Self Storage Investment 101: How to Invest in Self Storage (and Benefit from a Booming Industry)

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Looking for an investment avenue that thrives even during economic uncertainty? Welcome to the world of self-storage! With explosive growth, boasting 1.7 billion sq. ft. in 2023, and remarkable expansions like 39.9 million sq. ft. in 2022 (equivalent to Central Park), this industry is a beacon of opportunity.

But that’s not all. The sector is anticipated to grow at a rate of 4.37% CAGR, reaching USD 72.12 billion by 2028. Considering these numbers, self-storage investments are a promising path toward stable income.

If you’re wondering how to invest in self-storage facilities or become a host in this booming industry with platforms like Neighbor, read on as we discuss the essentials of self-storage investment.

Understanding Self Storage Investment

Self-storage refers to a business model where you can rent storage units to individuals and businesses for short and long-term use. These units can be used to store belongings, inventory, or equipment for a specified period.

Self-storage units are equipped with basic amenities to safeguard stored belongings. These facilities are typically secure, accessible, and in various sizes to accommodate storage needs.

The self-storage market operates on the principle of leasing storage space to tenants. As an investor, you become the facility owner, in other words- a host, and earn rental income from tenants as the core revenue stream for the self-storage facility.

However, not all storage facilities operate in the same way. There are two primary models: traditional storage facilities and peer-to-peer storage arrangements. 

Traditional storage facilities are owned and operated by established companies, often specializing in offering various storage unit sizes and options. Customers can rent these units to store their possessions for short or extended periods. 

Conversely, peer-to-peer storage involves individuals renting out portions of their private or residential properties as storage space. For instance, you can rent out your driveway or garage by listing your space on a storage marketplace platform. This arrangement allows property owners to monetize their underutilized space while providing renters with more personalized storage options. 

Why Invest in Self Storage?

Investing in self-storage offers several benefits that make it an attractive option for investors:

Low Risk

Compared to other commercial real estate and investments, self-storage facilities tend to have lower risk factors. The demand for storage remains consistent, regardless of economic fluctuations, making it a reliable source of income.

High Demand

People often require storage units during various life events, such as moving, downsizing, or decluttering. Additionally, businesses frequently use self-storage to store inventory, equipment, or documents. This sustained demand ensures a high occupancy rate for self-storage units.

Economic Durability

Self-storage has proven to be relatively resilient during economic downturns. As individuals and businesses seek cost-effective storage solutions, the demand for these facilities remains steady.

Low Maintenance

Unlike traditional residential or commercial properties, these facilities require relatively low maintenance. Tenants are responsible for maintaining their own self-storage facility or units, minimizing the property owner’s involvement in day-to-day upkeep.

Operating a micro storage business through a peer-to-peer platform–by renting out a garage, shed, or driveway–is even more low-maintenance maintenance. In fact, the routine home maintenance you already do (mowing the lawn, raking leaves, power-washing your garage) will double as your storage facility maintenance. 

Flexible Business Model

Self-storage investment offers flexibility in terms of property size and location. You can start small with a single storage facility and gradually expand your self-storage investor portfolio based on market demand.

Can we pay you to store vehicles?

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Get paid monthly

Sit back and collect automatic payments each month.

Challenges in Self Storage Investing

While self-storage investment offers attractive benefits, it’s essential to be aware of potential challenges as well:

Tricky Market Positioning

Choosing the right location for your self-storage facility is crucial. Identifying areas with adequate demand and limited competition can be challenging, especially in densely populated regions.

Need for Active Management

Though such facilities require less maintenance, active management of existing facilities is still necessary. Good customer service and maintaining tenant satisfaction are essential for long-term success in the business.

Risk of Oversupply

In some markets, an oversupply of units can lead to increased competition and lower occupancy rates, affecting your rental income.

High Tenant Turnover

The nature of self-storage often leads to relatively high tenant turnover, which requires consistent efforts to attract new tenants and maintain a stable occupancy rate.

affordable storage spaces

Source: Unsplash

Types of Self Storage Facilities

As you venture into the self-storage investment landscape, it’s important to understand the different types of self-storage facilities available:

Outdoor/Drive-up Storage

Outdoor or drive-up storage units are accessible from the outside, allowing tenants to park their vehicles and access their belongings directly from their storage unit.

Climate-Controlled Storage

Climate-controlled units maintain a regulated environment, protecting sensitive items from extreme temperatures and humidity. These climate-controlled storage units are popular for storing valuable belongings, electronics, and artwork.

