Self-storage facilities are secure storage solutions for individuals and businesses to store household belongings and business equipment. Investing in storage units is a type of commercial real estate investment with low cost, low maintenance and stable returns. Tenants may rent units for decades. In addition, many areas of the U.S. have a shortage of self-storage units, offering significant market opportunities. Read on to learn how to invest in storage units.
Is Investing in Storage Units Worth It?
Yes, for most investors, self-storage units prove to be profitable. While you may need to hire an employee to be available during certain times or days, you could also manage self-storage units yourself. Self-storage units can be an attractive investment option because they cost less than other commercial real estate or residential real estate but have high earning potential.
The national average monthly cost for a storage unit is $108.18. This takes into account all sizes and both climate-controlled and non-climate-controlled units. Purchasing a property with 100 self-storage units could be a monthly revenue of over $10,000. Depending on the property price, self-storage units can create positive cash flow from the first month.
How Much Do I Need to Start Investing in Storage Units?
How much you need to start investing in self-storage units depends on local real estate and whether you choose to leverage financing or pay cash for the property. For example, you could purchase a pre-existing self-storage unit for $200,000 to $300,000. You could build a new self-storage unit on a vacant lot or empty property for $150,000 to $250,000. Or, you could buy a larger facility for many millions.
To finance these options, you could pay in cash, take a mortgage with a downpayment, bring on a partner or get a personal loan. Depending on the option you choose, you could invest in self-storage units for as little as $5,000. Or, you can invest in self-storage real estate investment trusts (REITs) for even less. Your investment portfolio and financial goals depend on how much to invest in storage units.
How to Invest in Storage Units: A Walkthrough
If you're ready to purchase and operate self-storage units, here's a step-by-step guide on how to invest in storage units.
Step 1: Understanding the Storage Unit Market
Before diving into any investment, you want to understand the market's dynamics. Research the demand and supply trends in your area. Analyze the average rental rates and occupancy rates of existing facilities. This research will help you identify your chosen location's potential for profitability and growth. Consider also the convenience and proximity of major urban areas to potential locations.
Step 2: Assessing Your Investment Budget
Determining your investment budget is a critical aspect of storage unit investment. Consider how much capital you can invest without straining your finances. Besides the initial purchase, factor in maintenance costs, marketing expenses and potential renovations. Add the cost of employees or property managers if you won't manage the units yourself. Knowing your budget will guide you in making informed decisions.
Step 3: Finding the Right Location
The location of your storage unit facility plays a pivotal role in its success. Look for areas with growing populations, a strong economy and insufficient storage options. Proximity to residential areas, commercial centers and major highways can significantly impact the property's accessibility and demand.
Step 4: Choosing Between Self-Storage and Full-Service Storage
Decide whether you want to invest in a self-storage facility or a full-service storage business. Self-storage units require less management but may have higher tenant turnover. Full-service storage may offer added convenience to customers, but it demands more hands-on management or additional employee costs.
Step 5: Legal and Regulatory Requirements
Investing in storage units comes with legal responsibilities and regulations. Ensure you have the necessary permits and licenses to operate a storage facility in your area. Familiarize yourself with local zoning laws and building codes. Compliance with these regulations will prevent potential legal issues and potential profit loss in the future.
Step 6: Analyzing Potential Returns
Estimate the potential returns on your investment based on rental income projections and operational costs. Factor in variables such as occupancy rates, rental fees and maintenance expenses. Understanding the expected returns will help you assess the feasibility of your investment.
Step 7: Financing Options and Strategies
Explore financing options, including personal savings, bank loans and partnerships. Each financing method comes with pros and cons, so carefully assess which one aligns with your long-term goals and risk tolerance. Additionally, consider creating a financial strategy to pay off loans efficiently.
Step 8: Property Inspection and Due Diligence
Thoroughly inspect the property you intend to invest in. Check for structural issues, security measures and the overall condition of the units. Bring in a professional inspector to help assess the property's condition. Conducting due diligence, including a title search, will help you avoid unpleasant surprises after purchasing the property.
Step 9: Marketing and Branding
As with any business, develop a strong marketing strategy to attract potential tenants to your storage facility. Use online platforms, social media and local advertising to promote your business. Branding your storage units can also create a unique identity that resonates with customers.
Step 10: Security and Safety Measures
Investing in security and safety features helps gain your customers' trust. Implement surveillance cameras, secure fencing, access control systems and security personnel to protect your tenants' belongings. A safe and secure facility encourages more tenants to choose your storage units.
Step 11: Setting Competitive Rental Rates
Strategically set rental rates that align with the local market. Research your competitors' prices and amenities to build a competitive advantage. Balancing affordability and profitability is key to attracting and retaining tenants, especially in long-term storage.
Step 12: Maximizing Occupancy and Revenue
Maintaining high occupancy rates is essential for a successful storage unit investment. Offer incentives for long-term rentals, referrals or prepayments to keep your units occupied. Explore additional revenue streams, such as selling packing supplies or offering value-added services.
Additional Tips When Investing in Storage Units
If you're ready to invest in storage units, these tips can help increase occupancy and long-term success.
Put Effort Into Community Involvement and Outreach
Engaging with the local community can enhance your storage facility's reputation and attract more customers. Participate in community events, sponsor local initiatives or children's sports teams and support charitable causes to demonstrate your commitment to the community.
Network with Industry Experts
Build relationships with other professionals in the storage unit industry. Networking can provide valuable insights, potential partnerships and access to industry best practices. Remember that your competitors can help you become better. Work with other local businesses to grow together.
Monitor Industry Trends
Stay informed about the latest trends and developments in the storage unit industry. Knowing emerging technologies and customer preferences can give you a competitive edge in the market. Follow market research, send out online surveys to customers and adapt to changing trends and customer feedback.
Balance Short-Term and Long-Term Goals
Strategize your investments to achieve a balance between short-term profits and long-term growth. Consider diversifying your investment portfolio to reduce risks and ensure stable returns. Don't put your whole investment portfolio in storage units. Instead, consider this avenue as one income stream and investment strategy.
Leverage Technology for Management
Explore modern management tools and software that can streamline your administrative tasks. Automation can save time and reduce human errors in handling rental agreements, payments and tenant communication. This process can build customer trust and reduce costs long term.
Investing in Storage Units
Imagine a $250,000 investment that returns over $10,000 every month. With the right location, a self-storage unit can offer that or more. By staying ahead of industry trends and addressing customer needs, you have the opportunity to create strong positive cash flow and an additional income stream. For more real estate investment opportunities, learn about managing rental properties, buying a rental property, crowdfunding real estate or investing in REITs.
Frequently Asked Questions
Is investing in storage units a profitable venture?
Yes, investing in storage units can be profitable with research into market opportunities, location and strong management.
What financing options are available for storage unit investments?
You can finance a storage unit investment with a mortgage, personal loan or business loan like an SBA 504 loan.
How much does it cost to invest in storage units?
Costs for a storage unit are usually around $30 to $75 per square foot. That means that a 50,000-square-foot storage facility at the high end would cost around $3.75 million. However, a simpler facility of the same size might cost $1.875 million. Depending on local market conditions, a 10,000-square-foot basic storage unit facility could cost $250,000.
About Alison Plaut
Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability. She has been writing for various non-profit organizations for 15+ years. When not writing, you will find her promoting education and meditation in the developing world, or hiking and enjoying nature.