Is Self-Storage a Recession Proof Investment?

[Faith Hill]

For those who have investments in self-storage or other real estate categories touted as "recession proof," how are your investments performing right now?

One of the things that attracted my husband and I to invest in self-storage was that it was claimed to be recession proof with very low default rates.  Since March, I had been nervously watching the occupancy rates and percentage of late contracts of our self-storage facility anticipating some dramatic change due to the economy and coronavirus shutdowns.  Speed up to 3 months later and we are stable and in fact have the highest occupancy we've had since owning the property.  We also are seeing a low number of late contracts, and our one mobile home tenant has been keeping up with rent payments no problem.  We are grateful that the facility is still performing well but know that we may not be out of the woods yet as you hear reports of possible future waves of shutdowns, continued high unemployment, defaults, etc.  Still cautiously optimistic though.

Faith Hill

[Will Fraser]

Hi @Faith Hill;  Welcome to the BiggerPockets forums!  Way to go picking up and operating a self-storage facility!

There are two things I want to assert here that are on display now:

1. Each economic situation is different.  I say situation because we do not know if this is a recession, and so far we're not seeing indicators that it will be (contrary to what March led us to believe).  MANY sectors of RE investments have been unaffected (by a numerical "rents received" standpoint) and other have improved (because people are both flush with gov money AND scared, leading to some downsizing, locking up of rent contracts at lower prices, not wanting to have the extra cost of moving, etc).
2. There is no such thing as recession proof.  This is true because there is no single possible cause of an economic downturn.  There are systemic failure downturns (like 2008), there are force majeure downturns (like this), there are international trade dispute downturns, natural disaster downturns, Zombie Apocalypse downturns, and the list goes on.  Since there is not a monolithic cause, there cannot truly be a form of investing that perfectly hedges against each.

That said, what I like about self-storage and B&C class multifamily is that they can perform in a stable market cycle but they also can profit on a down cycle because of what happens to consumer mentality in a pinch.  When the sky is falling, you're less likely to rent that A or B class apartment that was a stretch.  You're also less likely to lease that 3rd bedroom, or you realize that your mortgage payment on your 4 bed is bonkers now that the kids have moved out and, presto blamo, enter the need fo additional storage.