Few real estate investment opportunities are looking as promising as self-storage. Boasting 1.7 billion sq. ft. as of 2023 and an anticipated growth rate of 4.37% CAGR, self-storage investments are growing at a remarkable pace.
Is self-storage for you? In this article, I’ll walk you through self-storage investments, their benefits, and how to determine if it’s a good opportunity for you.
Is Self-Storage a Good Investment?
Self-storage is a strong investment and business model because of its consistent demand and reliable income. Regardless of economic conditions, people need storage solutions. Whether they are downsizing, moving, or navigating life changes, the need for storage remains steady.Investors who actively manage their properties can often achieve higher returns and realize greater property appreciation. As a practical and modern asset class, self-storage not only generates steady cash flow but also provides long-term growth opportunities for your portfolio.
Types of Self-Storage Facilities to Invest In
When investing in the self-storage market, you’ll want to understand the different types of facilities (and the unique benefits of each) before you choose what best suits you.
Type #1: Outdoor/Drive-Up Storage
Drive-up units are always in demand. Tenants can pull their vehicles up to the unit, making them ideal for storing larger items or for frequent access. I like how low-maintenance these facilities are, and their straightforward setup often translates into lower operating costs.
Type #2: Climate-Controlled Storage
These units offer temperature and humidity control, making them perfect for storing items like furniture, electronics, or artwork that extreme conditions can damage. I find these facilities appealing because they cater to a more premium tenant base, often commanding higher rents while providing strong value to customers.
Type #3: Vehicle Storage
Designed for cars, RVs, boats, or motorcycles, vehicle storage fills a growing niche. With limited space at home, many people are willing to pay for secure, dedicated parking. This type of storage serves a specific need, which often translates to longer rental periods and loyal tenants.
Type #4: Mixed-Use Storage
These facilities combine traditional storage units with spaces for offices, retail, or co-working. This type is particularly interesting because it diversifies your income streams while appealing to business owners. I like the flexibility and potential for higher returns these properties offer, especially in urban markets with a blend of residential and commercial demand.
Ways to Invest in Self-Storage Facilites
Ok, you’re excited about self-storage, right? Well, here are some ways you can get started.
Note: Each opportunity has been graded according to the level of risk, the costs involved, the earning potential, and the time commitment.
Invest in Real Estate Investment Trusts (REITs)
A self-storage REIT owns, operates, or finances income-generating real estate properties, including self-storage facilities. Investing in self-storage REITs allows you to own a share of a diversified portfolio of self-storage properties without the direct responsibility of property management.
Pros:
- Liquidity – Self-storage REITs are typically traded on public exchanges, so you can buy and sell shares easily, providing more liquidity when compared to physical property. Note: This is especially valuable if you want to access your investment quickly.
- Diversification – Investing in a REIT spreads your risk across various self-storage properties, reducing exposure to the performance of a single facility. For example, if one location underperforms due to local economic conditions, the overall portfolio will remain strong.
- Passive Income – REITs pay out a significant portion of their income as dividends, offering a steady stream of passive income without the day-to-day responsibility of managing properties.
Cons:
- Limited Control Over Property Management – As an investor in a REIT, you don’t have a say in the operations of the properties. If the management team makes poor decisions, it could impact your returns. That’s why I’d recommend going with a company with consistent positive returns.
- Exposure to Market Fluctuations – Since REITs are publicly traded, their value can fluctuate with the stock market, even if the underlying real estate properties perform well. A downturn in the broader market can negatively impact the price of your shares, regardless of how well the self-storage facilities are doing.
Less Upside – Owning fractions of a company gets you a fraction of the return.
Invest in an Existing Self Storage Facility
Buying an established self-storage facility from an existing owner can offer immediate returns, especially if the property is already well-maintained and has a solid customer base.
Pros:
- Immediate Income Potential – With an established customer base, you can start earning income right away. For example, if the facility is already fully rented, you’ll generate cash flow from day one.
- Established Market Presence – A well-established facility comes with brand recognition and a proven track record, which can make it easier to attract new tenants.
- Existing Infrastructure – You won’t need to worry about the cost or time of building infrastructure from scratch. Everything is already in place, and you can focus on maintaining or improving the property.
Cons:
- Upfront Investment – Purchasing an existing facility usually requires a significant upfront investment. Depending on the location and size of the facility, this could mean a higher initial cost compared to other investment options.
- Potential Hidden Issues – Older facilities can be wrought with hidden maintenance issues, such as outdated systems or structural problems. Due diligence is crucial to identify and address any potential issues before finalizing the purchase.
Invest in Building a Storage Unit
Building a self-storage facility from the ground up gives you the flexibility to design it exactly how you want, ensuring it aligns with market demand and the needs of a very specific customer base.
Pros:
- Customization – You have the ability to design the facility to meet specific market demands, such as offering climate-controlled units or larger storage spaces for vehicles. For example, building in a high-demand area, like a growing urban market, is a great way to establish a steady pipeline of tenants.
- Ability to Tailor to Local Demand – You can research and understand what the local market needs most, such as specialized units for businesses or climate-controlled options for sensitive items, giving you a competitive edge.
- Potential for Higher Returns – If you build in a strategic location and design the facility to meet market needs, you may reap higher returns as the property appreciates in value and rents increase.
Cons:
- Initial Construction Costs – Building a facility requires substantial capital, not just for construction but also for permits, land acquisition, and zoning compliance.
- Longer Lead Time Before Generating Income – Unlike buying an existing property, building a new facility takes time. You’ll need to wait for the construction to be completed and for tenants to fill the units (also known as “lease up”) before you start seeing a return on your investment.
