Self-storage and the next 5-10 years
Investor · Pensacola, FL · Member since 2021 · 9 posts · 4 votes
For all the self-storage investors out there,
I'm new to self-storage, so forgive me if this is a simplistic set of questions, but...
It seems that most of the research/data that I'm coming across regarding a self-storage investment outlook is focused on the next 1-2 years, and it seems to indicate a mostly positive investment climate. I could be totally wrong about that as I'm very new to this. That said, I'm looking for opinions on what many of you think the self-storage investment climate will look like over a longer time horizon i.e. 5-10 years. Do you think it will continue to grow and be a strong investment over the course of that timeline?
And if you think it will continue to be a strong sector to invest in, what are some of the demand indicators you look at to help you come to that conclusion?
Thanks for the input. From the perspective of someone who hasn't yet invested in self-storage but is looking to start, it's nice to hear from those with experience instead of simply relying on data/analytics.
Chris
Hey Chris,
We're in storage and I haven't seen any data that has anything trending down for storage nationally.
There is an issue of some markets being oversupplied which will lead to lower rates and lower NOI's. It's our belief that one of the larger risk factors is if a REIT or regional player drops a 70k-200k sqft facility down the street. That has a material impact on your rates for 12-18 months as they will fill their facility at all cost and increase pricing as they get closer to 90% occupied.
The most important thing when looking at a market is understanding what the current is, what's in the pipeline, and understanding the rates & vacancy in the market. Once you have a good grasp on that, you can assess the risk of a REIT or regional player.
Simple Answer #1:
Your time frame of interest should be your loan payoff or amortization period. Lets say 20 years.
Self Storage will be a great investment for the next 30 years, at least. There is really only 1 dynamic that can change that.
Simple Answer #2:
You could go broke in 2 years.
Lets narrow the discussion down just to "you."
What is the nearest town you live in? I don't know where you live, but that is a great place to invest.
What is your financing mechanism? SBA 10% down, SBA 20%, conventional 25%, Conv 35%, Conv 40%, owner financed.
How much money or collateral do you have? Say $50,000; don't really need to know, this dictates your search/investment process focus.
Size of investment you can do: With $50,000 at 10% then $500,000 total project; 20% then $250,000.
Are you a financial investor or a entrepreneur business owner?
How much have you invested into learning Self Storage to this point?
There are two business models and two product offerings:
A. Class A or institutional-
Business model- 300 units or more, usually Climate Controlled, multi story, on site manager, higher land cost, higher population center, great SEO power, well financed and managed, newer REITS/corporations. Project size- $2,000,000 and up.
Product- Climate controlled, generally smaller units to make more $/sqft efficiency, elevator or cart, higher priced.
B. Other-
Business model- this is the greatest number of locations, not necessarily units or sq ft in the US, normally less than 300 units, lower land cost, anywhere, family owned, single location owners, lower to nonexistent SEO power, Project size- normally less than $1,000,000; usually underfinanced and managed, older owners.
Product- managed, unmanaged onsite, security, no security, drive up, lower priced.
Both of the models can exist within 10 foot of each other. Both can be successful. One can be unsuccessful and the other can be successful. Your serving two totally different price points and products.
There has never been a better time to invest, than the next 10 years. And I'm not selling you anything.
Start small and Make Your Big Mistakes Early.
Hey Chris,
We're in storage and I haven't seen any data that has anything trending down for storage nationally.
There is an issue of some markets being oversupplied which will lead to lower rates and lower NOI's. It's our belief that one of the larger risk factors is if a REIT or regional player drops a 70k-200k sqft facility down the street. That has a material impact on your rates for 12-18 months as they will fill their facility at all cost and increase pricing as they get closer to 90% occupied.
The most important thing when looking at a market is understanding what the current is, what's in the pipeline, and understanding the rates & vacancy in the market. Once you have a good grasp on that, you can assess the risk of a REIT or regional player.
Thanks for taking the time to reply. I appreciate the amount of input. I'm going to preface all my responses by saying I've only been learning about self-storage for about a month, and I say that to say that I'm still sorting out what I think the best strategy will be for me, but also that the strategy I initially decide on could easily change as I continue to learn about self-storage.
That said, I'm currently interested in using a private equity model to acquire a long term portfolio of self-storage assets. So, I suppose I could say I would be an investor and operator (but outsource/automate as much of the day-to-day operations as possible).
I'm currently a Pilot in the Navy stationed in Pensacola, FL, but I will have to move in a little over a year, so that introduces another obstacle that I will have to overcome especially considering that this is my first foray into self-storage.
As far as product offering goes, I'm interested in mom-and-pop facilities with value-add opportunities. I know that's a vague answer considering all the ways to add value with self-storage, but that's about as defined as my criteria are at this point. I'll have to really narrow that down in the coming months.