Vehicle Storage

These storage units are designed to accommodate vehicles, such as cars, RVs, boats, or motorcycles, providing secure and convenient parking options.

Mixed-Use Storage

Some self-storage facilities offer a mix of storage units and additional services. This may include co-working spaces, retail units, or small offices, making it an attractive option for self-storage opportunities for business owners and professionals.

How to Invest in Self Storage Facilities

Now that we’ve discussed the benefits of self-storage investment and the different types of facilities, let’s look at four distinct ways to invest in this booming industry:

Investing in Real Estate Investment Trusts (REITs)

These firms own, operate, or finance 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

·     Diversification

·     Passive Income.

Cons:

·     Limited control over property management decisions

·     Exposure to market fluctuations.

Investing in Publicly Traded Storage Businesses

Some publicly traded companies operate self-storage facilities. Purchasing shares of these companies provides exposure to the self-storage industry without the need to own or manage individual properties.

Pros:

·     Easy accessibility

·     Professional management

·     Potential for capital appreciation.

Cons:

·     Market volatility

·     Lack of direct control over the business.

Investing in Existing Storage Facilities

Consider purchasing an existing self-storage facility from the current owner. This option provides an immediate income potential with an established customer base and income stream.

Pros:

·     Immediate income potential

·     Established market presence

·     Existing infrastructure.

Cons:

·     Upfront investment

·     Potential hidden issues with the property.

Investing in Building a Storage Unit

Building a self-storage facility from scratch allows you to design the property and choose its location according to market demand.

Pros:

·     Customization

·     Ability to tailor to local demand

·     Potential for higher returns.

Cons:

·     Initial construction costs

·     Longer lead time before generating income

Unfortunately, investing in a building for storage purposes can be a substantial financial commitment–from property acquisition expenses to construction, maintenance, and operational costs.  

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

 
With this option, you can generate income from your existing spaces while avoiding the high costs associated with building and managing a dedicated storage facility. This approach not only offers a practical solution for property owners but also provides renters with more affordable and locally accessible storage options. 

storage unit

Source: Unsplash

Earn $1,000s per year with your unused space

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:

Choosing the Right Location

Selecting the right location is a critical factor for the success of your self-storage facility. Look for areas with growing populations, limited competition, and proximity to residential neighborhoods or commercial centers.

Market Analysis (Competitors and Target Audience)

Study your competition and identify your target audience’s needs. It would be best if you tailored your facility’s offerings to meet these demands, giving you a competitive edge.

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.

Gaining a firm grasp of self-storage trends is of paramount importance for investors. These insights not only illuminate the trajectory of the market but also provide a compass for prudent decision-making.

In a sector marked by constant evolution, such awareness empowers investors to navigate the landscape and make informed, potentially rewarding choices.

Increased Use of Self-Storage Websites

As more and more business operations are conducted online, having a website and a presence on social media is key to success. Considering this, you can develop a user-friendly 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.

Increased Data Security to Protect Customer Information

Keeping track of finances in the self-storage sector can be challenging, but data management software offers security from viruses and intrusions. Automated calculations reduce human error while maintaining data integrity and consumer confidentiality.

Cloud technology also provides secure and adaptable storage options for your storage space, leading to increased cloud storage services. Cloud-based databases guarantee effective operations, do away with expensive crash troubleshooting, and make it simple to access data from anywhere.

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.

Is Self-Storage a Good Investment?

The benefit of investing in self-storage lies in the surging demand and the reliable income it generates. Even during economic oscillations, the sector’s remarkable stability further solidifies its credibility.

By actively engaging in property management, investors can amplify their returns. Notably, the prospect of property appreciation adds an extra layer of enticement. With its alignment with contemporary requirements, self-storage investments guarantee a consistent income stream and a growth trajectory for your portfolio.

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?

Minimize risks by conducting thorough market research, selecting the right location, and developing a comprehensive risk mitigation strategy.

Is investing in self-storage recession-resistant?

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 choosing peer-to-peer storage space.

What’s the typical lease duration for self storage units?

Lease durations for self-storage units can vary, but they often range from month-to-month agreements to longer-term contracts, offering flexibility for both customers and revenue stability for operators.

What’s the significance of climate-controlled units in self-storage?

Climate-controlled units are essential for safeguarding sensitive items from temperature and humidity fluctuations. Offering these units not only attracts customers seeking protection for their belongings but also justifies higher rental rates.

Are there any eco-friendly practices in self storage management?

Implementing eco-friendly practices, such as energy-efficient lighting, recycling programs, and sustainable building materials, not only aligns with modern values but can also lower operating costs and attract environmentally conscious customers.

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