-storage industry is high

Self-storage is often an attractive option for real estate investors because it’s fairly low maintenance, requires minimal staffing, and doesn’t call for a high monthly overhead allocation. Based on that combination of factors, storage is often ranked among the highest margin industries.

The property may be costly, depending on location and on the newness of the facility itself.  However, because those factors also influence what you can charge customers, you have the opportunity to recoup your initial outlay at a proportional rate. 

2. Self-storage serves a variety of customer needs 

People don’t usually rent a self-storage unit for one specific reason; instead, they use them as a resource during multiple pivotal life moments.  For example, people often turn to self-storage when they’re in the process of moving from one house to another or if they’re undertaking a major renovation project.

Financial experts are buzzing about the upcoming “great wealth transfer,” as Baby Boomers begin to downsize and dole out their riches.  Along with their wealth, Gen Xers and Millennials will likely inherit entire households’ worth of items.  Self-storage serves as a transitional location in these cases, while the new owners decide whether an item’s value (sentimental or otherwise) earns them a permanent home. 

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3. Pandemic-related influences spiked growth in self-storage demand

With COVID-19 came unprecedented furloughs, severances, and closures.  Many made the best out of a bad situation, establishing small businesses en masse.  More than 4.4 million new businesses were created in the U.S. during 2020, the highest total ever recorded by the Census Bureau. 

Broadly speaking, this requires at least some additional square footage, whether that’s to store business-related goods, equipment, or files. 

In parallel, 2020 caused a swift transition to remote work.  A house that was once well-equipped for four might start to feel impossibly cramped if juggling the kid’s schoolwork and household chores in between conference calls. 

In all of the above situations, self-storage can provide a way to shift an out-of-use guestroom or garage into a home office or business hub with minimal disruption or inconvenience. 

4. Self-storage facilities offer a relatively low-risk investment option

Like most real estate properties, self-storage can be a good investment consideration because it will always carry value.  Even if real estate demand (and thus, prices) decrease, you still have the opportunity to hold on to your investment until the market improves. 

And, because self-storage facilities are generally rented on a month-to-month basis, you have the opportunity to increase prices in tandem with the market or inflation rather than being tied to an annual lease agreement.

5. Self-storage investors don’t have to personally manage their investment properties

When you’re a busy professional or if you’re headed into your retirement years, the last thing you want to do is sign on for another set of responsibilities, like managing staff and logistics for a self-storage location.

Good news: self-storage facilities are often available investment options within a syndication.  You can leverage your funds alongside other investors to be part of a bigger overall investment and to secure a high-quality (and potentially high return) self-storage facility.

At Cira Capital Group, we help busy professionals diversify their traditional investment portfolios by creating private real estate funds, pooling investors’ capital with our own, and investing with world-class operators.

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