When it comes to real estate investments, we tend to picture high-end apartments, downtown office buildings, and residential properties that once belonged to some famous figures. But no one really pays any attention to self-storage.
Though it sounds like a “boring” investment, less sexy investments often give the best returns. In today’s fickle real estate market, self-storage is a hidden gem. From a professional perspective, it’s considered to be recession resistant. This means when recession strikes, people will be more likely to stop buying houses than renting a storage space.
We are not implying that such investment is invincible and will stand the test of time forever. Recession affects everyone.
That said, self-storage has shown an excellent track record of success, outperforming all of the major REIT sectors. In fact, 1 in 10 households in the U.S. currently rents a self-storage unit. So if you’re looking for a unique and solid investment opportunity, here are why you should invest in self storage.
1. Low Overhead Costs
Though running a self-storage business is not an easy thing (no business owner would say their job is easy), it’s not hard work to manage a self-storage property.
It’s almost maintenance free: no tenants, no repaint or plumbing issues, low management overhead, and a minimal amount of on-going interaction. This is a great advantage, allowing a quick turn period between tenants.
Compared to office and apartment buildings, self-storage units are only subjected to a small number of operating costs, variable costs, and maintenance costs.
2. Market Consolidation
In 2016, there was a total of 58,000 storage facilities across the United States. Not including the properties already owned by management groups and publicly traded REITs, we’re talking about the ripen opportunity to consolidate nearly 20,000 storage facilities.
3. Increasing Demand
According to the Pew Research Center, the Amazing business ideas can start from a storage unit.
5. Human Nature
Besides getting attracted to nice things, it’s a part of our DNAs to buy a lot of stuff. This simple act, almost like a ritual, is deeply engrained in our daily life.
At different ages, we all have things we want to hold on to. Even when a recession hits, forcing people to relocate to smaller homes, there are things they are unable to let go of.
When we have an unlimited amount of stuff in a limited space, only some of us are willing to de-clutter our messes and turn them into cash. The majority of people have difficulties throwing the extra stuff away.
Self-storage industry taps into this problematic secret of human nature and offers the space we need to store the endless amount of things we love.
When it comes to demand fluctuation, self-storage can be seasonal. However, in contrast to other real estate sectors, it’s not as cyclical.
More importantly, you can adjust rents to meet demand fluctuation. The month-to-month leases make this adjustment much easier.
For instance, in the warmer months when the weather is more conducive for moving and the demand for storage is high, you can charge a higher rate for new customers and impose a new rate on existing clients once their current contracts expire.
7. No Eviction
People who rent out homes understand the pain of going through the eviction process. You need to have adequate notice, written in a specified way and form. You need to collect evidence to legally justify your act.
Having tenants is like having extra baggage, which can potentially lead to complicated lawsuits.
When you invest in self storage, there’s no need to deal with tenants.
You don’t have to face late payments. In fact, typically storage rental agreements allow renters to have better control on rent collection.
For customers who fail to pay rent, you can limit their access to their storage units by installing an over-locking management padlock. You can even sell off their storage content and simply clear the unit for new customers.
8. Recession Resistant
As briefly mentioned earlier, what makes self-storage an excellent investment is its dependability, especially during recession periods.
When an economic crisis strikes, businesses reduce costs by moving to smaller offices. People start downsizing their homes.
Nevertheless, everyone needs a place to hoard their precious belongings. Self-storage caters to this growing need.
Unless we stop collecting things and relocating to new places, in the long run, you'll have a much greater chance of success with a self-storage investment.
Time to Invest in Self Storage
Diversifying your investment portfolio is key to creating long-term wealth.
Though self-storage may not seem like the sexiest investment opportunity, it has shown an impressive earning trajectory. And this is only the icing on the cake.
With a promising future, the self-storage sector will continue to grow and result in high ROI.
It won’t be long before everyone will discover this hidden gem. So before it’s too late, now is the perfect time to invest in self storage.