Self storage investing has gained popularity in recent years as a potentially lucrative way to earn passive income. With the rise of e-commerce and the increasing number of people living in urban areas with limited space, the demand for self storage facilities has increased.
However, like any investment, self storage comes with risks and rewards. In this article, we will explore the world of self storage investing and examine whether it’s a good investment for those looking to diversify their portfolio and generate long-term wealth.
Why Invest in Self Storage? Pros & Cons
Investing in self storage has its pros & cons. Here are some reasons why self storage can be a smart investment:
- High demand: Self-storage is in high demand because people are constantly moving and downsizing, which creates a need for additional storage space. This demand tends to be stable and predictable, making it a relatively safe investment.
- Low maintenance: Self-storage facilities require relatively low maintenance compared to other real estate investments like apartments or office buildings. Tenants are responsible for the upkeep of their storage units, meaning the investor does not have to worry about things like repairs or renovations.
- Scalability: Self-storage facilities can be built in different sizes and capacities, making it possible for investors to start small and expand as the demand increases.
- Diversification: Self-storage facilities are often located in different areas, making it possible for investors to diversify their portfolio and reduce risks associated with investing in a single location or asset.
Downsides of Self Storage Investing
While investing in self storage facilities has several advantages, there are also some potential downsides to consider.
- Location: The location of the self storage facility can greatly impact its success. If the facility is not in a convenient location or is in an area with low demand, it may struggle to attract tenants and generate revenue.
- Competition: Self-storage facilities are becoming more popular, which means that competition in the market is increasing. This can make it harder for new facilities to attract tenants and generate revenue.
- Management: Self-storage facilities require effective management to ensure that they are well-maintained, secure, and that tenants are paying their rent on time. This can be challenging, particularly for investors who do not have experience managing a self storage facility.
- Capital Intensive: Starting a self storage facility can be capital-intensive, requiring significant upfront costs for land, construction, and equipment. This means that it may take some time for the investor to see a return on their investment.
Types of Self Storage Facilities
One of the best parts about self storage investing is that there are many different ways to get started. Here are the most common types of self storage facilities to consider.
Vehicle Storage
Vehicle storage in self storage refers to the provision of storage units specifically designed to store vehicles like cars, trucks, RVs, boats, and motorcycles. These units are typically larger in size and have higher ceilings to accommodate the height and size of the vehicles.
Because vehicle storage units are larger, monthly rent rates are also often higher. In some cases, these larger self storage units are also heated to accommodate boats and RV’s without needing to be winterized. Vehicle storage can be a lucrative niche within the self storage industry because it caters to a specific market of customers who need secure and convenient storage for their vehicles.
Outdoor Storage
Outdoor self storage is a storage facility where individuals or businesses can rent a designated outdoor space, typically a unit or a parking spot, to store their belongings. These facilities are usually secured with fences and gates, and may also have security features like surveillance cameras, security guards, or alarms to protect the stored items.
Outdoor self storage is a popular option for individuals or businesses who need extra space to store their belongings but don’t have enough room at their home or office. It’s also a cost-effective solution for those who need to store large items like equipment that may not fit in a traditional indoor storage unit.
Mixed-use Self-Storage
Mixed-use self storage is a type of storage that combines traditional self storage units with other complementary services, such as retail spaces, office spaces, or even residential apartments.
These facilities are designed to provide customers with more than just storage space. For example, a mixed-use self storage facility might offer retail spaces for small businesses, which can benefit from the increased foot traffic generated by the storage facility’s customers. Similarly, the facility might offer office spaces for entrepreneurs or remote workers who need a quiet and secure space to work.
How to Invest in Self Storage
Learning how to invest in self storage can be a smart move for those looking to diversify their investment portfolio. Here are some ways to invest in self storage:
- Direct Investment: One way to invest in self storage is to buy a self storage property directly. You can purchase a property and manage it yourself or hire a property management company to manage it for you. Direct investment in self storage offers investors a steady stream of passive income, as well as potential long-term capital gains.
- Real Estate Investment Trusts (REITs): A REIT is a company who owns and manages income-producing real estate. Investing in a self storage REIT can provide exposure to the self storage market without the hassle of direct property ownership.
- Private Equity Funds: Private equity funds are pools of money raised from investors to invest in a particular asset class. Investing in a private equity fund can provide exposure to self storage with potentially higher returns, but it may also come with higher risk.
- Joint Ventures: A joint venture involves partnering with someone who has expertise in the self storage industry to invest in a self storage property together. Joint ventures can provide investors with access to industry expertise and potential higher returns, but they also come with higher risk and require a certain level of due diligence.
Before investing in self storage, it is important to do your due diligence. This includes researching the local market, understanding the expenses involved, and consulting with a financial advisor.
Self Storage Investment Returns
Self-storage investment returns can be attractive for investors seeking a stable and potentially lucrative investment opportunity. Typically, self storage facilities generate steady rental income and cash on cash return from tenants who rent storage units to store their belongings. As long as there is a steady demand for storage space, rental income can be consistent and reliable.
Self storage investment returns are generally higher than other commercial real estate investments, such as office buildings or apartment complexes. This is primarily because the construction & acquisition cost of self storage is substantially less per square foot versus other commercial properties.
In an article published by Forbes, research has shown that average self-storage ROI from 2009-2018 was a staggering 16.9%. In another article published by irellc.com, self storage investors can earn an average of $350,000 – $800,000 a year with one self storage facility.
However, the exact ROI of self storage investing will depend on a variety of factors, such as location, demand, size of facility, management techniques and market conditions.
AJ Osborne Self Storage Investing
AJ Osborne is a successful real estate investor, entrepreneur, and author who is known for his expertise in the self storage industry. He is the founder of Cedar Creek Wealth, a self storage investment and management company that operates across the United States.
Through his experience as an entrepreneur and real estate investor, AJ Osborne has developed a wealth of knowledge and practical skills that he shares through his teachings. Visit AJ’s website to get a free copy of the #1 Best Selling Self Storage Book and get started investing in self storage today!
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