Why Owning Self Storage is Not a Passive Investment…

Self Storage is not a passive investment. I own two self storage facilities and am currently under contract to purchase a third and in all the cases the prior owners told me that running the facilities took more effort than they initially thought they would and that is why they were selling.

While self storage is a great investment and has many positives, there is a common misperception that because self storage units do not have toilets, sinks, and other apartment fixtures that running a profitable self storage facility is easy. My experience has been that’s not the case. It takes active oversight and involvement to make the facility operate profitably.

Employee to Manage Property

While self storage facilities do not require as much constant attention as a typical retail store, they do need to have someone available during regular business hours to answer the phones, sign up new customers, and collect rent. This costs money to have someone available to field these requests. If you have several storage facilities or another business that has an office you can share the services of this employee by having them work on both businesses. The call volumes are not constant and the busiest times of the month are the weeks before and after rent are due. Other times of the month offer a lot of down time for your employee to work at other projects/jobs. Storage units also need someone to monitor them on a regular basis so that small problems don’t become larger problems. Trash needs to be picked up, past due tenants managed, abandoned units need to be cleaned out, repairs to the gates, doors, cameras, etc.

Managing Facility Yourself

Many new self storage investors don’t take into account the amount of time involved in running a self storage facility. Since they don’t budget for paying someone to do the above tasks, they either stay very busy on nights and weekends performing these tasks or neglect to have them done. This causes the facility to accumulate trash/repairs, retain bad tenants, and increase vacancies which snowballs into poor financial performance.

Marketing Property

Self storage facilities have high turnover and need a constant stream of new good tenants. I stress good tenants. Good tenants that pay on time and don’t cause trouble want to rent from a well maintained facility with responsive management. Bad tenants that do not pay timely, leave trash at the facility, and vandalize units tend to end up at the poorly managed facilities. These bad tenants make it more difficult to attract good tenants leading to higher vacancy rates and collection problems.

In order to keep a constant flow of new good quality tenants you will need to have a strong local presence on the Internet. Therefore, search engine optimization (SEO) is very important. Ten years ago it was important to have a large advertisement in the Yellow Pages. Most people needing to rent storage would go to the Yellow Pages to call the facility with the largest ad and find out about storage rates, availability, etc. Now hardly anyone uses the Yellow Pages…. They go to the Internet and Google “self storage”.

It takes effort/expertise to make your business be SEO friendly. You need to have a good website and be registered on the big search engines local business sites (Google Places, Yahoo Business, Bing Places, Yelp). Your website also needs to have good content and quality back links from authoritative websites. Either you, as the self storage owner, can take the time to create and maintain this information on Internet or you can hire a company to do it for you.

A SEO friendly website will typically include having a good blog on the website that provides useful information about self storage. It does need to be useful information to someone who rents self storage as opposed to just a bunch of promotions and spammy information about your business. Think articles about “how to determine what size unit I need” as opposed to “ABC storage is the greatest”. Search engines crawl the Internet and look for relevant information that is useful for their users. If you are providing lots of relevant information then your website is more likely to show up when a potential customer searches for self storage in your town.

Conclusion

Self storage is a wonderful investment and I enjoy operating my facilities. However, it is not as passive as many investors hope it will be for them. Before you buy, make sure you properly estimate the costs involved to pay someone to manage your property. If you plan to manage the facility yourself go into the investment with the realization that it will take lots of your time.