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Five Vital Things to Know about Investing in Self-Storage Facilities

Five Vital Things to Know about Investing in Self-Storage Facilities

The best three things about investing in self-storage facilities over rental homes: no tenants, no toilets, and no trash! Plus you can expect to double your money in 3-5 years. You only need about 35% occupancy to break even; even with debt, less than 70% will balance out the books. Breaking self-storage facility investment can be a little trickier than other investment properties. But if you know what to do, it’s very worth the effort. Below we share a list of five vital things to know about investing in self-storage facilities.

1. Importance of Location

When you look for rental homes to buy, you search neighborhoods that have steady job and population growth. You’ll want to do the same when searching for a prime self-storage facility location.
We like neighborhoods where median household incomes begin at $40k or higher that allow for some discretionary spending. The site should sit along a main thoroughfare, preferably at an intersection that gets plenty of cars going by daily. Having a quality facility in a good area will also allow for future growth by raising rents. 

2. Know Market Consumer Habits

Self-storage unit customers fall into several fragmented groups. Each group has variations from the averages, but will be much lower than rental home leases. Expecting higher turnover will help an owner better plan. 

A. Residential

Ironically, these customers usually have driveways, basements, attics, and garages. Frequently there is some transitory reason such as cleaning out estates, temporary downsizing during moves, etc. that they need storage. Average stay time is around 13 months. 

B. Commercial

Commercial customers usually rent more than one unit to store materials at one location before transporting through their supply chains. Typical stay times hover around 2-4 months and businesses will pre-pay the full amount in advance.

C. Students

Students going home on break will frequently store their belongings near campus. It’s often cheaper and easier than shipping their stuff home (or buying new each year). They will rent a space for up to 4 months while out of town over the summer or during internships.

D. Military Personnel

This consumer category needs sites close to naval bases or military installations where they can rent quickly. Often they only have 1-2 weeks notice before deployment to get their affairs in order. Military personnel will typically rent a unit for 4-6 months, sometimes longer, during their deployment.

3. Control for Risk Factors

Because of the ease and lucrative nature of self-storage investing, you’ll rarely find motivated, distressed sellers. Even when neglected they run reasonably well. But no investment comes without risk factors. You can easily mitigate the risk factor associated with self-storage investment through a few small adjustments on the front end.

A. Market Oversaturation

In primary locations like large cities, the larger operators will already have the supply index sewn up tight. As a new investor, look for secondary and tertiary locations in smaller towns or rural communities instead. Then find sites 1-5 miles from your target markets. 

B. Construction Costs

Especially recently, if you plan to build a new facility, the ballooning costs of construction materials will impact your profits. Instead of trying to minimize costs, go all in with Class A sites as close to residential areas as possible. These well-lit, super secure areas will also do well in light industrial or business districts, too. The quality fetches higher rent per square foot that will help you to recoup construction costs faster.

C. Lack of Oversight

The number one reason self-storage facilities fail is from lack of oversight. Dropboxes for payments get stolen and hired managers for manual payments get sticky fingers. To circumvent these issues, upgrade to automatic, electronic payment systems that cut out cash and middleman risks. 

4. Upgrade

After location, the second biggest determiner of profits is quality. If you purchase an existing facility, look to install or upgrade existing lighting, security and climate controls. Offer outdoor sections for parking RVs and boats where possible. You can also add additional amenities like vending machines, packing materials, lockboxes, renter’s insurance, ATMs, and billboard space. 

5. Befriend the Tax Man

Property taxes account for one of the biggest operating expenses for a self-storage facility. Finding experienced tax professionals that understand Chicagoland tax can help you with purchasing and tax reappraisals to maximize your profits. 

Many municipalities have no idea what tax rate to charge a self-storage site. Self-storage units don’t require the same drain on municipal resources as say industrial parks. For example, they don’t create wear and tear on roads. So it behooves you to make nice with the most seasoned local tax assessors and educate them. 

When starting out investing in self-storage units, don’t try to reinvent the wheel. We always recommend finding a mentor in the business and learning from them. 

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