The Third Rule of Thumb and Determining Demand!

The last thing that you want to do is buy a property in an oversaturated market. If a market has more supply than the current area can handle, every self-storage facility is going to have lower occupancy rates. If they don’t have lower occupancy rates, then they have lower rental rates. You don’t want to be the self-storage facility that is dragging the market down.

You always want to evaluate the competition and the market before you close on a self-storage property. You need to know if the occupancy levels are a result of the market or bad management. If you are in an area that is oversaturated, you do not want to build or convert a property and add to the problem.

In a typical market, only 10% of the population uses self-storage. This means that once that 10% has rented out self-storage units, there isn’t anyone left to rent to. One of the things that you are going to evaluate during your due diligence period is whether or not you are in an oversaturated market or an undersupplied market. This is a lot easier to do than it may sound. However, it does take some time and patience to figure it out on your own.

The first step is to determine what the demand for self-storage is. You are going to start by finding out how many people live within 3 miles of your self-storage facility. Most people rent within 3 miles of their home. If you are in a rural area, you may be able to push that out a little further and if you are in an urban area, you may need to shrink it down to as small as a few blocks. You also don’t want to cross any major borders. If you are on the border between two cities, most people won’t cross into another city to store.

Now that you know how many people live in that area, you can take 10% of that number. This will give you the number of rentals that are needed in that three mile radius. Next you need to see how many other self-storage facilities are in those three miles.

Are any of those facilities closer to the rental population than you are? If so, you are out located. They will fill up before you do. There is no reason for someone to drive past a self-storage facility to get to yours. What condition are those other properties in compared to the one you are thinking of buying? If they are in better condition or easier to access, then you will have a hard time competing. What are the other self-storage properties current occupancy levels? What are their current rates? Are their rates lower than what you need to make a profit?

Find out how many units each of these self-storage facilities has. You can guestimate by going on the county records or the tax assessor’s office to see how many they have. Now that you have an estimate of available units, you need to compare that to the number of units that are needed. How do those numbers compare? Is there enough supply to meet the demand? If not, then you should probably continue with your due diligence.

If the supply has been met or if the market is oversaturated, then you may want to look for a project in a different location. You cannot create business. People either need storage or they don’t. No amount of advertising is going to change that. Make sure that you research your competition and your demand so that you know if there is a need for more self-storage. As always, happy investing.