Commercial Real Estate

Why Self-Storage Investing Is Red Hot

Expertise: Personal Development, Commercial Real Estate, Real Estate News & Commentary, Landlording & Rental Properties
66 Articles Written
self-storage facility with garage door open and packed boxes stacked inside

Why are single family, multifamily, and lots of other real estate investors turning to self-storage to maximize their income and increase their wealth?

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My commercial real estate investment fund loves self-storage, so let me tell you why it’s such a great investment opportunity.

Related: How to Diversify Your Real Estate Portfolio With Self-Storage

Why Is Self-Storage Investing so Lucrative?

  1. It performs great during good or bad economic times. During good times, people are buying lots of stuff and need a place to store it. And during downturns, people are downsizing their homes, so again, they need storage.
  2. Self-storage garners sticky tenants. People in this asset class are willing to put up with more rent increases than tenants in other classes. Let’s say an owner increases rent by 6 percent. Self-storage customers paying $100/month aren’t going to take a Saturday to rent a moving truck, get friends together to help them lift things, and relocate all their belongings elsewhere to save $6. But apartment dwellers paying $1,000/month might be motivated to move to save 6 percent.
  3. It’s a huge industry. The size of the self-storage industry is on par with Starbucks, McDonald’s, and Subway combined. But the way in which things are optimally run within the industry is shifting. The strategy now is to buy mom and pop-owned facilities, upgrade them, increase the income, increase the value, then refinance or resell it to an institutional investor.
  4. There are a lot of simple, inexpensive value adds. For example, adding truck rental can increase income a few thousand dollars on a self-storage facility. Late fees, admin fees, raising rent, and putting in a showroom are other options.
  5. You make money when you buy, operate, AND sell. In other areas of real estate, it’s said that you make money when you buy. But the self-storage value formula is buy from a mom and pop, upgrade to an institutional standard, then refinance or sell to a REIT—and money’s being made the whole time.
  6. Value isn’t limited by comps. For residential owners and investors, value is limited by comparable properties in the area. This isn’t the case in commercial real estate. The value is calculated by dividing the net operating income by the rate of return (or cap rate). So, if you can increase the numerator and compress the denominator, you can dramatically increase the value of your asset.

Watch my video above where I go into far more detail and provide an example of the impressive appreciation potential of self-storage facilities.

Questions for me? Would you ever invest in self-storage? Why or why not? 

Comment below. 

After graduating with an engineering degree and then an MBA from Ohio State, Paul started on the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They sold it to a publicly traded firm for $2.9 million five years later. Along the way, Paul was Finalist for Ernst & Young's Michigan Entrepreneur of the Year two years straight. Paul later entered the real estate sector, where he completed 85 real estate investments and exits, appeared on an HGTV Special, rehabbed and managed dozens of rental properties, developed a waterfront subdivision, and started two successful online real estate marketing firms. Three successful developments, including assisting with development of a Hyatt hotel and a multifamily housing project, led him into the multifamily investment arena. Paul co-hosts a wealth-building podcast called How to Lose Money and is a frequent contributor to BiggerPockets, producing live video and blog content on a weekly basis. Paul is the author of The Perfect Investment—Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016) and is the Managing Director of two commercial real estate funds at Wellings Capital.

