Anyone thinking of joining the storage unit bandwagon?

Question

Are storage units the best asset class to invest in? Loved hearing more from Aj Osborne when he was on the BP podcast and have since noticed a tremendous amount of growth and development in storage units. Love the low maintenance aspect as well as the little hassle with tenants. Any thoughts on switching property tyoes to storage units or even adding them to your portfolio? Would love to hear any personal experience. 👏

Scott Meyers · Answer

Hey Emali!

Self Storage has indeed been good to me and my family. We use to invest in residential and then multi-family but made the switch about 15 years ago and never looked back.

Granted some folks would say that you ought to hedge your bets through several Asset Classes and there is certainly some validity to that, but I (and many others) are quite bullish on Self Storage, and it is what I solely focus on.

Self Storage is historically Recession-Resistant, so it does well in both good times & downturns.  In the end, we're in the transition & trauma business (death, divorce, downsizing, moving).

Plus, there are no toilets, tenants, or trash.  And the pricing model is similar to Apartments & such, but it has a lower expense ratio (~30-35% vs. ~50%).  And did I mention the reduction in headaches and heartache by not having tenants, toilets, or trash?

Please let me know if I can be of any help.

Good luck!

Scott

Lynnette E. · Answer

I got storage units by a fluke when they were on the lot of an apartment building I bought.  They do not have water or electricity, but what they do have does cost.  I had to redo the pavement because it was a crumbling mess.  For both the apartment and storage unit pavement areas it was $20k.  The storage unit needed a new roof, there went $10k.  Always need pest control and weed abatement as grass seeds blow into the cracks between the pavement and the cement building.  And water drainage will be $ someday.

So there is not really the unexpected, nickel and dime you to death maintenance, but what there is is high $.

What I do not like is that when people move out they selectively take what they want and leave the rest.  They have a small clean out fee they get back if they leave it clean, but it does not matter to them.  So, labor and dump fees add up.  Or you drive around to see if any thrift stores have capacity for the stuff, which is your time.

Another thing I do not like is because my building is small it does not pay to automate it, so I have to drive a hour to the building to take my lock off and show them the unit, sign the agreement, etc.  So its a two hour commitment for me and they seem to stay 2-3 months.  The $ seems to barely be worth it.

So I would suggest that if you are going to do this, go big, go with automation. And look carefully at the CAPEX -roofs, doors, lot, what will need to be done in the next few years.  If you don't have the money for the major expenses up front, you will be struggling to pay for them with the $50 or $90 that comes in for each unit.

Tanvir Sattar · Answer

@Scott Meyers great insight on your transition. How large was your first storage unit investment? How does financing differ compared to real estate investing?

Zach Quick · Answer

@Emali Taylor The wagon is full, sorry.

Clarence Stevens · Answer

I'm fairly new but have been listening to the podcast and storage does sound great to me as well. It's great to hear some of the downside and pitfalls of it as well. From what I gather it's best to run the numbers as if it's a commercial apartment extended flip. You can decide to keep it or not later. CAPEX is a major thing to look at when buying, because it can break any deal and/or your personal finances. That said you are looking for mismanaged, underutilized, or underapreciated property to find a deal in any real estate deal. From a purely analytical standpoint it has fewer downsides than its "real estate commercial cousin" apartment complexes. To add it also has more upside, because the rents being at a smaller price point when increased to a market rate will percentage wise give you a bigger boost increasing the total commercial value more. Also you get the advantage of dynamic pricing with storage units. Until you setup a system it may be more work but some things you self manage some you hire out for. From the outside looking in though it looks great.  I'm really interested to know if you end up going this route. I look forward to following your journey.

Jay Hinrichs · Answer

I owned one through the GFC and it was hugly negativily impacted by the economic conditions..  people just stop paying and abandon their junk  .. not saying that will happen going forward..  but it happened to us.. we had a 60 unit down off of Marine drive and catered to house boaters..  And my banker would tell me that too when i was looking at maybe doing a few more..  So depending on when and where it is to make a blanket statement that they are recession proof ( I like Scotts statement above Recession Resistant  thats much more accurate statement) .. I ended up putting mine into condos and selling them off.. I like that play.. especially for aircraft hangers which are big enough for Monster 1 to 3 million dollar RV's  and or nice turbo props or small jets.  But even those folks have problems..  and get their jet repod

Scott Meyers · Answer

Hey @Emali Taylor!

Sure, there's always Pros & Cons, unintended consequences, tradeoffs, etc.

Investing, like a job, can be summed up this way: you have to do what makes the most sense for you and your family and causes the least amount of headache & heartache.

Certainly, there are some "do-overs" I'd like to have and/or things I wish perhaps we'd done different, but all of that is water under the bridge now. So over the long haul - no regrets.  For me, the juice has indeed been worth the squeeze.

I like my life (specifically the work/life balance), I like my family, and I love Self Storage.  (Not necessarily in that order though.)

Please let me know if I can be of any help.

Scott

Emali Taylor · Answer

@Paul Shannon I would say it depends on your location and the demand in your area, but I can’t say I don’t agree with you!

Emali Taylor · Answer

@Scott Meyers I would absolutely say that the less hustle is what is so attractive to me about self storage. Would you say there have been any drawbacks since making the switch? Prior to your switch you mentioned you did more residential, we are currently focused on multi-family but I can’t say I love the heavy amount of small expenses and communication with tenants. 😆

Bill F. · Answer

@Emali Taylor

SS has had some awesome returns and is a great niche, but it straddles that line between being a RE investment and being a business that has a large RE component.

Kinda like hotels. Sure they rely on RE for a lot of their returns, but it is necessary, but not sufficient for success. That adds the wrinkle of having to operate the business.

Anyone thinking of joining the storage unit bandwagon?

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