The year was 2016, and I was a newly minted Director of Acquisitions tasked with finding multifamily properties to buy. It was a rough year. I underwrote deal after deal, but I couldn’t make the numbers work to match our investment strategy. After some internal discussion, we decided to focus our attention on a different asset class: self storage.
At the time, I knew nothing about self storage, but after underwriting multiple deals and closing on five in nine months, I realized self storage is one of the best real estate investments a small, private investor can make – even better than multifamily. Based on my experience, I want to share five pros and a few drawbacks of self storage investing that every investor should keep in mind.
Fragmented Ownership
Approximately three-quarters of self storage owners own just one or two facilities. The remaining owners are sophisticated or institutional investors who own roughly three or more. What does this mean for potential storage investors? It presents an opportunity to acquire facilities from local owners…
Lower Expense Ratio
Self storage has a roughly 35 to 40% expense ratio, meaning that for every dollar in revenue…
Impersonal
People store all kinds of goods…
Month-to-Month
When someone rents a unit, they sign a month-to-month rental rate agreement…
SBA Lending
Self storage is the only real estate asset class that the Small Business Administration…
Now for the cons.
Popularity
Last year, my car was in the shop for repairs. Naturally, I took an Uber…
Rental Rate Decreases
Just as the month-to-month nature of storage allows for rental rate increases, the opposite is true…
Lower NOI
Let’s say a 10×10…
With lower operating costs, fewer headaches, and alternative financing options, I have no doubt investor demand for self storage will continue.