Are Storage Units a Good Investment? Everything You Need to Know

With yearly revenues and occupancy rates rising, storage investment sounds like the real deal for many self-storage investors looking for low-maintenance businesses to invest in. But are storage units a good investment?

Without a doubt, self-storage units are good investments and are very profitable. Besides, unlike apartments and office buildings, these self-storage units have low maintenance costs, higher returns, and are very secure.

But if you are a beginner, you must learn more about self-storage units before investing. Thus, in this guide, we will provide an in-depth answer to the question, “are storage units a good investment to consider?” Also, we will discuss the types of self-storage facilities, their features, pros, and cons.

But first, let’s get to know what it means to invest in self-storage units!

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What Is Contained in a Self-Storage Unit?

These units usually contain household items such as boxes, furniture, old clothes, and gardening tools. Also, the storage unit may contain cars, bicycles, or any other motorized vehicle.

However, storage units aren’t allowed to house people, pets, or animals. If you are caught housing people in self-storage units, you can face the laws put in place. For that reason, landlords are advised to use cameras to survey and monitor everything inside the units is legally allowed.

Types of Self-Storage Facilities to Invest In

Self-storage units are mainly classified according to the construction’s type and size. Either way, the commonly known types of storage units include

  • Outdoor Storage Units

Outdoor storage comprises a series of small buildings with simple doors and is among the cheapest storage facilities.

One of the best things about outdoor storage is that it only requires low maintenance and they are easy to use. Besides, these facilities are secure as they have security guards.

  • Vehicle Storage Units

Another self-storage type is vehicle storage which includes harbors, racetracks, or airports. These storage places help those with extra vehicles like cars, boats, and RVs to store them. Besides, vehicle storage is handy as it provides maximum security and temperature control units. Thus, even expensive vehicles can be kept in this storage unit for a long time.

  • Climate-Controlled Storage Units

These are self-storage units with climate-controlled measures. Therefore, the facilities are good for storing goods, protecting them from the impacts of the harsh climate.

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Factors to Consider Before Investing in Self-Storage Units

There are many self-storage facilities; thus, knowing the right one to put your money in can take time. But that should not be a big issue. To defeat the challenge, consider the following factors while picking a storage unit to invest in. 

  • Security

A good storage unit should have excellent 24/7 security features. Furthermore, the facility must be well-lit to distract thieves.

Also, the 24/7 security assures your clients that someone is keeping an eye on the facility every moment, giving them peace of mind. So, before you invest in a storage unit, make sure you employ robust security techniques to guarantee customers the security of their goods.

  • Cleanliness

Cleanliness is a vital factor to consider while starting your self-storage business. For sure, the last thing customers would want to experience when entering your storage facility is finding dead cockroaches or any pest on their goods. 

So, consider making your storage unit as clean as possible, as that will keep your customers and save you time in monitoring the condition of goods.

  • Size

Before starting your self-storing facility, ensure that it has enough space for goods to be stored. For instance, you should ensure that it has multiple size options to offer your clients the space they need.

  • Climate-Control Features

A good storage facility should offer climate-control features such as temperature and humidity control units. This protects goods from being ruined since high humidities can make wood furniture crack or expand. 

Therefore, to avoid spoilage of customer goods, ensure you install the necessary climate control units, as that would also make your storage unit durable in case it is made of metal or wood structures. 

  • Insurance

Insurance is one of the most vital factors to consider when starting your storage facility. Even with good security, accidents can happen in the facility causing huge losses. So, your business must have insurance coverage, as that would also create trust with your clients.

  • Delivery Service 

Although this factor is not common in most self-storage units, it is a great feature, especially for elderly and disabled people. A good storage unit should have professional movers who can move the stored goods on behalf of clients.

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How Can I Invest in a Self-Storage Business? 

There are three major self-storage investments you can consider:

  • Self-Storage Real Estate Investments Trusts (REITs)

One of the best and easiest ways to invest in self-storage is to engage in REIT. Real Estate Investment companies invest in publicly traded goods and then offer the shares to their clients.

The great thing about REITs is that they offer hands-free investing. So, as a self-storage investor, you don’t have to get worried about becoming a landlord or running a commercial enterprise.

However, when investing in self-storage REITs, it’s good to analyze the growth of the REITs over time to know where it’s heading.

  • Purchase Your Own Self-Storage Facility

Buying a self-storage facility is one of the most popular ways to invest in self-storage. Here you buy an existing facility and start your own small business.

This method is good because it saves you money from buying land and the process of going through lengthy and costly marketing and construction procedures. Another advantage is that it can save you from starting from scratch.

If you want to buy an existing self-storage business, you can begin by talking to different lenders and ensuring you have good cash. After that, you can look for a commercial real estate agent. Lastly, remember to examine the business’s Net Operating Income ( NOI) and the long-term growth possibility.

