How to Invest in Self Storage Facilities
One of the first segments of the real estate economy to 'bounce back' from the disasters of 2008 and 2009 was the self-storage unit segment. The reasoning for this is simple -- as more people were foreclosed or left their homes, they needed more space to store their belongings. A combination of a moderate recovery and skittishness about debt in business has also added to the demand for self- storage units -- businesses that would otherwise move into new office space or dedicated warehouse space are renting self-storage units instead.
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Things You'll Need
- A good credit rating and a credit limit good for at least $100,000 or more.
Instructions
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Research the demographics of your county; the factors you're looking for and the number of rental apartments available. This is an attempt to determine how much demand there is. If you're living in an area where there are a fair number of new apartment buildings going up, a self-storage lot is a reasonable investment.
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Look for a lot that is within a 30-minute drive to multi-resident housing or to small office buildings without attached warehouses. If you can find a plot of land that's within that radius to both, you've just diversified your customer base.
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Talk to your bank and a real estate broker about the price of the plot of land, the cost of building the self-storage units and the interest rate on the loan needed to build the facility. Don't shy away from larger plots of land. The rent per storage unit is going to be determined by the going market rate. The cost to establish each storage unit will drop with size. Depending on your local economy, this can range from $80,000 in an initial investment to more than $150,000. In high-demand areas, you may need to be able to borrow more than a million dollars for this investment.
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Calculate your debt service on the loan (your bank will provide this information) and calculate how much it will cost you each month to manage the facility. (It may be worth it to hire a management company to do this for you). Figure how many units you need to rent to meet this threshold and then figure out how much you need to get in excess of this to get an income stream. Ideally, you want to have your 'facility pay its own debt service threshold at about 50 percent occupancy, which is an easy threshold to hit and easier when you have more units in a facility.
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Research county, city and state obligations for providing security and insurance and find any regulations on what you can and cannot do with abandoned property in self-storage units. Also research pertinent regulations on contract language and storage unit rental agreements. While most of these contracts and insurances are straightforward, they will vary from state to state.
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Advertise aggressively. Print ads targeted at small businesses and new renters are a must to generate tenants for your self-storage facility. Focus your advertising on helping people solve the problems of having too much stuff to store. When targeting businesses, focus your advertising on storing regulatory compliance papers in climate-controlled and weather-sealed structures.
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Tips & Warnings
Any investment carries some element of risk. Pay particular attention to the number of storage unit facilities already in your community, how close they are to being full and how convenient they are to other apartment complexes and businesses. Sometimes, the most important investment decision you can make is to decide if the risks outweigh the rewards.
References
- Photo Credit warehouse door with staircase entry image by Bo Widerberg from Fotolia.com