My only investment in self-storage education so far has been time, nothing financial other than a couple books. That's kind of why I wanted to hear from investors who are in the self-storage space, to confirm that self-storage is worth pursuing with my time and money before I find myself 6 months into learning about self-storage only to find out that REIT's and regional operators have already squeezed out all the value-add opportunities and I just wasted time trying to find good deals.
You said in one of the last sentences of your response that the next 10 years will be a great time to invest, and based on what I've been seeing, I've come to a similar conclusion. I guess my reason for originally posting this thread was to find that confirmation from people much more experienced than me. Thanks again for your input!
Thanks for taking the time to reply. I appreciate the amount of input. I'm going to preface all my responses by saying I've only been learning about self-storage for about a month, and I say that to say that I'm still sorting out what I think the best strategy will be for me, but also that the strategy I initially decide on could easily change as I continue to learn about self-storage.
That said, I'm currently interested in using a private equity model to acquire a long term portfolio of self-storage assets. So, I suppose I could say I would be an investor and operator (but outsource/automate as much of the day-to-day operations as possible).
I'm currently a Pilot in the Navy stationed in Pensacola, FL, but I will have to move in a little over a year, so that introduces another obstacle that I will have to overcome especially considering that this is my first foray into self-storage.
As far as product offering goes, I'm interested in mom-and-pop facilities with value-add opportunities. I know that's a vague answer considering all the ways to add value with self-storage, but that's about as defined as my criteria are at this point. I'll have to really narrow that down in the coming months.
My only investment in self-storage education so far has been time, nothing financial other than a couple books. That's kind of why I wanted to hear from investors who are in the self-storage space, to confirm that self-storage is worth pursuing with my time and money before I find myself 6 months into learning about self-storage only to find out that REIT's and regional operators have already squeezed out all the value-add opportunities and I just wasted time trying to find good deals.
You said in one of the last sentences of your response that the next 10 years will be a great time to invest, and based on what I've been seeing, I've come to a similar conclusion. I guess my reason for originally posting this thread was to find that confirmation from people much more experienced than me. Thanks again for your input!
Sorry for the double post. Don't think I got the tag right the first time.
Hey Jim,
Thanks for the response. The oversupply was a big hesitation for me when I first started looking into it, but it seems that self-storage is hyper-localized, so (if I'm understanding correctly) a national oversupply wouldn't necessarily affect an MSA or city in the same way as, say, it does with the housing market. Based on your experience, do you agree with that assumption?
Also, you mentioned rates/occupancy in my market. I've found a few data aggregators that claim to provide that sort of data but haven't paid for their services yet. Do you have any tips for compiling rate/occupancy data for a particular market?
Thank,
Chris
That’s correct. We subscribe to the online sources for an initial overview of a sub-market, but a lot of the research requires some boots on the ground or at minimum, phone calls to competitors & planning/zoning.
Read my post, "Will they come?", to view your market.
Here is a tool to quickly analyze a potential Storage location or to analyze the strength or weakness of an existing location.
Your going to do the following excercise using Sparefoot and then Googling Self storage for a particular city.
Lets use Roanoke, VA; just because I just did that one for someone else.
Pull up Sparefoot for Roanoke, VA; then click on the Map in the upper left. As you move around to an area storage locations will pop up. Your looking for where storage locations are and are not. Then look at where the people are, based on the increased road marks.
Then Google "Self Storge Roanoke, VA". Do the exact same thing. Not all locations, sometimes only half use Sparefoot, thus we are doing Google, because most have a website. Sparefoot gives you pricing to do price studies.
See the large spot where there are few if any storage locations? But there are tons of people. Now go read my "Zoning, I3 right?" post. And then go find a spot. To either buy or build. If I lived near there, I would pursue buying all of the locations and building about 3 more locations.
A. There is not a town in the United States, that does not need more storage, or "you" can't competitively build more storage there. Mom/Pop model. One town we are in, we are waiting for some land next to us to be offered for sale to us by the contractor who I have talked with, they don't need it all for their purposes. The major storage location is 4 miles out of town. We out position them. Sounds like aerial combat strategy.
B. The reason I said the next 10 years. Most Mom/Pop is owned by Baby Boomers. I'm 60 and at the tail end of the Baby boomers; and the chance my son takes over by the time I'm 70 is pretty low. All of those locations will need to be sold in the next 10 years. Never been a better time to get into the Storage business. I would recommend you pick one area covering 40 miles (drive time); and get to know all of those owners. And visit with them once a year. Give them a way "out". Buy out. Seller finance (better return for them). Management agreement with first right of refusal. Etc.
See our website youtube on Self Service. Hook up with a local realty office to handle for you, if you move.
Thanks for those resources. I perused a bunch of the articles you've written and there's a lot of good info in there! I will definitely be turning to them as I go through this process. I do have one question that I wouldn't be able to answer without input from someone who is actively involved in self-storage, so if you don't mind, I'll turn this thread that direction.
