Self-storage is a fast-growing asset class in real estate investment. As a business, it offers patrons a protected location or room for collecting home appliances, vehicles, business materials, and other belongings they need to store.
Moreover, the self-storage market attracts investors for various reasons, including steady earnings, resistance against recession, reduced management, and high-profit potential.
Apart from investing in self-storage as an independent owner-investor, you can invest in the market via real estate investment trusts and shares in self-storage firms.
As a beginner, the following tips will guide you in investing in this booming asset class:
1. Locate a Self-Storage Investment Property
There are online resources such as Re/Max, which help you find self-storage properties that suit your demands. Alternatively, an authorized commercial real estate broker can help you find the same.
Before searching, define your preferred location, price range, size, and age of the property you want. Numerous investors prefer properties close to their site. Nonetheless, your determining factor for your market choice should be your desire to function as a passive or active investor in the facility.
Usually, passive investors go outside their locale, while active investors choose their geographic location. The following are the various types of self-storage facilities you can consider for investment:
● Drive-Up Storage
This facility has rows of storage buildings and doors that go upward to the building’s height. Security standards differ at such locations; however, many spaces possess video cameras and a coded gate, while more significant facilities may enjoy on-site security.
Usually, outdoor drive-up properties are the most affordable due to reduced costs, staffing, and maintenance.
● Temperature-Controlled Storage
Otherwise known as a climate-controlled storage, temperature-controlled storage helps store commodities that need protection from severe cold, heat, and moisture. This unit’s content can be furniture, artworks, musical instruments, photographs, and household appliances.
Temperature-controlled facilities can demand premium fees because they cater to a particular market niche and offer services more than the conventional drive-up storage unit.
● Vehicle Storage
Vehicle storage caters to individuals with an additional car, boat, motorcycle, or RV. The various vehicle storage types include individual enclosed units, shared indoor units, covered parking spaces, and uncovered parking spaces.
This storage is close to airports, racetracks, harbors, and various places where patrons utilize these vehicles.You can also find transport services for boats and indeed all vehicles offered by experts nearby, so you can work out exactly what service you require easily.
● Mixed-Use Storage
These facilities merge self-storage with various commercial businesses to maximize profits and expand their customer base. For instance, an owner may build a self-storage facility into an office park allowing customers to obtain their business items promptly.
2. Evaluate Cash Flow
The second step to self-storage investing involves evaluating cash flow. The cash flow of a self-storage facility determines your ability to acquire credit to expand operations or obtain new units.
Therefore, upon sighting a desirable property, evaluate the previous three years of cash flow to the existing one to determine whether to invest or not.
3. Study the Economic Occupancy Information
There are two types of occupancy categories in the self-storage sector. They include physical and economic occupancy. The former implies the number of units filled in your property, while economic occupancy is the real rental income generated by your property compared to the potential gross income.
Investors must know the difference between the two measures to evaluate deals properly. Moreover, a property with high market-rate physical occupancy but low market economy occupancy indicates improper management, lack of maintenance, constantly late tenants, or inappropriate rent collection practices.
4. Conduct Market Analysis
Market analysis is vital before investing in a self-storage property. Don’t ignore factors like occupation, home size, and population growth that may influence the property market.
Usually, locations with smaller homes demand more storage units. Sites with a more significant proportion of tenants typically request more units because renters alter their housing condition more frequently than homeowners.
Furthermore, particular markets such as a coastal area may also demand more RV and vehicle storage than a typical city.
5. Survey Competition
Like other investments, competition abides when you invest in the self-storage industry. Usually, you’ll be vying against other operators in the area. For instance, competing with a self-storage REIT investor who has made an investment in Public Storage differs from a single owner investor.
Beyond studying your competitor, research the condition of things in the regional self-storage market and research the new facilities online.
Furthermore, we recommend that you check self-storage investment opportunities in areas with the least current competition.
6. Source Finance
Self-storage investing for beginners involves determining how to finance your property. Below are the ways you can do that:
● Traditional Loans
You can obtain traditional loans from banks or standard lenders. The advantages of this type entail considerable loan amounts and low-interest rates. However, you must have a high credit score and assets to be eligible for this loan category.
● Small Business Administration Loans
The federal government provides this type of loan to help in growing startup businesses, including self-storage spaces. SBA loan terms, particularly for self-storage, have up to 25 years. Furthermore, SBA loans require a lower down payment and equity than traditional loans.
● USDA Loans
Do you intend to construct or acquire a self-storage facility for sale in a rural area? You can obtain a USDA loan through a rural development program managed by The United States Department of Agriculture. These loans have a 30-year term.
● Construction Loans
Just like it sounds, construction loans are for self-storage investors who plan to build their facility from scratch. Usually, this loan requires a 25% down-payment and a huge balloon payment due by the end of the term (usually 1 and 3 years).
● Hard Money Loans
Hard money loans are suitable for borrowers who aren’t eligible to receive credit from a traditional lender or the SBA and USDA. You can repay these loans within a year. Moreover, their interest rates are higher than the government and conventional lenders.
No matter the financing option you desire, carefully consider its prepayment penalties, interest rates, and loan terms before going for it.
The self-storage market is witnessing fast growth, thus presenting significant opportunities for its investors. By following the above guide and attending a couple of educational self-storage events, you can dig your portion of the benefits this asset class has to offer investors.
