"Passive Investing" How to be a Hands-off Investor
You have done your research, and like me, you have discovered that self-storage is the best asset class out there and for you. So now what? Do you go out and buy a self-storage facility with no experience whatsoever? Probably not the best plan. Do you take training classes and jump in headfirst? This is a much better option. However, what about if you who don’t want to commit your time to this new venture, you simply want the advantages of the great returns that self-storage offers? There is an alternative and much better option for you- passive investing. Passive investing is a very lucrative choice in the self-storage industry, and I will tell you why and all about it.
If you have always wanted to own a self-storage asset but you haven’t liked the idea of being hands on, then being a passive investor is a great way to get involved without getting your hands “dirty.” You can own a self-storage property through a partnership or a private placement. If you are going to partner with someone then you want to make sure that you do your due diligence on your potential partner. Is your potential partner just getting started or do they have plenty of experience in self-storage? How long have they been in the self-storage industry and how many projects have they done? Have their past deals been successful or have many of them failed? What is their average return on investment? Why do they feel that they get those kinds of returns? Are those returns typical and are they what you are looking for? What kinds of properties do they typically purchase: fixer uppers or properties that are already up and running or new construction? All these questions will give you some insight on your future partner. You don’t want to work with someone who has a track record of maintaining projects. You want someone who is good at taking a property and making it better. When you invest with someone, you are investing in their abilities. It is important that you find out everything you can about them. Things to look for are do they have a mission statement. Do you agree with it? If not, do you really want to work with them? There are a lot of successful investors out there. Make sure that you partner with someone that you feel comfortable with and has similar values and a similar vision to you.
Another option as a passive investor is to invest in a REIT, Real Estate Investment Trusts. If you are investing with a REIT, you will simply buy shares in the company. Perhaps you like the idea of investing with a small self- partnership or with a group of investors. No matter how you decide to invest, you need to make sure that you protect yourself and your investment. If you are investing with a group or an individual, you will want to research the property as well as the person, as previously mentioned.
When you buy a self-storage property find out if they have a feasibility study? What does that study say? This is a key document in knowing whether a project is a good investment. Is this a good area to invest in or is it oversaturated? What are the market trends for this area? You want to make sure that you are investing in an area where you won’t get out located. Do your due diligence on the property to make sure that your investment is safe. Another thing you want to look at are the contracts that you will be signing before entering a partnership. If you don’t understand the contracts, make sure to have your attorney review them. Determining how well are you protected if your partner goes through a divorce or suddenly files bankruptcy for example is important to know. The need for a strong contract holds a lot of importance. A contract needs to review everything from how the profits will be distributed to how things will be handled if the project should fail. Everything should be spelled out from day one. Plan on succeeding, however, make sure your contract clearly states how issues that may arise are to be handled, especially financially.
Passive investing is a great way to get involved in the self-storage industry without having to invest the time managing a property. Dedicating the time in the beginning to a solid partnership, plan and contract with have you set to succeed with your passive investment. If you are already an accredited investor and are interested in finding out how to syndicate, join us for our next blog!