20 Tips for New Self-Storage Investors

Self-storage real estate is one of the least sexy investments you can make.  It’s also, if managed properly, one of the most potentially fruitful investments out there for all kinds of investors: individuals of modest means who prefer keeping risk low, those who lack the resources to invest in high-end commercial real estate, and seasoned investors looking to diversify by moving away from single-family homes.   Self-storage isn’t necessarily the first option that comes to mind when talking about real estate investing, but did you know that around one in every ten Americans uses self-storage?  It’s a 30-plus billion-dollar industry in the United States alone, with over 50,000 locations around the country. That’s a lot of lots, which means plenty of opportunity to make money.   If you’re at all considering investing in self-storage, here below are some tips on what to think about as you get started:

1. Map the Neighborhood

There’s what’s called a “1-3-5” rule of self-storage: that you can expect almost your entire customer base to come from within one, three or five miles of your facility.  In other words, you can essentially take a drive around town and get a sense for everyone who might be candidates for your business. Because storage and travel do not go well together, it is just as important as considering your facility itself that you also consider the neighborhood surrounding it.

2. Get to Know the People

Consider the types of people for whom extra storage space might be necessary, and possible.  Those in lower income brackets may not have the money to pay for storage space, let alone own enough property to warrant it.  Individuals of great financial means may own large homes with basements and attics enough to store from within. Generally speaking, low-medium to medium-high income individuals are best suited for primary self-storage.  Therefore, it’s not only geography you’ll have to consider when scouting locations, but what types of people inhabit those nearby areas.

3. Prioritize High-Traffic

Essential to most any business is visibility.  Look for a location near a high-traffic roadway or sidewalk.

4. Assess the Pros and Cons of Population Size

Cities, by nature, will generate more need for self-storage.  With smaller home sizes (condos, apartments, etc) and, oftentimes, higher-income residents, city dwellers are the most ripe candidates for this market.  While this might appear to be good news to investors, the fact is large companies will already have established themselves in major markets. You’ll be hard-pressed to find a mom-and-pop establishment willing to sell to you in the middle of Manhattan.  Therefore, investors may need to look into secondary and tertiary markets, or else simply put stock in existing brand names such as CubeSmart or UHAUL.

5. Scout the Competition

As with any market, you’ll need to assess competition in the surrounding area when investing in a self-storage facility.  Of course, the less competition the better–you’ll want to look for a location without any other self-storage locations within your “1-3-5” radius.  This isn’t always possible, though. If you’re not able to avoid competitors, you’re just going to have to beat them!

6. Look Out for Population Trends

Now it’s time for you to really separate yourself from other investors.  Get some numbers in front of you, and milk them for all they’re worth. You’ve driven around the neighborhood–what does it look like now?  Are there more stores closing down on Main Street or opening up? Houses under construction or up for sale? You’ll want to know whether your “1-3-5” is on the rise, or on the decline, before you make this long-term investment.

7. Keep an Eye on Demographic Trends

Just as the types of people matter almost as much as how many people there are in the vicinity of your facility, equally important to whether the population of the neighborhood is going up or down is the types of people moving in or out.  Is the town getting younger or older? More or less wealthy? In other words: what will your customers look like ten years down the line, as compared with today?

8. Network

Self-storage isn’t really a business for friends and political allies like other industry ventures may be, but it doesn’t hurt for a beginner investor to pick up advice from those more hardened in the industry.  So attend a conference, or a trade show. Talk to people who have experience, who know what they’re doing and know what pitfalls to avoid because they’ve fallen in those same holes before. They’ll probably be happy to pass on some wisdom (unless, of course, you’re intending to move into their territory).

9. Consider Financing and Lending Options

This rule applies to just about anyone without significant means to pay fully towards new investments.  Consider your financing options carefully, and weigh your interest payments against your projected profit numbers over the long-term.

10. Find a Broker

Hiring a good, honest broker who knows the self-storage landscape can make all the difference between your making a hasty, poorly thought-out purchase and one with some real, considered benefits to it.  There are a number of national storage brokers, Argus, and Mele Group, among others.

11. Consider the Larger Economy

Self-storage is a counter-cyclical to the economy.  It’s why, for example, the industry was able to so healthily survive the 2008 recession.  The need for outside storage rises as more and more people are forced into lesser and lesser living situations.  Therefore, it’s worth considering macroeconomic trends (to the extent possible), even when putting money into something so modest as a primary self-storage facility.

12. Look for Variety

When you picture self-storage, you see endless rows of identical boxes.  In reality, as with any other business, having a variety of offerings is necessary to attracting a variety of customers.  You’ll want a facility with a good mix of small, medium, and large storage spaces for customers of all kinds to choose from.

13. Inspect the Facility

This rule applies to any real estate investment.  Give a good run-through of any facility you look at before considering buying.  Are there any visible damages to the property? Does everything appear up to code?  Think ahead, too, to other major risks you might contend with, such as heavy weather.  Are you buying in an area prone to flooding? If so, what precautions does the facility have in place to deal with such an event?  It’s tempting to think you can just buy, then patch up any holes later on. More prudent, however, would be to properly deal with any and all problems you can spot at the outset, before they pose major risk later on.

14. Check Out the Numbers

Your new investment doesn’t exist in a vacuum.  When you check out a self-storage location, make sure to give a keen eye to their business’ year-over-year numbers.  Have they made reasonable profit, or incurred significant loss? How are the numbers trending, upwards or downwards? Don’t assume that an otherwise failing business can be completely turned around as a result of your magical business acumen.  Rather than buying based on future earnings, see if you can buy based on a history of reasonable past earnings that you can improve upon.

15. Pick a team

Know your management team well–get comfortable with those who are running the facility, and how they’re doing it, if you’re not doing it yourself. Carefully scrutinize the existing employees, and ask yourself whether any of them could use replacing. Hire a professional self storage management company to help with the burden.

16. Don’t be Afraid to Get Your Hands Dirty

Self-storage requires much more management on your part than do typical real estate investments.  So don’t be afraid to get into the weeds with it. If you’re not able, or willing, to hire someone else to run the facility for you, you may have to run it yourself.  If you’re not all caught up on what that job requires, best do your research and learn the ropes before you find yourself way over your head.

17. Manage Your Time and Energy

Although self-storage entails a significant management element, it makes up for that with a very minimal human element.  You’re not dealing with residents, meaning you can make free real estate of that time and space in your mind to deal with other matters.

18. Stand Out

We’ve already mentioned the necessity for having a facility located near a heavy-traffic roadway or sidewalk.  Compound the benefits of being seen by standing out. Take note of signage, and the overall visibility of the facility.  If necessary, spruce the place up to make it pop. It’ll make the difference to passers-by who aren’t necessarily looking out for you in the first place.

19. Market Digitally

In 2018, it’s not enough to exist entirely in analog.  In addition to marketing physically, you’ll need to create some sort of online presence for your business.  This doesn’t mean you need the entire suite of LinkedIn, Instagram, Snapchat, et cetera, that so many other businesses create but fail to manage and promote properly.  Instead, focus on being maximally visible and available through online search engines. When someone in your area searches “storage”, you want to be that first link to pop up on Google.

20. Think Long-Term

Why invest in self storage? Self-storage is a long-term investment.  It’s low-risk, able to handily weather economic downturns in a way most businesses cannot.  And its yields may only be seen in the long term. If you’re looking to enter the self-storage space, make sure to be thinking far down the line.  If you need big returns right now, this isn’t the space to do it in. If you’re willing to be patient, though, self-storage may just be the investment you need to diversify your portfolio, and create a steady source of income you can bank on for the future.