Four Reasons Investors Are Looking At The Self-Storage Industry Right Now
Scott Meyers, Founder of Kingdom Storage Holdings.
If you are considering or have ever considered joining the self-storage industry, you are not alone. In the current moment, the industry is experiencing a huge boom. Research forecasts that the return on investment (ROI) and compound annual growth rate (CAGR) on self-storage properties will continue to be high over the next few years, making it even more attractive to investors. In addition, Small Business Association (SBA) loans make entering the self-storage market much more attainable, while having no tenants, trash or toilets make self-storage facilities desirable in comparison to their residential counterpart.
Self-storage has proven to be recession-resistant and is projected to have a CAGR of 134.79% between 2020 and 2025. Because of this, many investors are looking for ways to invest in self-storage. Demand is steady, with 9.4% of households currently renting self-storage units. The national average cost for all unit sizes is $87.89 per month according to SpareFoot data, suggesting the opportunities for investors are endless.
While growth rates are projected to remain steady, the self-storage industry has a strong track record of a high return on investment for most facilities. From 2009 to 2018, self-storage facilities averaged an annual ROI of 16.9%. This number was higher than office, industrial, retail or apartments during that time.
Due to such elevated ROI, the self-storage industry is a highly sought-after form of real estate and can often be difficult to find. However, knowing how and where to search can present plenty of opportunities. You just need to know which door to knock on. From conversions and rehabs to new construction, you can always find a way to discover opportunities in your area.
If you are considering joining the self-storage industry, it is always best to start by speaking with a commercial real estate agent about the possibilities in your area. If they do not have any facilities listed at that time, you can connect with current self-storage property owners to see if any of them are in the market to sell or know of other owners looking to sell.
In addition to the great returns that self-storage offers, financing has become much easier to attain due to SBA loans and passive investing opportunities. SBA 504 loans have revolutionized financing for self-storage facilities. These loans allow buyers to put down as little as 10% toward their projects. This makes it much easier for investors who are just getting started to enter the market. These loans typically have a set interest rate for 25 years instead of having to be refinanced every five to seven years. The interest rate can be very competitive to market rates, which helps keep payments low. Hopefully, these loans will not be affected negatively by the current pandemic.
Investing in syndication deals offer an alternative. Instead of buying a rental property on their own, investors can pool their money with other investors. The funds can be used to acquire a larger commercial property, such as an apartment building, hotel or, in this case, self-storage facility.
Ease Of Maintenance
Another bonus is that self-storage facilities come with less maintenance compared to other real estate investments. If you find individuals experienced in the industry, they can not only help manage and oversee the day-to-day operations; they can also help you navigate the specialized area of self-storage. Today, there are software programs to assist with the day-to-day operations of your property from anywhere. Kiosks, specialized surveillance systems and the ability to sign documents online allow you to manage your facility without even being on-site. In addition, you can do remote check-ins with some of the self-storage technologies that are available. These also reduce the need for a full-time property manager.
Room To Expand
Lastly, another option with self-storage is that you can offer ancillary products and services alongside with your facility. An ancillary product is acquired as a bonus or add-on purchase when buying another product or service. For self-storage, you can offer not only locks and boxes, but other moving or transportation-related items. Trailer lock kits, lifting straps, dust covers, furniture slides and more make great add-ons for customers who may have forgotten them. These ancillary products and services provide another reliable source of income when partnered with self-storage. The more services you offer, the more likely people are to rent with you. Managers should always be properly trained on how to sell the various products and services they offer. Educating customers without pushing the items on them is critical. Self-storage operators looking to differentiate themselves from competitors need to be ready to cast a wider net, looking for add-on products and services to appeal to consumers.
For investors looking for their next opportunity, this is a great time to enter the self-storage industry. As the pandemic is unfortunately forcing many people to downsize and restructure their homes and lives, there is often a need for self-storage. If you are thinking of joining the move toward a proven recession-resistant real estate investing industry, don’t wait.
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