The demand for storage units has exploded in recent years, with more people needing a place to store items, which opened the markets to invest in self-storage. The storage unit boom in the U.S. has led to people asking if self-storage real estate is worth the investment.
Storage units are in high demand for people who need a place to store valuable items, especially near urban areas and businesses. Self-storage real estate is a good investment for those considering supply and demand, building, and running costs, and storage type.
There are many factors to consider before you invest in self-storage real estate, and knowing all the benefits and intricacies surrounding it can lead to a profitable investment. Due diligence is vital if you want to invest in storage units, so let’s look at some of the requirements and information you need.
What Is Self-Storage Real Estate?
The need for a place to store things short-term or long-term is something almost everyone encounters at some point. For example, if you are renovating your home and want to avoid damaging your furniture and other items or have too much stuff, self-storage is a place where you can put these items for safekeeping.
For the two examples above and many others, self-storage is specifically designed units you can rent for a short or long period. The storage unit boom has led to many investing in this popular real estate, where they lease these units to renters.
In the past, storage units were just unused space leased to someone, but recently, it has become a lucrative business where these units are built in mass to supply the high demand. Investors also realized that some storage units require certain features due to the value and sensitivity of some items and divided them into three self-storage classes.
Self-Storage Classes
Storage classes show renters the quality of the unit so that they can make a better-informed decision about where to store something of a greater or lesser value. Here are the three classes:
- Class A facilities have been built within the last 15 years and provide all the best features, like modern storage management software, climate control, and advanced security systems. These units are in ideal locations and are generally the most expensive.
- Class B facilities are older than 15 years and include fewer amenities than Class A facilities. These units often do not have climate-smart features and round-the-clock maintenance, but they are slightly cheaper.
- Class C facilities are the cheapest to rent because they lack many of Class A and B’s features, which include not being in a prime location.
Are Storage Units A Good Investment?
Storage units will always be needed, and investing in self-storage real estate can be extremely lucrative. Like any real estate, self-storage is a viable investment if you consider all the factors and weigh the risks and rewards. Here are some pros and cons to help you decide before investing in self-storage.
Pros of investing in self-storage units:
- Diverse Portfolio – Adding storage real estate to your existing portfolio provides diversity, which reduces overall risk.
- Less Managing – Most real estate requires you to be hands-on, especially when dealing with tenants. Self-storage eliminates tenant complexities, making the units much easier and cheaper to maintain.
- Recession Resilience – During economic slumps, self-storage real estate remains lucrative due to some downsizing their living spaces to save costs. When people downsize, the need for storage units rises.
- Expanding – Self-storage real estate provides lots of room for expansion, and an investor can start with one or two and increase as the demand rises.
- Steady Income – Storing space is vital to businesses and others, and leasing units provide a stable rental income.
Cons of Investing in Storage Units:
- Investment Costs – Purchasing land and building self-storage units are costly, especially Class A units in ideal locations that provide good amenities.
- Economic Collapse – Storage units show strong resilience to recession but are not fully immune. A severe recession can lead to a loss of revenue.
- Location – Self-storage units rely on proximity and demand; if it is in the wrong location, it will hinder people from considering it a viable option.
- Competitors – Areas with too many self-storage units lead to unnecessary competition, making filling units difficult and causing price battles.
- Market Trends – High inflation and the change in consumer behavior can lead to minimalism that can cause people to rid themselves of storage items and impact the demand.
- Operating Costs – Self-storage units have operating costs, especially Class A units with high security, top maintenance, and insurance.
- Zoning and Regulations – Zoning laws and local regulations impact a storage facility’s operating and building requirements.
Self-Storage Properties
As previously discussed, self-storage is divided into three classes and can be divided into specific purpose categories.
Vehicle Storage Units
Sometimes, owning more than one vehicle, RV, or Boat causes people to seek a storage unit to shelter these vehicles under lock and key. One of the best examples where these vehicle storage units are used is with classic cars, but it often requires protection for the vehicle against rust and rodents.
These high-end storage units have temperature control, high security, and specific insurance to protect consumers against loss or damage. Vehicle storage units are popular near harbors and airports where vehicles are imported and exported.
Mixed-Use Storage
Mixed-use storage units are commonly used and popular compared to other units because consumers can use them to store various items. These units are in high demand near urban areas and businesses and offer flexibility in sizes, security, insurance, and pricing.
Climate-Controlled Storage
Storage units requiring climate control are in lesser demand but crucial for certain items and often require added protection like climate control, high security, and insurance. These units are ideal for paintings, antique furniture, and other fragile items, which makes the unit more expensive.
Drive-Up & Outdoor Storage
Outdoor or drive-up storage, as it is commonly known, is the most common self-storage real estate found all over the U.S. These units resemble multiple rows of garages where consumers have easy access and can store almost anything they want. Outdoor storage has extremely low maintenance and mostly includes lights and cameras for security.
Drive-up and outdoor storage can be improved with security guards and electronic gates to draw consumers.
Investing In Self Storage
Investing in self-storage real estate can be a profitable business opportunity, but there are a few factors you need to consider. Various aspects can influence your investments, and here are some:
- Market Research – The supply and demand of storage units are essential, and you must consider factors like the local economy, population growth, and existing competitors.
- Financial Assessment – Consider the construction and operational costs and compare them against the potential revenue to estimate the rental charge. The estimate will show your profitability and whether your unit’s pricing competes in the current market.
- Location – Depending on the kind of storage units you wish to invest in, it is essential that you target a location where it will be in demand. For example, investing in outdoor storage requires being close to businesses and residential areas.
- Exit Strategy – Consider an exit strategy when the time comes when you want to sell or exit your investment.
- Expert Advice – It is vital to consult with financial, real estate, and legal experts before investing in self-storage real estate.
Before considering investing in self-storage, you must plan carefully, research the markets, and prepare for potential challenges while remembering that due diligence is key!
Conclusion
Investing in self-storage is often an opportunity to make easy money. Although storage units are profitable, there are various factors to consider, like operational costs, competitors, location, and demand. There are various self-storage types with pros and cons, each with specific requirements you must consider.