Why Self Storage Investment Is Right For You

If you’re a current or prospective real estate investor, you may have noticed a buzz around self-storage units. What’s the cause for the hype around this particular kind of rental?  

In a nutshell, self-storage units are inexpensive investments, highly profitable, and easy to manage. They are a smart investment for first-time landlords and veteran investors looking to diversify existing portfolios alike. 

In this article, we break down the benefits of starting a self-storage business and how to take advantage of them as a first-time self-storage investor. 

Lower Start-Up Costs 

Lack of capital is often a stumbling block for many people who would otherwise be interested in investing in real estate. With self-storage units, however, access to a substantial amount of capital may not be necessary. 

Compared to single family homes or multifamily apartment complexes, self-storage units are a relatively inexpensive option. As a self-storage start-up owner, you have two options: building a self storage unit facility or buying an existing one. If you choose to build, construction costs tend to be lower, on average, than other property types. Of course, the cost will vary depending on the number of stories, amenities, and square footage, as well as external factors such as the current price of steel. You can purchase an existing facility for anywhere from $1 to $10 million, although the average cost to start a self-storage business is only around $2 million (This investor even started her self-storage company during the pandemic with only $1.8 million in seed funding!). 

All in all, starting a self-storage business is more affordable than most realize, and certainly more affordable than investing in traditional properties.  

High Demand 

The recent increase in self storage investment opportunities should tell you that the demand for storage has increased drastically over the past few years. Self-storage occupancy rates reached record highs during the COVID-19 pandemic as more people were compelled to downsize, move, or clean out their garages, basements, and attics. Even now, the market is ripe with opportunities for self-storage investors. Higher house prices, even for smaller starter homes, continue to make smaller and cheaper living spaces look more and more appealing, resulting in less room to store belongings and higher demand for convenient self-storage options. Although demand varies seasonally, there’s no denying that the self-storage industry is growing fast and will likely continue to do so in coming years. 

High Return on Investment 

For those who do take advantage of this lucrative investment opportunity, returns will be high. With an industry-wide annual revenue of over $39 billion, self-storage has seen an explosion of profits in the last few years. The average profit margin for self-storage operators is 41%, almost twice as high as the average for all in industries according to Neighbor.com. Increased demand is one reason for this unusually high return on investment (ROI), but another reason is that expenses are kept relatively low. The daily cost of running and renting storage units is quite manageable for most investors, allowing you to keep more of your revenue each month. 

High Occupancy/Low Vacancy Rates 

Occupancy and vacancy rates are an indicator of an industry’s overall health. In 2018, Neighbor.com reported that the national average occupancy rate for self-storage facilities in the U.S. was 91.7%, an increase of 16% since 2010. If you market and advertise your self-storage units well, it’s likely that you won’t see vacancy rates above 5 to 10% after the initial start-up period. 

Recession Resistance 

As signs of an incoming recession and housing correction become increasingly apparent, recession resistance is an important quality of any business. Self-storage is frequently noted as a recession-resistant industry for several reasons. In fact, demand for self-storage units may actually increase during a recession, as more business and homeowners look to downsize and need places to keep their belongings anywhere from a few months to several years. Other commercial properties, such as retail or office space, have the opposite problem during a recession, and will often struggle to find new tenants. 

Additionally, recession tends to inspire movement and change, which are two major factors in self-storage demand. Your potential consumers are those switching careers, moving for a new job, shifting family living arrangements, getting a divorce, etc. These people need some place to store their belongings during the period of transition. That’s why so many self-storage investors target transition and change in their advertisements and marketing strategies, and it’s why self-storage remains one of the best investment options during a recession. 

Low Maintenance 

Compared to other property types, self-storage units are low maintenance—both in the literal and figurative sense. Storage units have limited electricity and typically no need for plumbing, which decreases the need for on-site maintenance staff to look after the upkeep of your units. There are no appliances to fix, and tenants rarely need your attention after signing a lease. 

Features like climate control or on-site security tech may need maintenance from time to time, but overall, self storage as investment means limited stress and hassle about maintenance. 

Automated Management 

In addition to being low-maintenance, self-storage management can also be hands-off. You can always manage your rentals remotely via storage unit software, but storage units are even more suitable for remote ownership and management. By installing technology such as electronic no-key entry, your tenants can come and go as they please without the facilitation of an on-site security team. They can even use their phones as keys to enter their storage units, avoiding the hassles of copying keys, issuing ID cards, or keeping track of combination codes. Self-storage security companies like Nokē sell various tools to upgrade your smart security system, including smart padlocks, door controllers, and accessories, as well as custom lock solutions. And your hardware is likely to come with a connected software platform you can use to monitor and control who uses your locks and when. All these tools make it possible for your storage units to be a self-managing facility, with little day-to-day management required by you.  

Straightforward Rental Agreements 

Speaking of management ease, prospective self-storage investors will also be glad to know that storage leases tend to be some of the simplest and most straightforward. This is because you don’t need to include sections or addenda for any of the situations you would for residential or other commercial leases: No extensive guest or pet policies, no utility billing, etc. Generally speaking, self-storage tenants tend to unload belongings in their storage units and then leave them alone for weeks or months. Simple, hands-off management works well for these tenants and means less time crafting and explaining lease agreements for you. 

Conclusion 

If you weren’t sold on self-storage units before, hopefully you’ve now realized the full extent of the benefits that self-storage investing can offer. The industry is growing for a reason, and now is an opportune moment to get started.