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How to shop for a self-storage facility correctly

Buying a self storage facility is much more difficult than you think, especially if you want to make money from it. Over the years, there have been a few basic traits that separate winning installations from losing ones. And that genetic code is hard to break.

There are plenty of people who will tell you all about buying a self storage facility to sell you a book, course, or boot camp. But they really have limited or no experience. The concepts that we are going to tell you here are based on real life information (and a lot of it) from the operation of one of the largest websites dedicated to the industry. And it may be very different from what you have heard before.

50,000 residents within 3 miles of the facility.

The myth that you can build a self-storage facility in the middle of nowhere and fill it needs to be exposed. Self-storage depends on people, people who need to store things. In the absence of population, you have no demand. You can’t build or buy a self-storage facility in a small town of 5,000 people and be successful, at least not successful enough to make money from it. Population density is key.

Count of traffic passed by the installation of more than 25,000 cars per day.

Most self-storage customers find their self-storage home by passing by. It is, in many ways, a purchase decision point. Few people put a scientific study on where to store their things. They seek convenience and often simply pull up to the first pass near your home or business. As a result, it’s also a myth that you can have a successful self-storage facility that’s hidden from view or stuck on a two-lane street with no traffic.

Median family income of $50,000.

To pay for storage, to pay $100 per month or more, customer must have discretionary spending ability. If they are struggling to cover their rent or mortgage, they will not have the desire to add to their already struggling finances. Also, to have the need for storage, they will have to actually have excess belongings. Only people with higher incomes can accumulate enough material items to store them.

400 units and up.

There are some major fixed costs in a self-storage facility, the biggest of which is the manager. You must have enough units to support the staff needed to run the complex. You cannot run a self-storage installation from a kiosk, contrary to what some people may suggest. And you can’t run it without any management. That is why small complexes in rural markets are always for sale.

High barrier to entry.

You may have noticed that there are a large number of self storage units in almost every major city in the US, and in most mid-markets as well. It is extremely important that you select a market that allows virtually no construction of self-storage facilities. Otherwise, occupancy may never exceed a certain level as there is always more supply on the market.

These barriers to entry can include a property that is not properly zoned, or a high price per square foot for properly zoned land, making it uneconomical to build a new facility.

No more than 6 square feet of storage space per person on the market.

A market of 100,000 people should have no more than 600,000 square feet of available space. If it does, the area is overbuilt. The best markets have ratios well below 6. Remember that the density of the market has a lot to do with this. In areas with much denser housing, there is less land available for self-storage facilities and a larger population to support it. San Francisco, which is extremely dense, is a huge self-storage market, while Stockton, California always suffers from vacancies.

Rental rates around $1 per square foot on existing storage.

A healthy self-storage market will have a rental rate of around $1 per square foot. This is the number that maximizes the economy of the installation. When you find rates significantly below $1, it not only implies that supply/demand is out of whack, but that you won’t be able to generate enough returns to make the facility a winner.

Buy in a pinch, if you can.

We are entering a period of unparalleled dislocation in the credit markets, coupled with the current US recession. Many, perhaps most, commercial real estate will be in trouble for years to come as their existing notes cannot be renewed because they paid too much for the property. There will be a lot of REO properties on the market, as well as desperate sellers.

This is a once-in-a-lifetime time to purchase a self-storage facility, when you can buy a quality property for a penny on the dollar.

conclusion

There are strict rules and guidelines for purchasing a successful self storage facility. Once you know and understand them, you’ll already be a mile ahead of the competition. And that, coupled with the timing of the commercial real estate crash, may give you some of the highest-yielding self-storage investments of all time.

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