Suppose you seek an alternative real estate investment to provide you with a predictable and stable income stream, low operating costs, and minimal maintenance, you’ll like the self-storage business.
Photo by form PxHere
The self-storage investment returns per square foot you’ll get on each storage unit is similar to earnings in multi-family investments. However, you don’t have to invest too much time learning how to operate the business as it’s effortless to run.
Investing in self-storage isn’t for only the well-connected and wealthy. You can key into this fast-rising commercial real estate sector without having millions of dollars. However, you’ve got to conduct proper research before investing so you can make an informed decision.
We’ve compiled these tips to help you find the best self-storage investment opportunities if you’re a first-time investor. You can also check this great resource about storage investment to learn more.
Ways to Invest in Self-Storage
There are several ways to invest in self-storage, and one of them is through a real estate investment trust (REIT). REITs are shares in public companies that trade self-storage trusts.
You can also enter the market as an independent investor. However, you’ve got to be aware of the self-storage investment risks before buying a facility.
The way you handle the direct management of the self-storage facility is up to you. Some owners like to personally run the business, while others prefer hiring a management firm.
Finding a Self Storage Investment Facility
You can utilize the services of a commercial real estate agent to find a facility that suits your criteria when trying to invest in self-storage. Additionally, you can use online resources to browse through available properties.
Consider having a detailed business plan that incorporates your ideal price range, property size and age limit, physical location, amongst others. Most investors only prefer properties close to their geographic location.
If you’d rather be a passive investor in the self-storage business, then location doesn’t matter. However, if you want to be an active investor, you’ll need to carefully choose a site that you can effortlessly supervise and handle.
The following tips will help you make the right choice when finding self-storage investment opportunities.
- Check Economic Occupancy
Self-storage properties, unlike other property types, have a clear distinction between economic occupancy and physical occupancy. The economic occupancy of the facility might be 60 percent of the potential income while the physical occupancy is 85 percent, especially if the investor gives massive discounts on rents.
This distinction can affect loan underwriting.
- Examine the Trade Area
While the location is crucial when shopping for a self-storage facility for sale, you can make money even in an oversupplied market once you buy your storage space at a great price.
- Analyze Cash Flow
Ensure your investment decision is driven by cash flow. Analyze the facility’s last three years’ cash flow and compare it with the present rent roll. Check to see whether there’s a pattern. Is income declining? If yes, why? Is cash flow increasing or decreasing?
The answer to these questions will alert you to be more cautious or to continue. If there has been a constant increase in cash flow, you need to apply pressure on your pricing.
- Study Your Competition
Purchasing a property in a small operator-dominated market is different from finding a storage space where you’ll have to compete against dominant players and deep-pocket REITs.
You’ve also got to consider market changes while operating the self-storage facility. What players have entered or exited the market? Are there any acquisition trends? What can you learn from them?
- Understand Your Financing Options
Before venturing into the self-storage business, you’ve got to understand your financing options. Ensure your financing package aligns with your asset acquisition strategy.
The debt package you utilized in buying the facility can push you into a competitive disadvantage or competitive advantage.
It’s best to have a self-storage investment fund before opting for a loan to complete the purchase.
- Get Professional Help
It’d be best to hire a professional self-storage consultant or broker to help you get the best deals. They know how to navigate the market and source for properties that suit your preference.
Seeing as it’s your first time investing in self-storage, you wouldn’t want to make costly mistakes. A self-storage broker will guide you along the right path and even suggest property inspection to check if there are damages in the building.
Through property inspection, you can pinpoint repair and maintenance issues and find ways to handle them with the seller.
- Do Some Networking
Consider attending some industry trade shows to network and gain valuable insights on investing in self-storage.
At these gatherings, you’ll meet several industry stakeholders and experienced investors and learn more about this fast-growing commercial real estate sector.
- Don’t Underestimate the Industry
Before you only need a proper business name, location, and a website to display available storage spaces in your facility to run your self-storage business smoothly.
Presently, most storage facility owners have increased their marketing game by introducing sophisticated advertising spending and using the Google algorithm to monitor their websites. Therefore, you’ll need to establish a mobile presence to gain more potential clients.
Don’t underestimate the self-storage industry. While you need to have strong management skills, as a new investor, boosting performance will be challenging if you don’t employ those tactics your competitors are using.
- Check Real Estate Taxes
Suppose the current assessment of any facility you want to buy is one million dollars, and you intend to buy it for three million dollars. In that case, you’ll be right to believe that the tax assessor will increase the property value. While tax scenarios are based on state laws, a higher sale price than the assessed value will increase the tax bill.
So consider checking the real estate property tax since it significantly affects its net operating income (NOI) calculation.
Self-storage is an investment that offers stable cash flow and property appreciation while being uniquely recession-resistant.
As a rapidly growing commercial real estate sector, there are vast opportunities for new investors like you.
You’ll find the tips mentioned above quite valuable as a new investor trying to dip your foot into this highly profitable venture.
To learn more about which self-storage investment opportunities are best for you and how to own your first self-storage facility, check the Passive Storage Investment website.