The Third Rule of Thumb and How Demographics are Part of Due Diligence

Before you can make an offer on a property, you need to remember, location, location, location. You hear that in every story, ad, or reality TV show. The reason that you hear it is because it is true. You need to make sure that you are in the right location. The only way to know if you are in a good location is to do your due diligence. You can have the most perfect self-storage facility, but if you put it in the wrong location, it won’t be as successful or as profitable as you projected.

One of the key factors in determining whether or not this is a good location is evaluating the demographics of the surrounding area. What is the median household income? Do they have the income to be able to afford self-storage or are they barely putting food on the table? You can find out what the median income is by doing a simple internet search. You want to make sure that the median income is at least an average of $45,000. If you go into significantly higher income ranges, then they might be living in larger homes that don’t need extra storage. If you go much lower, they can’t afford self-storage. Try to find the sweet spot for income in your area. If you live in a significantly more expensive area, then your median household income might be significantly higher. Look at what the average household income is for your area and then make sure that the area you are looking at is at least that high.

You also want to find an area that has the right mix of rentals and owner occupied properties. You want areas that have more owner occupied properties, preferably around 75%. If you live in an area where everyone rents, then you want to look at single family homes. Try to find properties that are not mainly young single adults. Most young single adults haven’t had time to acquire a lot of belongings that they need to store.

Finding the right balance of demographics can be an art. This is another reason why you want to have a feasibility study done on your property. You want to do the groundwork to make sure that the property doesn’t have a bunch of red flags right off the bat and then let a third party come in and evaluate the property to make sure you aren’t missing something.

Demographics can make or break a property. Look into the demographics around your property before you purchase it. There are so many moving parts when you are buying, converting, or building self-storage. This is why having a due diligence period is so important and negotiating the right price and terms is so crucial. As always, happy investing.