The Size of Your Market Matters!!!

When you are evaluating the size of your market for your self-storage facility, you are typically looking at a 5 mile radius. We are not painting broad strokes on an entire city. We are looking at micro markets. You only have to dominate 5 square miles for your facility to be successful. You need to know what the supply index is for that area, so you know if you even want to move forward.

The first thing that you need to evaluate when you are entering a new 5 mile area is the number of self-storage facilities in that area. You can use Google Earth to determine how many other facilities you will be competing against. Then once you know how many facilities are in that area, you can determine the population to see if the market is at equilibrium. If the market is oversaturated, this is probably not the best market for you to enter. There is probably not a large upside potential. You won’t be able to increase your occupancy rates due to lack of demand. You won’t be able to increase your rates based on a lot of competition. However, if the market is undersaturated, you will be able to do both of those things which will improve your bottom line.

Every market that you enter is going to be different than the last market, but your systems and steps are going to be the same. The first thing that you want to do is look at that micro market. What is the supply index? Is there an upside potential? What is your exit strategy? If something goes wrong with your investment, will you be able to pull out tomorrow without losing money?

You really want to focus on the opportunities that you are finding. This way you can look at the opportunity that has presented itself and evaluate its micro market to determine if this is worth spending any more of your time and effort on.

If you want to know if something is a good opportunity, here are a few things that you should consider. What is the property worth today? If you don’t know how to determine that, then you need to get a mentor and a great power team. They can teach you how to determine value. Next, you need to know what the property will be worth after you have done your renovations. However, if you have to back out of a deal immediately, you either need to have purchased it at a price that will allow you to sell without losing money or you need to be able to pivot. Can you do something else with the property?

Make sure that you are evaluating your market. You don’t want to get caught as a market is cycling. Every market goes through periods of growth, down periods, or stabilization periods and then the normal everyday market. You don’t want to buy at the end of a growth period before prices drop as the market stabilizes. If you are not paying attention to what is happening in the market, you won’t know when that might happen.

You need to be following market trends. Typically, when there is a recession, self-storage does very well. People are struggling, they are being laid off and so they are downsizing. There isn’t as much development because banks tighten up lending requirements and raise interest rates. People turn to self-storage during these periods. This means that occupancy rates go up. This means that rates go up and so does your bottom line. This means that your facilities’ net operating income increases and so does your value. This creates more upside potential for your property.

Watch your market. Watch what is happening to the industry as a whole so that you can predict market changes. Don’t assume that one self-storage facility is going to have the same type of market as another. Every facility in every part of every city is going to be different. As you move across states, the changes will be even bigger. You want to make sure that you are doing your due diligence so that you can make the right adjustments to keep your facility performing at its best. As always, happy investing.