Commercial Real Estate Investing

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Ben Patel
  • phoenix
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Self Storage still worth it as an investment?

Ben Patel
  • phoenix
Posted Jan 23 2022, 16:55

A few years ago, self-storage was a hot real estate class. You'd be lucky if you found a self-storage at 6 / 7 caps a year ago or so, and now I'm noticing self-storage in the market for 7 / 8 caps. 

What's happening to the self-storage industry?

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Zach Quick
  • Investor
  • Bentonville, AR
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Zach Quick
  • Investor
  • Bentonville, AR
Replied Jan 24 2022, 11:43

Hotter than a few years ago. Don't think your narrative matches the sentiment right now.

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Ronald Rohde#1 Commercial Real Estate Investing Contributor
  • Attorney
  • Dallas, TX
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Ronald Rohde#1 Commercial Real Estate Investing Contributor
  • Attorney
  • Dallas, TX
Replied Jan 26 2022, 13:23

Self storage is hot!

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Scott Meyers
  • Investor
  • Fishers, IN
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Scott Meyers
  • Investor
  • Fishers, IN
Replied Jan 31 2022, 08:22

Hey Ben!  

As Cap Rates go down, prices go up.  As Cap Rates go up, prices go down.  That's why Sellers want low Cap Rates and Buyers want high Cap Rates.  And of course, Cap Rates depend mainly on the Class of the Facility (A, B, C, or F).  

Yes, Self Storage is a very hot asset class right now, with much money & attention turned towards it, so much that Cap Rates are being compressed.

I hope this helps.

Scott

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Paul Moore
  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
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Paul Moore
  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
Replied Feb 3 2022, 10:08

Hi @Ben Patel. Great question.  I just published an article on this topic. Self storage is incredibly hot, however if you are using certain strategies, Cap Rates are not as important as you might think. Here you go:  https://www.biggerpockets.com/...

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Will Barnard#1 California Real Estate Q&A Discussion Forum Contributor
  • Developer
  • Santa Clarita, CA
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Will Barnard#1 California Real Estate Q&A Discussion Forum Contributor
  • Developer
  • Santa Clarita, CA
ModeratorReplied Feb 3 2022, 10:22
Quote from @Ben Patel:

A few years ago, self-storage was a hot real estate class. You'd be lucky if you found a self-storage at 6 / 7 caps a year ago or so, and now I'm noticing self-storage in the market for 7 / 8 caps. 

What's happening to the self-storage industry?

I don't see this happening at all. if you are finding self storage at those cap rates, i would suggest taking a good close look at acquiring them. That said, Cap rates are only ONE metric of many to evaluate a deal and the cap rate alone means almost nothing. It is simply telling you how much you are paying for the NOI, not much more. It says nothing about value add opportunities, if the asset is being managed poorly or well, what the cash on cash or IRR is, etc.
Don't focus on just the cap rate, it is a big mistake that many people make (myself included as I used to talk smack about what I considered fools for paying 4 caps). Now I see the entire picture and a 4 cap can be a good deal or a bad deal, it depends on what else is inside of the deal.

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Henry Clark
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Henry Clark
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Replied Feb 3 2022, 18:34

@Ben Patel

$1.3mm cost $2.3mm appraisal

$2.2mm ask.  4 months work worth $3.3mm. Then next value add in one year, another $1mm value add 

Forget cap rates.  Look at cash flow and value add.  

Read my post on Cap rates.  You can double them or cut them in half rather easily in one year.