Many investors don’t see storage real estate as a ‘sexy’ investment. Frankly, they might have a point. Nevertheless, many of them choose to put their bets on it anyway, and I think it’s in every investor’s best interest to understand why and how they do it. I’m not stating that this type of investment is necessarily good for you, since every investor has their own orientation and needs, and that’s totally fine. However, I noticed many often neglect this type of real estate investment, and that’s just a shame.
I am Ofir Bar, a real estate investor with more than 20 years of experience in the field. Nowadays, many people try to enter the world of real estate, but they lack the proper knowledge to start their business venture properly. If you are one of these, I’m here to help you learn from my experience – and yes, also from my mistakes – so you can skip past them. I noticed that many investors, regardless of how experienced they are, don’t know much about storage real estate. That’s the reason I decided to tackle this topic in this blog post. I hope you’ll find it helpful.
Decide whether it suits you
Why even invest in storage real estate? Before deciding whether this type of investment is right for you, you should be aware of its advantages and disadvantages.
- It’s highly resilient through all economic cycles, thanks to the fact that this type of asset is always in need, though these needs may vary in relation to the current economic situation.
- It’s experiencing a runup in pricing and demand, and its market continues to grow.
- Rising rent rates are more customary in storage real estate than in any other type of asset, and it’s even more common in a rising interest rate environment.
- Storage assets require low capital expenditures, making expenses low enough to maintain cash flow in a down period.
- Low insurance costs and lower risk of price volatility than other types of real estate assets.
- There are no quick liquidity options in case you bought an individual self-storage facility that turned out to be unpopular among renters.
- You have to constantly keep an eye on the level of saturation of similar assets in your area. If you fail to do so, this will probably sabotage your attempts to raise the rent price when appropriate and keep occupancy rates high.
The two branches of storage real estate
Now I’d like to help you to map out the world of storage real estate. It all starts with the two major types of storage real estate owners: The mom-and-pop owned assets, and the commercial owned assets. These two are different products requiring different business models, and therefore should be talked about separately.
- Mom-pop assets, meaning assets owned by private hands, are usually suburban drive-up units that were built in consideration of the owner’s needs much more than the clients’. They’re usually run in-house, and with no professional management. Owners of this kind of asset usually don’t have any more assets and are not interested in expanding. To them, renting the property is merely a method of maximizing the financial potential of their land.
- Commercial assets tend to be urban, climate-controlled, multi-story, and of course, professionally managed assets. Due to the fact these are owned by companies, it’s likely that these assets were selected after thorough market research. Urban commercial storage assets tend to be multi-story due to the fact that land costs much more in urban areas.
Some tips to get you started
Investing in storage real estate is quite different from investing in residential or other kinds of real estate. If you consider entering this fascinating world, allow me to give you a hand with some tips.
- I recommend you start your journey by buying an existing self-storage facility. Taking this baby step will help you learn and develop as a self-storage investor while not putting too much on the line.
- Starting with investing in mom-pop assets might be easier for you. As mentioned before, these assets are usually family-owned. When young people inherit their parents’ assets, they usually aren’t interested in managing them. Therefore it’s likely they’ll want to sell it. Having said that, Inheritors aren’t always fond of the thought of selling their parents’ assets. They might just keep it without renting it. Some persuading skills are likely to help you in this case.
- Keep an eye on the varying needs of renters – these may change in response to different economic situations. During a recession, people tend to move to smaller homes and move all currently unnecessary property into self-storage facilities. During an economic boom, though, the popular uses for storage real estate are short-term product warehousing for small businesses and incubator spaces.
- Storage real estate is highly beneficial for certain business sectors, such as the pharmaceutical industry (for drug storage), and remote working businesses.
- Regard urban and countryside assets differently. In urban environments, people look for secured and technological multi-story climate-controlled spaces. Suburban clients, though, usually seek spaces for storing RVs and other vehicles.
Enough for everyone
When thinking about real estate investing, storage assets usually don’t come to mind. This is how it is for many of us investors. However, I believe that this can and should be different. Storage real estate is as exciting and interesting as all branches of real estate investing are, and I myself am a big fan of it. That’s why I want more investors to discover this fascinating world. It holds enough opportunities for everyone. I hope you will be the next to take advantage of these opportunities and vast potential.