    Timothy F.
    Replied about 3 years ago
    Nice article, Brett. There may be new social media sites popping up everyday, but there are plenty that close very quickly too. Best not to waste time on the duds!
    Brett Snodgrass Investor from Indianapolis, Indiana
    Replied about 3 years ago
    Thanks, Timothy. I agree. It’s important to watch which new ones are replacing old ones, but unnecessary to try to be on them all.
    Nick
    Replied about 3 years ago
    Some useful tips here. Thanks. Our company too uses an email marketing service to manage our customer list. I guess many smaller businesses do it this way. We use SendPulse marketing automation platform. It is similar to Mailchimp in terms of functionality and features but is more affordable. There’s a free plan that offers larger quota and is less restrictive than MC’s free plan. Check it out.
    Brett Snodgrass Investor from Indianapolis, Indiana
    Replied about 2 years ago
    Thanks Nick for the feedback and the resource. This could be a great service for new investors, and we appreciate it.
    Brian Desaulniers from Winter Garden, Florida
    Replied about 3 years ago
    Great insights Bret! I’m new to investing, BP, and everything so most of what I’ve been studying is dated but this article was published this month (Sept 2016)! Good stuff. The bit on MLS access through a real estate license makes a lot of sense but doesn’t the broker you are with have concerns about conflicting interests? Brian
    Brett Snodgrass Investor from Indianapolis, Indiana
    Replied about 2 years ago
    Brian, You have to just find an investor friendly Broker who basically knows the investing world. There are a lot out there. I wouldn’t choose a large company like REMAX or CENTURY 21. I would choose a small broker who does investing. They shouldn’t have any issues. Thanks, Brett
    Charles Burns from Spring, Texas
    Replied almost 3 years ago
    Hello Brett new member to BP looking to get started with wholesaling. I’ve read a few of your post as well as few others and the info is great. But sometimes I feel like that while the info is for new investors it also seems to be the investor who has done a few deals. My question is what advice would you give the investor looking to do his/her first deal or do you have post speaking on this? Thanks in advance.
    Brett Snodgrass Investor from Indianapolis, Indiana
    Replied about 2 years ago
    Thanks Charles for the feedback, That is a GREAT POST, and We will write it. I would do the following: Find a wholesaler doing a lot of deal in your area, and link up with them, and bring them value, and partner on you first 5 deals (At least with them) Look up all of the turn key companies in your area, and let them know you want to bring them deals, (Make a list) Look at property management companies in your area and Title companies, tell them you want to bring investors deals, and ask if they know any? I would start with Direct Mail There are a lot of direct mail resources in BP you can check out to get started. Get a Google Voice # or use Call Rail “So you can track what lists or mail pieces are working” Learn how to analyze deals. Work on the deals together with your new wholesaling mentor/partner This is a Long Comment, And After writing it, I feel we need to write a Blog on YOUR FIRST DEAL!!! Thanks, Brett
    Gerald McCullough Contractor from Jackson, MS
    Replied about 2 years ago
    Great article very useful I’ve been trying to figure out how to stop spinning my wheels and become more productive !
    Brett Snodgrass Investor from Indianapolis, Indiana
    Replied about 2 years ago
    Thank Gerald, Yes it’s all about doing the things that are more productive, and leave the rest to someone else. Thanks
    Paul Scozzari Real Estate Agent from Trenton, New Jersey
    Replied 6 months ago
    Having just used a self storage facility for the first time, I can see how good an investment it can be. But how on earth can an individual investor get involved in these types of investments?
    Kevin McGinnis Investor from Glen Carbon, Illinois
    Replied 6 months ago
    Paul, I would also be interested in getting involved. Can you let me know how?
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Kevin. I’d be glad to talk with you about this. Please reach out to me via private message and we’ll chat next week.
    Ciera Hall
    Replied 6 months ago
    Hi Paul, I am interested and would like to talk to you.
    Shivon Patel from New York, New York
    Replied 6 months ago
    I would like to know more on how to go about it also.
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Shivon. I’d be glad to talk with you about this. Please reach out to me via private message and we’ll chat next week.
    Curt Todd Investor from Happy Valley, Oregon
    Replied 6 months ago
    You can also cut operation costs using technology automation, card key access (or no entrance for non-payers. Have a credit card box handy for them). Surveillance. Solar lighting. And best, few or no employees and no tenants, Toilets and trouble.
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Curt, All great thoughts and all true. Thanks!
    Cliff Lachman from Los Angeles, California
    Replied 6 months ago
    i own seven acres zoned commercial in northern Oregon (Warrenton) that i am looking to do a self storage facility on. I’m seeing an experienced partner that knows the business well and has hopefully built and operated previously. Looking to get this project moving very soon.
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Cliff, I am emailing you directly about this.
    Rob Cucugliello from Philadelphia, PA
    Replied 6 months ago
    Where would you say the best place to find available self storage is? Ive never come across them during my time.
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Rob, It is really tough right now. Cap rates are compressed and many chasing deals. We are finding most of our success in partnering with operators who have done it for years and have a big pipeline and lots of broker/owner relationships. It may come down to some old fashioned walking into offices and direct marketing. And you may want to ask Wendy below. 🙂
    Scott Rihm
    Replied 4 months ago
