Monday, 23 October 2017

Self-Storage: A Commercial Real Estate Investment to Consider

Written by Posted On Monday, 28 August 2017 15:49

Are you thinking about investing in commercial real estate? One asset class to consider is self-storage. Like hotels and senior housing, self-storage is both real estate and an operating business. Understanding how to run the business or hiring someone who can is essential for self-storage. Nonetheless, it can produce high yields and is resistant to recessions.

Self-Storage Numbers

Self-storage is relatively new, only beginning in the 1960’s. However, it has grown quickly in the US. By the end of 2016, there were 54,000 storage facilities across the nation, and in the past three years, revenues continued to rise:

  • 2014 - $29.8 billion
  • 2015 - $31.6 billion
  • 2016 – 32.7 billion

As more baby boomers downsize but are unwilling to give up their possessions, and fewer millennials purchase homes but need storage space, self-storage is likely to continue to rise.

Types of Self Storage

Self-storage facilities are varied, just like residential properties. Understanding the differences will help you determine which ones are right for you.

  1. Drive Up / Outdoor Bay: These are rows of one-story storage buildings with roll up doors. Renters access the units by vehicle. Security is minimal, usually consisting of padlocks and video cameras. Rent on these units is typically the least expensive.

  1. Climate-controlled: Climate and humidity are controlled for those wanting to store items that are prone to mold or mildew. These units are typically accessed from inside and are more expensive to rent.

  1. Specialty storage: These units are designed for a specific type of item. This can be boats, RV vehicles, art, documents, etc.

  1. Mixed-use: Some self-storage facilities also offer complimentary business services such as truck rentals or shipping services.

Thinking About Self-Storage Locations

When determining where to buy a self-storage facility, you should think about the demand drivers for your units. Keep in mind that people don’t impulsively rent storage. Instead, they come to you because of a need.

Here are some things you should consider in terms of location:

  • Convenience – Storage facilities should be close to a strong customer base
  • Market – Best in markets with both population and job growth
  • Apartment communities – Those living in apartments often need additional storage
  • College communities – Students are a good target demographic
  • Military bases – Members of the military are also a strong target demographic

Why Self-Storage?

The biggest reasons to consider self-storage are:

  • You need little capital to begin
  • It needs little upkeep
  • It needs few repairs between occupants
  • Break-even for storage is just a 45% occupancy rate

However, even with this great advantages, it is still necessary to find the right property. If the storage facility doesn’t have positive cash flow, is in the wrong area, or has a high tax rate, then it may not be the right property for your portfolio. To learn more about self-storage and other commercial property options, give me a call. I’d love to help answer your investing questions.

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John Trautman

John Trautman has spent his entire adult life in real estate. Purchasing his first property at 23, he learned the process of flipping and real estate holding from the ground up. Real estate continue to be his passion while he spent eight years as an account executive and later a vice President for Washington Mutual in the mortgage division. Holding the position of President’s Council and several years of President’s Club, he learned the lending business from the mortgage office perspective and lender perspective. Throughout his life he has also been a small business owner, commercial real estate holder, property designer, and house flipper.

During the downturn, John followed the deal to Detroit, Michigan, where he invested in single family rentals and multi-family dwellings. Once his returns were realized, he moved quickly to Arizona to invest in another distressed market.

His passion for making a deal and real estate has lead him to create a hands-on real estate investment mentoring club called Real Estate Knowledge Institute

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