8 Reasons Why I Love Self Storage Investments!
Recently, I hosted a live webinar on this topic but I thought I might be a good idea to put it into words.
First off I never know which on to write. Is it self-storage or is it self storage? hmmmm...age old questions. Okay, so I guess that doesn't matter that much but you know sometimes it's the little things in life that can drive you crazy.
Secondly, I started my real estate journey wanted to be like the brothers. You know that Property Brothers. When I still had cable my channel never changed. It was always on HGTV. No plug intended. They made it look SO easy! But the more I researched the more I discovered the risks involved in the Fix & Flip strategy. They through BiggerPockets I discovered multifamily (MF). I fell in love with MF. I read books attended boot-camps and seminars, I was hooked. Until, I started looking at deals. If you're in MF you know the deals are few and far between. That’s when self storage or is it self-storage caught my eyes.
My 8 reasons why I love self storage as an investment, which are in no particular order.
1) No tenants! In fact they are customers not tenants and this means tenant rights don’t apply. Property rights come into play with self storage which are generally more relaxed in most states. This means that if a tenant doesn’t pay you can literally have their stuff out and renting that same unit with 3-4 weeks! Here is California it may take you months if not a year to get a tenant out of your apartment and all the while they aren’t paying rent!!!
2) It’s a commodity. What is a commodity…it’s a product or service that is the same no matter how you look at it. Think of corn. Corn is corn no matter how you slice it…in storage a metal box is a metal box! The most important thing in self storage is the location from the customer. The customer wants it close to their house. Population density is key here; we are looking for a population of 50,000+ within a 3 mile radius. The other side of the coin is Square Feet per Person in that 3 mile radius. Industry average is around 7 sq/ft./person. I look for 6 sq/ft/person in a given 3 mile radius when selecting a property.
3) Self storage is driven by the 4 “D’s”. Divorce, Death, Downsizing, and Dislocation. Divorce: “Every 13 Seconds, someone, somewhere, files for divorce.” Where will all that stuff go? Death: Not something everyone what's to talk about but we have to put grandma’s stuff somewhere. Downsizing: We are seeing a growing trend towards renting as opposed to home ownership. Extra stuff must go somewhere! Dislocation: Loss of a job or a recession. Like downsizing people don’t want to give up their stuff!
4) Sticky customers! What’s sticky? Thing of that gym membership…yeah, you know the one you haven’t gone to in the last 2 month…lol. The fact is most customers rent long term, meaning over a year or more. What’s even better about this is that you can raise the rents 3-5% in 7 – 10 months, while keeping you street rates the same. Also, they aren’t going to move out over a $5 a month rent bump. They would have to get some friends, hopefully one has a truck, if not rent a U-Haul (which btw they could rent from you!), spend a whole Saturday moving their stuff to another storage location to save what??? $5 or 10 bucks???
5) Automation! This is my favorite one. Coming from an IT and Lean Six Sigma back group I love to improve efficiencies on the operations side of the house. We are seeing more and more automation through the use of technology in the storage space. This will help drive down expenses which by the way are already low…more on that later.
6) Additional Revenue Streams! If you have the store front and space you can add U-Haul (or other rental trucks) rentals and moving supplies to your store. You can also make insurance a mandatory requirement (customer can have their own insurance) for renting. Did you know facility operators are not required to insure tenants’ possessions, as they do not take care, custody or control of stored goods. Nor, will the facility reimburse any customers for loss of goods from Fire, Burglary, or Tornado. So, tenants might want that insurance!
7) Recession Resilient! No recession proof but it fares very well during downturns. The historical Loss Rate (default rate) for self storage is less then 1%! With the failure rate industry wide of less then 7%! People need to storage STUFF! American’s have a lot of STUFF!!
8) Expense Ratios! Okay, this one’s for all you multifamily guys and gals out there. Your normal or average expense ratio is 50% (depending on the size) or more. In self storage, depending on the size of the property, the typical expense ratio for is anywhere between 35 – 40%!! My jaw dropped when I saw those numbers! Can you image a P&L with no water or sewage bill? I shed tears of joy when I saw my first P&L without water or sewage line items!
Okay, so there they are my 8 reasons why I love self storage as an investment. But, the story doesn’t end there. I didn’t even talk about the number of mom and pop facilities still out there or the cash on cash returns possible from these investments. So, turn in next time to find out more!