​Self-Storage Facilities: A Place to Store Your Money

My background is mostly flipping single family houses and cash-flowing multi-families. This is a good place to start, and in getting into real estate, this is probably the most common path. As you progress and dive in more, you start to realize “real estate investor” is a pretty general term. There are exactly 2,421 ways to be a real estate investor.

Self-education is one of my biggest beliefs, and a great way to do this is conventions. I went to a real estate expo and listened to a speaker talk about self-storage facilities. “No toilets or tenants”, he preached. I cheered loudly, bought an expensive book on it (definitely worth the money), and immediately booked a convention is Las Vegas. I had a new thing to keep me up at night!

When you drive by self-storage units, you might not even take notice of it. It is a commercial property with rows of garage doors (a typical one is 10’x10’) that allows people to throw their spare stuff in it. People rent these 100 sf units out month-to-month and generally for a good chunk of change.

Self-Storage is a hot industry right now. What is lacks in long, sexy legs and flowing blonde hair, it makes up for in brains and bucks (aka much less sexy than apartment buildings).

1. 1. No tenants. Residential and multi-families are often most fun on paper. You account for your vacancy; you account for maintenance. However, this is, for the most part, just a somewhat educated guess. Tenants are a variable. Self-storage removed a variable from the equation. What was Algebra 2 just became Algebra 1.
2. 2. Great Returns. You can often get your dreamed about 10% caps in this industry. Different markets and areas have different caps in which the self-storages operated and are valued at.
3. 3. Less Vacancy Risk. If you own a single-family, and the family living there happens to move out, you have no income coming in. That is what hurts on SFH deals. However, if one (or even 10) renters move out of a storage facility, it is generally something you can absorb.
4. 4. Easier Lending. Almost 10% of multi-family loans are over 30 days delinquent. Something happened, whether it be a leaked in a unit that ran into other units (another pro: no plumbing!) or an unexpected bill for four A/C units that suddenly stopped working. However, less 1% of self-storage loans are delinquent. Banks want these loans! It is even possible to put down 10% with an SBA loan - forget that 25% down lenders are asking you to do for investment properties.
5. 5. It’s a business. With residential properties, you are at the mercy of the market. I currently live in a house. There is a pretty limited number of things I can do to add value to it (cleaning my bedroom would be the first). Your profits are your revenue (rent) minus your expenses. In self-storage, you can add value to your investment/business by increasing your revenue and decrease your expenses. On the residential side, you can really just increase rent. You also can add additional revenue generators: U-Haul trucks, selling locks, selling renter’s insurance, or storing boats or RVs in that area in the back of your lot that you haven’t developed yet.

One thing I picked up on during this convention is that hedge funds and big money investors have moved in. They are buying up facilities and driving down cap rates. However, there are still many opportunities to be part of this industry. If you are interested in Self-Storage investing, there are a number of forums on Bigger Pockets. Also, if you do some research, there is a lot of information online for your picking.