What if you choose self-storage as your next investment in commercial real estate? This asset class is fairly simple to understand and to operate. Besides, there are many opportunities to increase revenues and create value!
Benefits of Self-Storage
- It performs great during good economic times (people consumes and buys a lot of stuff) as well as in recessions (people downsize and need a place to store their belongings)
- Sticky tenants even in case of rental rate increase (the nominal value of the increase for a storage unit is far less than the cost of moving out)
- Easier to capture inflation and to increase rents due to month-to-month leases
- Easy eviction (people do not want to have their stuff auctioned off) and less emotional than evicting people
- The storage industry is large but heavily fragmented (53,000 locations in the US but 40,000 operators), leaving opportunities to acquire and upgrade small businesses to institutional level by actively managing the property (increasing rates and capacities on the most demanded units), using technology, marketing and social media.
- Inexpensive and simple value-adds possibilities for ancillary income (see next section)
- Tax benefits of owning commercial real estate
- Tremendous value can be created
- Buy low from a small operator
- Operate and Upgrade (cash flow increasing)
- Sell (with a higher net operating income and lower cap rate to a national operator or a fund) or refinance (at a higher valuation)
Upgrades and Value-adds
- Maximize occupancy through marketing (website, social media) to lower vacancy
- Utilize unoccupied land (cell phone tower, vending machines, billboard, propane filling station…) and/or use it for boats and RVs storage
- Truck leasing franchise
- Showrooms (point of sales items) such as boxes, scissors, tape, locks
- Add tenant insurance
- Review your contracts and charge late fees or admin fees
- Climate-control units
Ways to get into Self-Storage
- Start with a small value add facility, fix it, upgrade it with value-adds, lease it to the optimal level and sell it to a larger operator. Use the proceeds to buy a larger facility and repeat.
- Raise capital through your network for self-storage deals for which you are the general partner
- Be a deal finder and exchange the deal for equity and involvement in the business (to be paid a commission, you need to be a licensed broker)
- Go big and hire a team around you (asset manager, property manager, lawyer…) to convince brokers and lenders to work with.
- Get a job in the real estate business to know the trades, the lingo and the people so that it is easier to become a deal finder or a capital raiser
- Invest passively (active-passive strategy where you vet each deal and opportunity or either passive-passive where you trust an operator)
- Get a paid coach or mentor who has a track record so that you can learn from them
- Offer your expertise in one domain to an investor or an operator (unpaid mentor) to get you track record
- Riskier strategies can include ground-up development or retrofitting and remodeling a property (eg. an abandoned supermarket sitting on a large parking lot)
Keep up the good work.