    Paul, I am a broker that only works in the self storage market and you are correct on this. There is a lot of money / investors on the sidelines looking for an asset(s) to purchase. There is not much inventory out there, and when we do come across an opportunity, it usually gets traded before even hitting the market. So it is a good idea to find out who the broker in your area is that specializes in self storage, introduce yourself, and ask to be put on their distribution list.
    Wendy Carpenter from Yelm, WA
    Replied 6 months ago
    We purchased 3 storage facilities in the last year! You’re absolutely right about everything, Paul! You might remember me commenting on one of your live webinars about the facility we bought that was being “managed” by meth dealers! Diamond in the rough!
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Wendy, That’s great to hear! Yes, the meth dealer manager. Thanks for your comments. I’m so glad you’re having success. You’re making many people jealous right now. 🙂
    John Galang Real Estate Agent from Astoria, New York
    Replied 6 months ago
    Hi Wendy, may I ask what city/state and why you chose there?
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Nicholas, Thanks for your insightful comments. Great stuff. These are two of the three major risks I see to self-storage syndication/investing. The other is a competitor building nearby, which is largely predictable. I see these as long-term risks that can be mitigated by steep value-adds and other measures. I think these are trends that we, as investors, should be watching over long periods of time. And there may come a day when we want to invest with those companies (#2 point) as well. Just a little more risky than I’m comfortable with yet. Thanks.
    Edana Kudjordji from Okinawa, Japan
    Replied 6 months ago
    Hello Paul, Great article. Would this be a viable venture for a novice investor? Also would you be able to do this 100% remote if you automated most systems? I live and work abroad. Thanks.
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Edana, I have heard of operators who operate relatively small facilities (under 25,000 sqare feet) remotely. I don’t believe this is an optimal way to maximize income, but with new systems that allow you to pay and unlock gates and units using your smartphone, I think this is workable. You could set up arrangements to give clients discounts on boxes etc at nearby stores and other co-marketing arrangements. Honestly, I think your best bet in your situation might be to find a great operator to invest with passively. You’d be trading control and hassles for passive investing, less risk, and potentially higher profits.
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Edana, I have heard of operators who operate relatively small facilities (under 25,000 sqare feet) remotely. I don’t believe this is an optimal way to maximize income, but with new systems that allow you to pay and unlock gates and units using your smartphone, I think this is workable. You could set up arrangements to give clients discounts on boxes etc at nearby stores and other co-marketing arrangements. Honestly, I think your best bet in your situation might be to find a great operator to invest with passively. You’d be trading control and hassles for passive investing, less risk, and potentially higher profits.
    Venkata Giri Rental Property Investor from Aurora, CO
    Replied 6 months ago
    Hi Paul, Great Article. I have been observing self storage places around Aurora, Co for the last 2 years. There are 2 or 3 new SS under construction within 3 to 5 mile radius. How is this new competition / over supply going to affect the industry? How to find demand and supply for given market? what is the best way for newbies like me to get involved in these types of investments. Thanks
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 6 months ago
    Venkata. I’d be glad to talk with you about this. Please reach out to me via private message and we’ll chat next week. There are tools you can use (like Union Realtime Radius) that allow you to analyze the square feet of storage per population in a given 3 or 5 mile radius. The national average is about 7 square feet of storage per person in any given radius like this. The demand is likely much higher in places like TX, FL and CA where there is limited basement and attic storage. Less in some areas in places like the Midwest. So as a rule of thumb, start with these numbers. And look for highly visible locations on highly traveled roads (say 10k vehicles per day or more for example). I hope that helps as a starting point.
    Venkata Giri Rental Property Investor from Aurora, CO
    Replied 6 months ago
    Hi Paul, Thank you very much for the quick response and valuable insights. I really appreciate all your help and sharing the knowledge. I will reach out to you via PM. Thanks
    Mike Barry from Plainfield, Illinois
    Replied 5 months ago
    Great points Paul, I run a Self Storage facility and can vouch for all the above!
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 5 months ago
    Thank you, Mike! How has the storage facility worked out for you?
    Jessica Wilkie
    Replied 5 months ago
    Great and informative! I’ve been wondering about self storage because many investor types seem to like them. What are your thoughts on trailer parks?
    Paul Moore Rental Property Investor from Lynchburg, VA
    Replied 5 months ago
    Hi Jessica, I really like mobile home parks as well. Overall, they are quite stable through all economic cycles. We invest in mobile home parks through our Income Fund.
    Matt N. Investor from Washington, District of Columbia
    Replied 5 months ago
    Very insightful stuff. Thanks Paul. At first sight it seems a very competitive market and many barriers to entry. I really like to get involved in this. I did read your advice on finding suitable locations from number of travels on roads. Where can I find the data for number of travels by roads in Maryland-Virginia-Washington DC?
    Erik Peddle Investor from Marietta, Georgia
    Replied 3 months ago
    Great video Paul! Also loved your recent podcast on the same topic: http://howtolosemoney.com/ Curious what underwriting tools you use for self-storage? Did you develop your own spreadsheets?