Does It Pay to Invest in Self-Storage?
Everyone talks about multifamily. Everyone is familiar with multifamily. Most of us have lived in an apartment building at some point of out lives, whether it was while living with parents, or in college, or later, after college moving out of parents' home.
While self-storage has not been as well-known of an asset class, it is definitely worth evaluating due to its high demand and usefulness. Imagine as a mother whose kids just moved out to college, you want to keep all their childhood memories but since you and your hubby decided to downsize, you don't really have much room to keep all those memories in your new place and need a space to store it. Guess where it is going to go?! You guessed it - to a storage facility. So let's evaluate four factors driving the interest towards self-storage.
1. The investments in self-storage are continuing to grow.
There are over 50,000 self-storage facilities in the Unites States. And this number continues to grow.
<Data Source: https://www.sparefoot.com/self-storage/news/1432-s...>.
A lot of people downsize, especially once their children go off to colleges and large homes are no longer needed. While selling the family house is an enormous task, eliminating the vast majority of family memories even more difficult, especially for mothers. Therefore, an easier solution is to rent a storage unit and move their kids’ childhood memories there for a long while in hopes to someday sift through them again. In a lot of cases, it ends up being a job for the children.
2. REITs popularize self-storage.
One of the major reasons for self-storage popularity are Real Estate Investment Trusts (REITs). While REITs are common, they are not the most advantageous when it comes to investing in self-storage as there are multiple intermediary layers between the REITs fund management team and the investor. Becoming a partner in a syndication that invests in self-storage allows to cut out the middle-men.
3. Risk averse asset class allowing for solid returns.
There is nothing romantic or even trendy about the self-storage asset type, but comparing volatility levels among several commercial asset classes, self-storage will always top the list as the least volatile. While it is possible to make a good deal of money with a luxury office complex, the possibility of having a bunch of empty offices is just as high. The investment in self-storage is lower than in, for example, apartment complexes, but the returns are much more predictable and steady. The reason is that it is very common among self-storage tenants to pay monthly fees via automatic payments. Therefore, even if there are vacancies in self-storage, the break-even point is much lower than in other commercial real estate types, and hence the self-storage asset type allows to for easier cash flow.
4. Unique demand combination during bad and good times.
As it was explained earlier, families tend to rent self-storage units when they downsize, and likewise that is also the case when people hit an economic downturn; and likewise rent self-storage units to keep their memorable items. The need to rent out storage units is just as high during the times when economy is thriving because folks tend to buy more stuff. After a while when they realize their houses are over-packed with purchases, they turn to self-storage units to declutter. Once again, they rent storage units to keep their gear until they find use for it.
While the real estate as well as the stock market have been and will always be volatile, it is always advisable to have a safer investment in your portfolio to offset potential issues with other more volatile investments. Investing in self-storage is one such safer and steady investment that offers a somewhat slower, but steady growth.