Self-storage has been among the most steadily growing U.S. industries for more than 40 years, and its expansion is predicted to continue through the remainder of this decade. Like other business investments, a storage facility can provide an income stream, employment independence, equity and appreciation, and tax benefits. However, before you embark on buying or building a property, it's important to dissect and dismiss common myths that woefully mislead many prospective investors in their decision to invest in the business.
A self-storage acquisition comes with many operational responsibilities. To successfully compete in a growing industry, they must be properly managed. Some of these obligations include:
In more traditional real estate, size is a huge factor in how profit is made. In self-storage, property valuation, cash flow, operating revenue and occupancy are the primary factors in pricing a facility for sale. Larger numbers of units and square footage can add value, but high occupancy
Whether a property is in a thriving urban area or a slow-paced rural market, self-storage has been popping up everywhere you look. This has resulted in a common misconception that facility location isn’t important. The truth is location is one of the most important factors to success. As an owner or prospective buyer, you should be aware of the following:
Self-storage carried relatively lower investment risk during the industry’s early days than it does in many markets today. The industry has become much more competitive through growth. Incoming owners and investors need to enter flourishing markets with greater care.
Determining whether a new development or acquisition will be a sound investment requires multiple analyses. These should include a thorough examination of the storage-rental market and competition, a feasibility study, and a broader regional and national, short- and long-term economic outlook.
At this point in the industry’s evolution, some markets are overbuilt or soon will be. These pose high risk in terms of initial lease-up and low average occupancy over time. These indicators also point toward predictably low return when the property is eventually resold.
Self-storage businesses do have a comparatively low default rate among leveraged real estate purchases. However, due to inadequate planning, many owners who don’t default on loans often find themselves struggling to meet financial obligations.
New owners who don’t anticipate having time to invest in the business or who lack applicable business-management skills should take caution. Otherwise, they may unintentionally take on many more routine operational responsibilities than expected and experience buyer's remorse.
Modern self-storage projects must meet consumer demands for security, safety, convenience, service quality and competitive pricing. These requirements make a contemporary, high-quality property a larger investment than in the past. There are many factors that go into valuing a facility including:
If you’re looking to invest in a self-storage development or acquisition, being aware of these misconceptions can help you avoid costly mistakes.