With the rise of the self-storage industry, investing in storage units has become an increasingly popular option for investors looking to diversify their portfolios. However, like any investment, there are both pros and cons to consider when evaluating if storage units are a good investment choice. In this article, we will examine the potential returns and risks of investing in storage units to help you make an informed decision investment.
Storage units can generate steady, recurring income
One of the main benefits of investing in storage units is the potential for steady, recurring rental income. Storage units typically rent on a month-to-month basis, providing consistent cash flow for landlords. The self-storage industry has proven to be relatively recession-resistant as people continue to pay for storage even in down economies. With proper management, storage units can achieve 85-95% occupancy rates year-round. The consistent demand makes storage a reliable investment for generating regular income investment.
Storage facilities require less maintenance than other real estate
Compared to other types of commercial or residential rentals, storage units require much less daily maintenance and repairs. Tenants are responsible for keeping their units clean. Storage facilities only require occasional maintenance like exterior painting, lighting repairs, or snow removal. The hands-off nature of managing storage makes it efficient for generating profits. Investors don’t have to sink as much time or money into maintenance and unit turnover like other rentals investment.
Limited opportunities for rent increases
While storage units provide consistent cash flow, there is limited opportunity for significant rent increases. Storage rental rates are largely driven by local market conditions and competition. Investors cannot usually raise rents more than a few percentage points each year without pricing their units out of the market. The mostly fixed rental income limits the profit potential of storage investments investment.
Large capital required for purchasing facilities
A main barrier to investing in storage is the high upfront capital required. Developed storage facilities typically sell for around $50 to $100 per square foot. A 50,000 square foot storage property could easily sell for $3 million to $5 million. While it’s possible to get financing, traditional bank loans usually require 25% to 35% down payments. Investors need a substantial amount of capital to buy storage properties investment.
In summary, investing in storage units provides mostly stable, fixed-rate income but limited upside potential for rent growth. The large upfront capital and financing required makes it difficult for smaller investors. As part of a larger diversified real estate portfolio, storage units can be a fairly low-risk component that generates steady cash flow over time investment.