Rent Out Your Home or Existing Property:
You don’t have to invest in someone else’s business or start your own from scratch. The great thing about self-storage is that you can leverage any existing space you already have on your property by renting out parts of your home for storage, like your garage, driveway, or spare bedroom. Peer-to-peer platforms like Neighbor match you with qualified renters looking for places to store their possessions.
Pros:
- Flexibility: You can choose how much (or how little) space you want to offer up. You also have the jurisdiction to approve/deny tenants as you see fit.
- Hassle-Free Payment Collection: You don’t have to hunt down rent checks. Neighbor will collect payment for you. They even guarantee rent payments if your tenant doesn’t.
- Easy to get started: You don’t need a huge investment to start renting out your additional space. Check out how much you can get for your available space today.
If you’re looking to capitalize on your underutilized space without the burden of significant upfront investment, consider starting a micro-storage business through a peer-to-peer storage marketplace like Neighbor.
Cons:
- Strangers on your property – The idea of having strangers on your property may be unsettling at first. However, when you register as a host on Neighbor, you benefit from their $1 Million Host Guarantee, which protects you in the case of property damage, injury, etc.
- Contingent on the amount of land you own – The amount of earnings you can generate is directly proportional to the amount of land you own. More land = more vehicle storage spaces = more revenue.
Things to Know Before Investing in Self-Storage
Before you take the plunge into your self-storage investment journey, consider these essential factors to ensure a successful venture:
#1: Choosing the Right Location
Selecting the right location is a pretty important step. Look for areas with growing populations, limited competition, and proximity to residential neighborhoods or commercial centers.
#2: Market Analysis (Competitors and Target Audience)
Study your competition and identify your target audience’s needs. It would be best to tailor your facility’s offerings to meet these demands, giving you a competitive edge.
#3: Mitigating the Risks
Understand the risks associated with self-storage investment and devise a risk mitigation strategy. Diversifying your investment portfolio and having contingency plans can help safeguard your investment.
Challenges in Self-Storage Investing
Self-storage can be a profitable and relatively low-maintenance investment, but it’s not without its challenges. Here are some key obstacles to consider before diving in.
#1: Active Management Is Still Required
While self-storage facilities don’t require the same level of upkeep as residential or commercial properties, they aren’t entirely passive investments. Managing a facility involves handling customer inquiries, resolving disputes, maintaining security, and ensuring the property stays in good condition. Even if you hire a management company, you’ll need to oversee operations to ensure customer satisfaction and profitability. So be prepared to own a business!
#2: Market Oversupply Can Hurt Profits
If too many self-storage facilities pop up in the same area, competition increases, making it harder to keep your units full. Oversupply drives rental rates down and leads to price wars, cutting into your bottom line.
To combat the forces of oversaturation, research local market trends, demand, and occupancy rates to make sure there’s enough need for storage units in your location.
#3: High Tenant Turnover
Self-storage leases tend to be short-term. People often rent units for temporary needs, such as moving, downsizing, or business storage, and once they no longer need the space, they move out. This constant turnover means you’ll need to invest in ongoing marketing efforts and customer retention strategies to maintain a stable occupancy rate.
#4: Security and Liability Concerns
Storage facilities must be secure to protect tenants’ belongings. Theft, vandalism, and even natural disasters can pose risks. Even the smallest of security breaches can damage your reputation.
Therefore, you’ll need to invest in surveillance systems, gated access, proper lighting, and insurance to minimize risks. Some tenants try to store prohibited or hazardous items, so having clear policies and enforcement measures is crucial.
#5: Economic Sensitivity and Seasonal Demand
Self-storage demand fluctuates based on economic conditions and seasonal trends. During economic downturns, individuals and businesses may cut costs, leading to lower occupancy rates.
Similarly, demand for storage can be seasonal, with occupancy peaking in the summer months due to moving and college student storage needs. To mitigate this, you may need to implement flexible pricing strategies or additional revenue streams like truck rentals or packing supplies.
Self-Storage Trends in 2025
I want to set you up for success. Overall, I recommend gaining a firm grasp of self-storage industry trends before you make any major decisions.
Increased Use of Self-Storage Websites
As more and more business operations are conducted online, building a website and a consistent presence on social media is important. Considering this, be sure to have a simple website that draws clients and educates them about your services, storage options, and safety concerns.
Using Self-Storage Software for More Efficient Budgeting
Self-storage software has replaced old-fashioned manual calculations by streamlining billing and accounting procedures. These programs can aid you in calculating financial parameters, including costs, taxes, and earnings, improving the effectiveness and precision of budgeting.
Online Leasing for Individuals Looking for a Storage Facility
Online leasing of your self-storage investments helps to simplify the customer experience. Tenants can easily utilize storage facilities because on-site and online lease-ups are available around the clock. Self-storage platforms like Neighbor can improve the booking process even more by automating payments and delivering sensible reminders for unpaid invoices.
Start Your Own Self-Storage Business
Ready to invest in self-storage? Consider launching your very own self-storage business. Take the first step toward a profitable journey by exploring the promising realm of self-storage investment.
For those without the immediate resources to fund a startup, look no further than peer-to-peer solutions like Neighbor. With such platforms, you can kickstart your micro self-storage business. List your property as a prime self-storage or vehicle storage site, opening the door to a new realm of earning potential.
FAQs
How Profitable Is a Storage Lot?
The profitability of a storage lot depends on factors such as location, occupancy rates, rental rates, and operating expenses. A storage lot can offer attractive returns with careful management and a well-planned strategy.
How Can I Minimize Risks When Investing in Self-Storage?
Self-storage has demonstrated resilience during economic downturns, making it relatively recession-resistant. However, localized economic factors can still influence the demand for storage units.
Can I Start a Self-Storage Business With Limited Capital?
You can start a self-storage business with limited capital, especially by opting for smaller-scale facilities or renting space on peer-to-peer storage platforms like Neighbor.
