Are you looking to get into real estate investment but aren’t sure where to start? Self-storage investing is a great entry point into real estate, and below are the top six reasons why.
#1 High Occupancy and Low Vacancy Rates
One of the great things about using self storage as investment is that, past the initial start-up period, you most likely won’t see vacancy rates exceeding 5 to 10%. Occupancy rates are a great indicator of any rental business’ success, and they’re also an indicator of the health of the industry as a whole. On average, the national occupancy rate for self-storage facilities was 91.7%. This marks an increase of nearly 16% since 2010 according to Neighbor.com. If you advertise your storage units well and maintain them to keep your business competitive in the market, you most likely will have high occupancy and low vacancy rates.
#2 Recession Resistance
Recessions are inevitable. When starting up any new business, it’s a good idea to analyze whether it could withstand a housing correction or recession.
Self-storage is relatively recession resistant. It’s even possible that self-storage demand could actually increase during a recession since people may be more likely to downsize and need more places to store their belongings for long periods of time.
Also, recessions often motivate people to make life changes. For example, people may choose to start a new career path, move, or get a divorce, and these changes lead to short transition periods during which people need places to store their stuff. Self-storage is a great way to corner this market, and it’s why this investment usually stays relatively stable during a recession.
#3 Lower Start-Up Costs
When you’re just starting out as a new business owner, start-up costs can seem daunting. With real estate, you usually need a hefty amount of money at the start to fund your initial investments. However, with self-storage units, a massive amount of capital may not be necessary.
You have two options as a self-storage owner: you can build a self-storage facility or buy an existing one.
If you are building a self storage unit, construction costs are comparatively lower than buying or constructing a single or multifamily complex. Construction costs will vary, though, depending on what kind of amenities you plan on offering as well as how much square footage and the number of stories your facility will have.
If you want to buy an existing self-storage facility, the investment will be anywhere from $1 to $10 million. However, the average cost to start a self-storage business is around $2 million.
#4 High Return on Investment
The self-storage industry has an annual revenue of over $36 billion. Self storage investment opportunities are extremely lucrative, seeing as the average profit margin is 41%, which is almost twice the average for other industries. You have relatively low expenses and increased demand, leading to a high ROI (return on investment). You can keep a good amount of your revenue without having to pour it back into the business.
#5 Low Maintenance
Other property types like single-family homes and apartment complexes require a lot of upkeep. There’s electricity, plumbing, and maintenance costs to account for, not to mention the time associated with managing tenants. With a self-storage facility, your tenants will rarely need your assistance after they sign the lease. Also, self-storage units rarely require electricity or plumbing.
Depending on what features you offer, you’ll need to conduct periodic maintenance check-ins for utilities like climate control. However, besides that, self-storage units are relatively stress-free compared to other property types.
#6 Straightforward Rental Agreements
Building on the point above about low management requirements, it’s important to note that storage leases are typically extremely straightforward and simple. Residential leases require pet policies, utility billing, and other components, but self-storage unit leases tend to be straight to the point.
As is true with any business, there are pros and cons to self-storage investing, so make sure you do your own research to figure out if this opportunity is right for you. It can be extremely lucrative, but also requires commitment and dedication.