If you ask most real estate investors, they’ll likely admit to using self-storage properties. But, there’s a good chance these people have never given a thought to investing in these same properties.

In the following article, we’ll outline five tremendous benefits of investing in self-storage properties, an outstanding - though often overlooked - real estate strategy.

Characteristics of a High-quality Self-storage Property

As with any commercial properties, certain key characteristics set storage properties aside as high-quality (a.k.a. “Class A” or investment-grade). While each market will be different, these are universally desired traits:

● Located in a major metropolitan area

● Solid exposure and access to major roads or highways

● Well-made construction (brick, block, or tilt-up) with asphalt or concrete lots surrounding the property

● New, well-maintained, and clean-looking building with minimal deferred maintenance

● Strong local market fundamentals

● Occupancy of 90 percent or higher

● Industry-leading amenities: alarms, electronic gates, exterior lighting, video surveillance

● On-site managers

Benefit 1: Counter-cyclical Demand

As the broader economy enters into a recessionary period, the self-storage industry tends to boom. Including these properties in your overall portfolio provides a hedge against market-wide risk.

Two particular characteristics of a recessionary period tend to increase demand for storage units:

● The back-to-school effect: Typically, college enrollment increases during recessions, as more people go back to school to increase their job prospects. When this happens, people leave all of their stuff and storage units often become the preferred temporary solutions.

● The downsizing effect: Recessionary periods also often lead to downsizing. People move from a larger house to a smaller one or apartment to reduce their monthly housing expenses. Rather than throw things away, these people store furnishings instead that don’t fit into their new, smaller homes, leading to another boost in storage unit demand.

Benefit 2: Limited Price Sensitivity

Self-storage property owners are notoriously tight-lipped about their pricing strategies, which makes it difficult to achieve market-wide price equilibrium.

Additionally, while people seem to have no qualms about discussing what they pay for an apartment or mortgage, most self-storage users don’t spend a bunch of time talking about how much they pay in storage rent (likely due to the often negative life situation associated with the need to store goods).

Both of these realities - limited market transparency and interpersonal discussion of rents - make storage-unit rents far-less price sensitive than their residential peers. In other words, self-storage owners have far more flexibility in increasing rents before their tenants say “enough is enough.”

Drop us a note for help with commercial real estate market rent analytics and pricing strategies.

Benefit 3: Realities of Financial Hardship, Divorce, and Death

This benefit somewhat relates to the above counter-cyclical nature of the self-storage industry.

While it may be macabre to discuss, investors need to understand how three of life’s unfortunate events drive demand for self-storage units:

● Financial hardship: As discussed above, financial hardship is an unfortunate fact of life, and when it rears its ugly head, people tend to downsize, driving up demand for storage units.

● Divorce: Inextricably linked with financial hardship, divorce typically means that, where two people had split one house, now one (or both) of these people needs to find a smaller home. Both during the separation process prior to a divorce and post-divorce, people need to figure out what to do with all of the furnishings that fit comfortably into their marital home but not the new one(s).

● Death: Anyone who’s dealt with the untimely death of a relative understands how much stuff really fits into a house. While some goods may be sold in estate sales, frequently we hold an emotional attachment to a deceased loved one’s goods, choosing storage over sale.

Benefit 4: Portfolio Growth Opportunities

As institutional investors have begun moving into the single-family home rental market, squeezing some “mom and pop” investors, it’s worth discussing whether there’s an opportunity for smaller investors to scale their portfolios in the self-storage market.

The following data from the Self Storage Association (SSA) provide keen insight into the portfolio-scaling potential of this market:

● Top 5 storage companies: control 11.5% of the US market

● Next 150 private companies: own or operate 10 or more properties

● Next 4,000 private companies: own 2 to 9 properties

● Remaining 27,000 private companies: own just 1 property

Even ignoring markets in need of new self-storage facilities, these 27,000 existing single-property landlords show that a clear acquisition path exists for self-storage investors looking to scale their portfolios!

Need recommendations on how to effectively scale your commercial real estate portfolio? Drop us a note!

Benefit 5: Tenant Inertia

This is the out-of-sight, out-of-mind phenomenon. If you’ve ever moved your own (or, more likely, helped friends or family move their) excess stuff into a storage unit, you know how much of a pain it can be.

And, when the monthly payments for these units are set up on auto-pay with your credit card, it’s pretty easy to A) ignore, or B) forget about the fact that you have a bunch of your possessions locked up in a self-storage unit.

These realities of human nature, while not analytical metrics, per se, drive demand for storage units. In essence, once people move into a storage unit, human nature makes it very challenging to move out of that same unit.

Considerations

Despite the above benefits, investors should also consider the following key considerations prior to investing in self-storage properties.

● Seasonal fluctuations: In general, people move less in the cold, wintery months and more in the warmer months. As such, self-storage owners will typically see far fewer new tenants in Q1 and Q4 relative to Q2 and Q3 (though this may not be as large of a consideration for warmer year-round markets).

● Threat of oversupply: As with any real estate niche, the threat of market oversupply must be considered by new self-storage investors. Basic economics states that if supply goes up and demand remains constant (or increases at a slower pace than supply), price will go down - even recognizing the aforementioned opacity of industry pricing.

Closing Thoughts

While this strategy may not be for everyone, the above benefits outline the tremendous potential of investing in self-storage properties.

And, as with every deal, investors should understand the key elements of analyzing a commercial real estate deal prior to undertaking a self-storage project.

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We recognize that, even after outlining the above information, entering the commercial real estate market can seem daunting to new investors.

That’s why we’re here to help. The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique objectives!

Buying Self Storage Properties | 5 Outstanding Benefits of this Overlooked Strategy