However, inheriting an existing self-storage facility has potential downsides, despite being a good way to invest in self-storage units. For instance, you can buy a falling self-storage facility or one with some structural damages and a negative customer review. This can lead to a negative return rate on your side. 

  • Build Your Own Self-Storage Unit

Another way to invest in self-storage units is by building your own self-storage facility. However, this method is costly as it involves finding good land and transforming it. Also, you must consult the town or local government to ensure that you can develop the land, plus there are also construction requirements that you must factor in.  

For that reason, you should research before you build a self-storage facility. You can even consult experts who know more about construction projects as well as business development.

Advantages of Self-Storage Investment Business

The following are the advantages of investing in a self-storage business.

  • High Demand

Self-storage facilities are becoming popular, making their demand grow at a higher rate, especially in populated areas. The growing demand leads to an increase in occupancy rates, continuous cash flow, and long-term profits. 

  • Less Management 

Undoubtedly, self-storage facilities have less management. For instance, landlords can get away from upkeeps, especially when the buildings are operational and renters can access the units safely. In addition, common residential issues like plumbing, as well as the failure of appliances, do not occur. So this makes the facilities require less management.

  • Easy to Automate 

Another advantage of self-storage facilities is that they are easy to automate. For instance, if you put security cameras and coded gates, it becomes easy to monitor the facility’s security. That way, you can see any unauthorized personnel trying to access it, even if you are far away from the facility. This, in turn, ensures that the customer’s belongings are safe.

  •  Additional Revenue Streams

Having your self-storage unit opens up many other revenue streams specific to the real estate industry. For instance, you can get additional payments from selling moving goods and offering truck rentals. In addition, offering tenant protection plans is another way of getting extra revenue.

  • Less Risk of Clients Failing to Pay the Rental Fee

A storage facility’s owner has the right to keep the tenant’s property up to the time the client pays the rent. The owner can sell or dispose of the tenant’s property if they fail to pay the rent. That way, there are lower risks for self-storage landlords making losses when customers default on paying the rental fee.

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Risks of Investing in a Self-Storage Facility

Despite many benefits, the self-storage business faces several risks. These risks include:

  • Oversupply Risk

Self-storage facilities are less costly to build and manage, and there are low barriers to entering into this business. For that reason, developers are quickly building new self-storage facilities, which is increasing competition in the self-storage industry.  

  • Rise of Interest Rates

The rise of interest is another disadvantage in this industry. This is because an increase in interest rates makes borrowing money more expensive.

  • Short Term Self Storage Leases

Leases in self-storage businesses usually operate on a monthly basis. This results in a high turnover requiring the operator to market the property regularly to ensure that units are quickly released before the turnover.

  • Getting Good Staff Can Be Hard

Like in other businesses, good management is essential to the performance of your storage unit. Self-storage businesses consist of a small team; therefore, the staff members must perform more responsibility. Consequently, you should look for the right staff to help you run a self-storage business. But remember that the hiring process can be difficult, so you must be patient.

  • Difficulties in Getting a Suitable Location

A good location is vital for your self-storage business because it should be located where there is high visibility and easy accessibility. However, getting a good location can take time and effort. This is because a bad place can negatively affect the storage facility due to poor accessibility. 

  • Tenants Problems

Tenant problems are another disadvantage of a self-storage facility. As an owner, you will likely face non-payments and holding auctions. Plus, the facility handles delinquency from some of your tenants.

  • Security Problems

A self-storage facility must have robust security protocols to keep the tenant’s property safe. From safety controls at the gate to safety cameras throughout the building, your security tools should be in good working condition at all times, which can be costly.

Are Storage Units a Good Investment?

Are Storage Units a Good Investment? – Final Words

Self-storage units aim to solve a common problem of insufficient storage space that most people face. Apart from that, the units offer security to customers’ goods, plus they can house various goods like furniture, gardening tools, and motorized vehicles.  

So, investing in self-storage units is a good choice, as the demand for storage space is escalating daily. Luckily, there are many ways that you can invest. For example, you can invest in REITs, buy a ready self-storage unit or construct it yourself.  

However, before investing in these facilities, you must consider some factors like security. Robust security is needed to keep the client’s goods from authorized personnel. Also, you must ensure that your facility has suitable climate control measures. This will protect the goods from being ruined, especially wood furniture. Other factors like insurance and delivery services are also good factors to consider before you invest in self-storage units.  

But note that despite the many benefits of this business, you are also likely to face some difficulties in getting a good location and staff. Plus, there are oversupply risks, short-term leases, and a rise in interest rates. Either way, investing in self-storage is good, and you can earn more profit.

Why Self Storage Investments Beat Most Other Real Estate