Knowing that I'll be moving away from Pensacola in a year, that this is my first time investing in self-storage, and that my strategy will be finding mom and pop operators who've mismanaged their facility and aren't maximizing revenue, do you think one year is enough time to buy, stabilize the facility, and establish systems/processes such that I don't have to be involved in day-to-day operations? Just trying to prevent a painful situation where I'm still in the process of stabilizing the property in Pensacola yet find myself living up in Virginia (Virginia is just a random location, not where I'm actually going).
Yeah, it seems like self-storage is one of those niches that requires boots on the ground style research. Thanks for the input. If you have an opinion on the question above that I've directed at Henry, any input would be greatly appreciated.
On another note, I was looking around at your company website. Seems like you have a pretty nice operation going on. I'm assuming you're actively involved with the flipping, then use your active income to build a more passive portfolio?
@Christopher Porter Thanks. The flipping and rental business is fully streamlined so it doesn’t take much time. We started to invest more resources in storage as we can get to scale quicker. It’s impossible to buy 50-100 SFRs at the prices we want in this market and I don’t see that changing.
One thing to note, owning and operating SS facilities is not passive. It’s an active business with real estate.
Look up my Checklist 101 post, so you have a list to follow.
Takes about 4 months from time of close to upgrade/cleanup from a worst case scenario.
1. Load customer contracts into internet self storage software. (two weeks, usually you have to call people for info, only takes about 2 hours to load about 50 people, if you have the info).
2. Auctions and clearing out bad customers. Each state is different. Send auction letter 2 weeks, then put in newspaper 2 weeks, then auction 1 week. Wait till they are past due. Possibly 6 weeks from the time you buy.
3. Clean up abandoned units. Give them away, if they take everything.
4. Security system- depends on contractor. 2 months. Will physically take about 3 days. You want to be able to view everything on your phone or pc. Get alarms anytime someone enters the office, gate opens after certain hours, or if any alarm goes off. You can have motion sensors on your cameras 24/7 or for certain hours that send you a message. You can have underground vehicle sensors which work great.
5. Fence if needed- depends on contractor. 2 months. 3 days effort.
6. Electric/Lighting- depends on contractor. 2 months. 3 days effort.
7. Load into Sparefoot internet system. 2 weeks. 1 day effort.
8. Self Service system- find local person to sweep and reload contracts and locks. See our youtube. 1 week to get your contract in order and develop a system, get inventory of locks delivered. Personally, I would get a local property manager to handle. Or preferably a retiree. Try to go 100% autopay, no checks/cash.
9. We operate 5 locations from in a 40 mile radius on my phone. We do visit and reload them ourselves. Have managed on my phone from France/Italy and Belize for 2 weeks. Same time zone in Belize makes it easier.
10. Financing- Check a VA loan through SBA, ask for 0% down and 25 year term, go through your bank or credit union. This could take up to 6 months. SBA is backed up doing Covid PPP applications.
Hi @Christopher Porter. Have you made progress in the past month? You got some fantastic info above from several contributors. I would add that you should get some training and Scott Meyers is your source for that. AJ Osborne also has a great new book out on self-storage.
Thanks for serving our nation and good luck!
Hey @Paul Moore, I'm still just trying to educate myself. Nothing paid yet like Scott's programs. Just reading and gleaning what I can from books and forums.
Funny story I think you'll appreciate actually...
Your ebooks about SS and MHP were two of the first sources of info I read when first trying to figure out what direction to go in with Commercial RE. So, I suppose a thank you is in order for piquing my interest in these two asset types.
On another note, I've perused your website a little and, if I'm not mistaken, it seems like your role in real estate has taken on more of a finance role as opposed to being more directly involved in the day-to-day operations. I'd be really interested in hearing more of your story and how you made that transition (assuming I'm not totally off on that impression, of course). Have a good one! Hope to hear from you.
Hi @Christopher Porter. Thanks for your kind comments. I’m glad I was able to be helpful to you.
In the past decade, passive investing in real estate has reached new heights. Syndications are more popular than ever, and many people have wealth to invest. A lot of investors with great day jobs or retirements realize they can make as much or more money passively as they could if they were doing it full-time. As a result, they invest with syndicators.
The problem is that the rising tide has raised all boats as well. Some syndicators to great marketing but are not great operators. As Warren Buffett says, “someday the tide will go out and then we’ll see who is skinny-dipping.”
Like many others, we saw the danger that was unfolding for Passive Investors. We decided that we would rather play a due diligence partnership role, where we deeply research certain sponsors and then invest with them. We invite our investors to join us. This gives us a significant knowledge of the operator and it gives our investors confidence that someone has done the due diligence they would if they have the time and the resources to do so. It also means diversification across multiple asset types, geographies, operators, and investments.
Thanks again and best wishes!