Is Self-Storage a Recession Proof Investment?
Investor · Greenville, SC · Member since 2020 · 14 posts · 17 votes
For those who have investments in self-storage or other real estate categories touted as "recession proof," how are your investments performing right now?
One of the things that attracted my husband and I to invest in self-storage was that it was claimed to be recession proof with very low default rates. Since March, I had been nervously watching the occupancy rates and percentage of late contracts of our self-storage facility anticipating some dramatic change due to the economy and coronavirus shutdowns. Speed up to 3 months later and we are stable and in fact have the highest occupancy we've had since owning the property. We also are seeing a low number of late contracts, and our one mobile home tenant has been keeping up with rent payments no problem. We are grateful that the facility is still performing well but know that we may not be out of the woods yet as you hear reports of possible future waves of shutdowns, continued high unemployment, defaults, etc. Still cautiously optimistic though.
Faith Hill
Hi @Faith Hill; Welcome to the BiggerPockets forums! Way to go picking up and operating a self-storage facility!
There are two things I want to assert here that are on display now:
That said, what I like about self-storage and B&C class multifamily is that they can perform in a stable market cycle but they also can profit on a down cycle because of what happens to consumer mentality in a pinch. When the sky is falling, you're less likely to rent that A or B class apartment that was a stretch. You're also less likely to lease that 3rd bedroom, or you realize that your mortgage payment on your 4 bed is bonkers now that the kids have moved out and, presto blamo, enter the need fo additional storage.
@Caleb Heimsoth Lol, I second that! If someone is guaranteeing no risk whatsoever in a particular investment class, that is a huge red flag.
@Ari S. Thanks for sharing that perspective! It will be interesting to see if people moving out of densely populated cities becomes a long-lasting trend, and if so, seeing where are they moving. As there may be sustained population growth in those areas, there may be increased demand for storage.
I imagine storage units are going to fare far better than the rest of commerical spaces. I saw some folks talking about downsizing but I think there will be shifts from urban areas into suburban areas where folks are actually looking for more space.
I've been feeling pretty good about b/c class type single family rentals as it seems like rent is the first thing people are paying for given the need for housing much more than ever since many folks are at home. I run a hotel in the Philippines and enjoyed doing so until we got temporarily closed as as result of COVID. I guess with all that being said in certain areas move with caution. Sounds like the US is opening up more but you can still make moves in promoting the self-storage on a COVID discount haha if you're that concerned, though is sounds like things are doing well. Maybe prepare for 2nd/3rd waves whether or not they happen.
Interesting read and perspecive about Self Storage. It's something that has been very intriguing to me and now I'm looking to buy my first one.
@Faith Hill...a couple of the ones my business partner and I were looking at were in SC. I'm glad to hear that your first one went well that you're looking to buy another one.
That is very encouraging.
@Faith Hill @Will Fraser Way back in the end of March (seems so long ago) we hosted a webinar posted here in Bigger Pockets as to how self storage does in recessions. In the presentation we discussed how self storage has performed historically over the past 4 major recessions going back to 1991. In each of those recessions, occupancy dropped 1% to 2%, and then rebounded 3% - 5% within a year or two. This lead me to describe it as "recessionary resistant". Because we are in the industry, we know operators across the country with A, B, and C class assets. The reports we hear from our friends is consistent with the historical performance of self storage.
@Joe Splitrock we also discussed the reason we feel self storage tends to be recessionary resistant. There are the D's - Downsize, Divorce, Death, Displacement. But why? That is the reason we were seeking, not the facts but the why. My experience in almost 30 years of real estate development, design and construction, is this - people resist change. They don't like change. Self storage helps college students, businesses, people in urban areas, as well as rural areas in good times as well as bad. Which is why it was deemed "essential" by the government. In the times of the (4) D's it is because (in my opinion), it helps avoid pain. In each of the (4) D's there is major change occurring in peoples lives. Self storage allows them to having to address one additional tough decision - what do I have to get rid of that has so many memories, value, and meaning. In difficult times, we long for the better times. We hope we will be able to use the items we place in storage.
@Jenifer Levini Do you have to be a developer to make money in self storage? It helps, but not necessary. The other point we talk about in the webinar was the distinctions for the three classes A, B and C in comparison to stocks. C - penny stocks (consistent low yield returns), B Blue Chip - good in up or down economy, and A growth stock, appreciation as well as cash flow. The challenge is to determine which asset class meets your investment strategy.
@Mike Dymski great point. We are much more worried about 4th qtr at our facilities than we were about April, May, June. Many tenants making $600/week more on unemployment than when they were working. When that faucet shuts off it could get hairy for alot of owners, not just SS.
Hey Faith! I'm going to echo what a lot of folks here are saying, particularly @Michael Wagner and @Scott Krone, yes, Self Storage is HISTORICALLY Recession Resistant. Typically, the one sector that actually does better than Self Storage is booze (beer, wine, & spirits).
As Self Storage is fundamentally in the "Trauma & Transition" business. Folks usually need a Self Storage unit when they're experiencing moves or downsizing due to death, divorce, loss of home or business, or any other sort of upheaval, and a Recession is unfortunately full of a lot of that.
However, there's also a timeline factor to this and like Self Storage - where we buy it by the gallon & sell it by the shot, we live in the day & measure by the decade. So over time, Self Storage should weather the storm better than most other commercial assets (e.g. Office Space, Assisted living Facilities, Student Housing, etc.) but it's not automatic that "Recession" hits and we slingshot into "we're all great and it sucks to be everyone else". There's always going to be ebbs & flows, but over time Self Storage has almost always come out better than most of the other assets.
And yes, like many others are saying here, we are experiencing some of the better months than we've ever seen, but of course a lot of our customers and fellow Americans are all hopped up on free government money which was intended to minimize the disruption of normal economic activity. We shall see what happens when the IV is pulled out of the vein, right?
Until there is a cultural shift in the USA society of buying & hoarding more, more, more, or until we get over our addiction to "stuff", Self Storage seems like a very good Asset Class to be.
Please note that I am privy to a Town Hall Call where we discuss the state of the Self Storage Industry, the Economy, and the Markets in general, including Acquisitions & Dispositions, Development & Conversions, Equity Markets, Debt Markets, & so forth from the perspective Investors, Owners, Operators, Managers, Brokers, Lenders, etc.
You & Jermaine ought to check it out. On that note, I hope the two of you are doing well personally, professionally, & of course, all things Self Storage related. Please let me know if I can be of any service to you.
Take care.
Scott
Hi @Ravi S. giving a mentor first is a great plan. I would recommend that you check out @Scott Meyers who commented above yours. He has a great mentoring program and has helped others by self storage in Florida and other locations. Happy investing!