Self-storage investing is a branch of commercial real estate investment that has been around for a long time. Over the past few years, this niche has grown considerably in popularity. It’s a highly competitive market that allows investors to adequately and profitably diversify their assets. Making a foray into this highly-priced market requires a significant amount of knowledge to be successful.
Why People Invest in Storage Facilities Options
As individuals go through various phases of life, the amount of personal items and effects they accumulate keeps increasing. Many of these items are vital to their lives, and properly storing them is highly essential. Discarding them is never an option; all they do is keep piling and storing them until they run out of space, and that’s when they realize they need to look for alternatives.
With many homeowners’ inability to have storage sheds, there usually comes the question of where to store accumulated valuables; it’s at that point that talks of self-storage facilities options come into play.
The self-storage industry offers an excellent solution to storage challenges across the country. The consistent rise in demand shows how significant it is to help people take care of their personal effects. Besides its growing demand and hassle-free tenants (boxes), self-storage investment has a massive cash flow opportunity in both favorable and unfavorable economies.
The fact that it’s an easy industry to dive into due to the high availability of existing self-storage facilities to procure makes it an endeavor to consider entering. Investing in storage facilities options offers constant cash flow with massive income potential. Also, it has low construction costs, making it easy to start whenever you want.
How to Invest in Storage Units
Investing in self-storage units has many benefits attached, including positive cash flow, high profitability, ever-increasing demand, good performance even during recessions, having to deal with hassle-free tenants, etc. However, before you invest in the industry, you’ll need to decide how you want to invest.
Regardless of how you want to go about things, ensure you get adequate information to avoid running at a loss and getting disappointed. Below, we’ll be examining the various ways through which you can invest in storage units.
Self-Storage Real Estate Investment Trust
Purchasing shares in a self-storage REIT is one of the easiest ways to invest in this real estate niche. It’s a passive investment option that requires you to spend the least amount of time while getting an ROI through dividends. In case you’re wondering what a REIT is, it’s a company that owns and manages revenue-generating real estate. Like stocks, publicly-traded REITs sell shares that you can buy and from which you can make money.
One of the significant benefits of investing with REITs is that as a shareholder, you get to receive at least 90% of taxable income in the form of dividends. Another benefit attached to investing with these real estate companies is that they’re usually well-known brands that require low capital to invest and possess excellent digital marketing platforms that give them an edge in the market. With them, you’re sure of getting a return on your investment.
Examples of publicly-traded REITs that deal with self-storage investments include Public Storage (PSA), Extra Space Storage (EXR), CubeSmart (CUBE), National Storage Affiliates (NSA), etc.
Active Participation through Building or Buying Storage Facilities
This option is the most cost-intensive way of investing in the self-storage industry. It’s one that requires a high level of know-how, experience, and human and financial resources to pull off successfully. Building self-storage facilities give you the chance to own the highest value units in the market. If you go this route, you’re sure of swimming in millions in profits in no time.
If you decide to develop your storage facility as an investment, all you’ve got to do is procure a parcel of land in a location where these units are in short supply. The land must be big enough to accommodate what you plan to erect. After achieving this, you’ve got to check with the local authorities to ensure you’re not breaking any law and you’re following zoning and development procedures.
If you decide to go with the alternative by purchasing an existing self-storage facility, ensure that you carry out detailed checks on the property before buying. You can partner with a commercial broker or use industry websites like List Self Storage, LoopNet, Crexi, etc., to find an ideal one. It’s pertinent that you also carry out a cash flow analysis to determine the potential investment’s revenue-generating capability.
This option involves investors putting their money into a crowdfunded deal. Here, interested investors pool their financial resources through an internet-based crowdfunding company to invest in self-storage investment opportunities discovered and researched by the crowdfunding enterprise. This investment option offers higher returns than traditional ones.
However, many of the opportunities available with this option aren’t for everybody; they’re mostly available to only investors with sufficient accreditation, i.e., those with a net worth of more than $1 million and a minimum yearly income of over $200,000.
Tips for Investing in Storage Facilities
While the self-storage industry can be a highly lucrative one, it doesn’t come without its shortcomings. Knowing what to do and when to do them is pertinent to excelling in this real estate niche. If you’ve decided to go into the industry, here’re some tips that will guide your activities and investment moves.
Embark on Adequate Research
Knowledge is power, a lack of which may bring fatal consequences. Like every investment deal where there’s always the element of risk, the self-storage market is also full of risks and uncertainties. To stay on the safer side, ensure you do your homework before delving into it.
Whether you’re developing or buying a facility, investing with a REIT, or opting for crowdfunded investments, you’d do well to study its dynamics and features adequately. Speak with seasoned investors and embark on online research; you don’t want to go into an industry on which you’ve got no idea.
Get Acquainted with the Earning Metrics
Every sector has its peculiarities; investing in any requires you to possess some knowledge about how things work. Learn about REITs’ earning metrics before investing with one, as they’re quite different from ordinary publicly traded stocks.
Diversify Your Investments
This tip is one to take seriously. When investing, avoid putting all your eggs in one basket to stay on the safer side of things. Diversify your portfolio and avoid fixing all your funds in one market.
The self-storage industry is an increasingly popular real estate niche that offers lots of revenue-generating opportunities for investors. If you’re considering venturing into it, you’ve got to understand how it works, know its pros and cons, and the possibilities inherent. You’ve also got to arm yourself with the necessary tips and resources you need to excel at it.