Buying, holding, selling real estate is risky, but has a high reward for those that do it right and get a little lucky. Investing in self-storage is a newer niche in the industry, coming into existence in the mid 20th century. The concept is simple though, you buy and/or develop land that has simple storage units on it. People pay you a monthly fee to use the storage units.
Self-storage investing can be an attractive option for investors looking for a reliable and potentially profitable investment. However, as with any investment, there are pros and cons to consider before making a decision.
Pros:
- Steady Income: One of the biggest advantages of self-storage investing is the steady stream of income it can generate. Self-storage facilities typically offer long-term contracts with tenants, which means that you can rely on a regular stream of income each month.
- Low Overhead Costs: Self-storage facilities generally have low overhead costs, making it an attractive option for investors. With minimal staffing and maintenance requirements, it is possible to operate a self-storage facility with a relatively small team.
- High Demand: The demand for self-storage is growing, driven by a range of factors such as urbanization, downsizing, and the rise of e-commerce. This means that there is a ready market for self-storage units, which can make it easier to attract and retain tenants.
- Potential for High Returns: Self-storage investing can offer high returns, particularly in areas with high demand and low supply. In some cases, investors can achieve returns of 10% or more.
Cons:
- Capital Intensive: Building or purchasing a self-storage facility can require a significant upfront investment, which may be a barrier for some investors.
- Market Saturation: In some areas, the market for self-storage may be oversaturated, leading to increased competition and lower rents. This can impact the potential returns on investment.
- Regulatory Compliance: Self-storage facilities are subject to a range of regulations, including zoning laws, building codes, and safety standards. Compliance can be time-consuming and costly.
- Economic Factors: Self-storage investing can be impacted by economic factors, such as interest rates, which can impact the cost of borrowing and the potential returns on investment.
Overall, self-storage investing can offer a range of advantages, including steady income and high returns. However, it is important to carefully consider the potential risks and drawbacks, including market saturation and regulatory compliance requirements, before making a decision.
Also, check out this multi-family real estate underwriting template.
What's Better, Self-Storage Operator or an LP Investor in the Space?
Deciding whether to become a self-storage operator or a limited partner (LP) investor depends on your personal goals, experience, and investment strategy. Here are some factors to consider when deciding which role may be a better fit for you:
Self-Storage Operator:
- Active Involvement: As an operator, you will be actively involved in the day-to-day operations of the self-storage facility. This may include tasks such as marketing, maintenance, and customer service.
- Control: As an operator, you have greater control over the operation of the facility, including decisions related to capital expenditures, pricing, and marketing.
- Potential for Greater Returns: As an operator, you may have the potential to earn greater returns on your investment, particularly if you are able to successfully manage the facility and increase its revenue.
- Experience and Skills: Becoming a self-storage operator requires experience and skills in areas such as real estate development, finance, and management.
LP Investor:
- Passive Investment: As an LP investor, you will be a passive investor, providing capital to the self-storage operator in exchange for a share of the profits.
- Limited Liability: As an LP investor, you have limited liability, meaning that your financial risk is limited to the amount of your investment.
- Diversification: As an LP investor, you can diversify your investment portfolio by investing in multiple self-storage facilities, reducing your risk.
- No Operational Responsibilities: As an LP investor, you will not be responsible for the day-to-day operations of the self-storage facility.
In summary, if you have experience in real estate development and management and enjoy being actively involved in the operations of a business, becoming a self-storage operator may be the better fit for you. On the other hand, if you prefer a passive investment role, have limited experience in real estate development, or want to diversify your investment portfolio, becoming an LP investor may be a better option. Ultimately, both roles have their advantages and disadvantages, and it is important to carefully consider your personal goals and investment strategy before making a decision.
How Do You Build a Self-Storage Rent Roll?
A self-storage rent roll is a document that lists all the units within a self-storage facility and provides information on each unit's occupancy status, rent amount, and other relevant details. A typical self-storage rent roll includes the following information:
Also see this free general rent roll template.
- Unit Number: The unit number is a unique identifier for each self-storage unit. There may also be multiple unit types with different pricing.
- Tenant Name: The rent roll lists the name of the tenant occupying the unit.
- Move-In Date: The move-in date is the date on which the tenant first started renting the unit.
- Lease Expiration Date: The lease expiration date is the date on which the current lease agreement for the unit is set to expire.
- Monthly Rent Amount: The monthly rent amount is the amount of rent charged to the tenant each month for the unit.
- Late Fees: The rent roll may also include information on any late fees or penalties that may be charged if the tenant fails to make their rent payment on time.
- Payment Due Date: The payment due date is the date by which the tenant is required to make their monthly rent payment.
- Payment History: The rent roll may also include a payment history section that tracks the tenant's payment history for the unit, including the dates and amounts of payments made.
- Unit Status: The unit status indicates whether the unit is currently occupied, vacant, or undergoing maintenance.
- Unit Size: The rent roll may also include information on the size of the unit, typically measured in square feet.
- Other Notes: The rent roll may include other notes or comments related to the unit or tenant, such as any outstanding maintenance issues or special instructions for accessing the unit.
Overall, the rent roll is an important document for managing the operations of a self-storage facility, as it provides critical information on each unit and helps to ensure that rent payments are received in a timely manner.
History of Self-Storage
The self-storage real estate industry, also known as the mini-storage industry, has a relatively short history, dating back to the mid-20th century. Here are some key milestones in the history of the self-storage industry:
Emergence of the Modern Self-Storage Industry: In the 1960s, the modern self-storage industry began to emerge, with the opening of the first storage facility in Texas. This facility, called "A-1 U-Store-It U-Lock-It U-Carry the Key," was a converted chicken coop with 50 units.
Growth in the 1970s: In the 1970s, the self-storage industry continued to grow, with new facilities opening up across the United States. This growth was fueled by a number of factors, including the increasing mobility of the population and the growing need for temporary storage during relocations.
Expansion in the 1980s and 1990s: In the 1980s and 1990s, the self-storage industry continued to expand, with a focus on larger facilities and more amenities, such as climate control and security features. This expansion was driven by the increasing demand for storage and the recognition of self-storage as a legitimate real estate investment.
Consolidation in the 2000s: In the 2000s, the self-storage industry saw a wave of consolidation, with larger companies acquiring smaller operators and building portfolios of properties across the country. This consolidation has continued into the present day, with the top 10 self-storage companies accounting for a large share of the market.
Digital Transformation in the 2010s: In the 2010s, the self-storage industry began to undergo a digital transformation, with the rise of online platforms for booking and managing storage units. This has made it easier for consumers to find and rent storage units, and has also provided operators with new tools for managing their businesses.
Today, the self-storage industry is a mature and well-established real estate sector, with over 50,000 facilities and more than 2.5 billion square feet of rentable space in the United States alone. The industry continues to evolve, with new technologies and trends shaping the way that self-storage is developed, marketed, and operated.
Article found in Real Estate.
