With the self storage industry continuing to grow, investing in self storage facilities can be an attractive real estate investment opportunity. When evaluating potential investments in this sector, there are several key factors investors should research and analyze. First, look at population and demographic trends in the area to assess demand for storage units. Growing cities with steady population increases tend to have strong demand. Also examine the existing competition and occupancy rates, ideally looking for areas with high occupancies and limited new construction. Additionally, evaluate the facility’s location, visibility, access, and proximity to major highways or residential areas. Furthermore, assess the physical attributes of the property like security, unit mix, climate-controlled options, on-site management, and amenities. Beyond the fundamentals, investors must consider risks like overbuilding in the local market, emergence of new competitors, and evolving customer preferences. With proper due diligence and careful evaluation, investing in self storage can provide stable cash flow and long-term appreciation potential.
Analyze area demographics and demand drivers when investing in self storage facilities
One of the most critical factors to analyze is the demographics and demand drivers in the area where you are considering investing in a self storage facility. Look at population growth trends, job growth, housing starts, and other economic indicators that impact the need for storage units. Fast-growing cities and suburbs are ideal locations. You also want to study demographic data like age distribution, income levels, and household formation rates, as certain demographic segments have higher demand. For example, areas with more young professionals renting apartments or baby boomers downsizing often need more storage. Beyond current demand, research projections for future growth in jobs and housing in the area to understand long-term demand prospects when investing in self storage.
Evaluate competitive dynamics and occupancy rates of existing self storage facilities
When researching a potential self storage investment, you need to carefully assess the competitive landscape. Drive the local market to identify existing facilities, looking at factors like age, visibility, unit mix, and amenities. A market with high occupancies and limited new supply could indicate untapped demand. You can also use resources like the Self Storage Almanac to analyze occupancy rates, rents, and other metrics for a target market. Be wary of markets with an abundance of vacant units or facilities under construction. High occupancies in the low to mid 90% range are ideal. Analyze competitors’ offerings and prices to determine if there are opportunities to attract customers based on factors like security, cleanliness, customer service or amenities. Understanding the competitive dynamics is key when investing in self storage facilities.
Evaluate the physical property and location of the self storage facility
In addition to market factors, carefully scrutinize the physical attributes and location of the specific self storage facility you are considering for investment. An easily accessible location near residential areas and highways can draw more customers. Also pay attention to visibility, signage, ease of access, and traffic counts on surrounding roads. The configuration and mix of unit sizes is also critical, with a balance of unit types to serve both residential and business storage needs. Well-maintained buildings, ample drive-up access for loading, climate-controlled options, and high security features like keypad gate access also add value. Onsite managers and sophisticated revenue management systems can help optimize operations. Before investing in self storage facilities, do thorough due diligence including environmental assessments, surveys, and property inspections.
Conduct financial analysis and assess risks when investing in self storage facilities
From a financial perspective, model out the investment’s cash flow projections, capitalization rate, expected returns, and financing terms to calculate profitability. Forecast both rental income and expenses like taxes, maintenance, management fees, insurance and utilities. Also factor in initial renovation or expansion costs if applicable. The stability of cash flows over time makes self storage an appealing investment, but smart investors will model downside scenarios as well. Assess risks like new competition being built nearby that could impact occupancy and rents. Consider how evolving tenant preferences and the market’s saturation point could affect long-term demand. Lastly, factor in exit strategies and projected future selling price. Running thorough financial models and risk assessments is vital for making smart self storage investments.
Investing in self storage facilities can provide steady cash flow if done prudently, but requires thorough due diligence on local market conditions, demand drivers, competitive standing, physical attributes, and financial projections. Weighing all these factors will allow investors to make wise decisions and avoid potential pitfalls.