With the rise of online shopping, people tend to buy more items but have limited space to store them. This leads to a huge demand for small storage units in residential areas. Investing in small storage units near residential areas can generate stable rental income with minimal management needed. In this article, we will analyze the benefits of small storage unit investment and useful tips for succeeding in this business.
Huge demand for small storage units creates lucrative investment opportunities
The self-storage industry has experienced rapid growth in recent years. According to IBISWorld research, the self-storage industry is expected to grow at 3.4% annually from 2022 to 2027. The demand comes from both residential and business clients. Downsizing living spaces, accumulation of possessions, and lack of basement storage all contribute to the need for extra storage among residential clients. For business clients, storage units provide flexible solutions for storing excess inventory, business records, equipment, and more. Small storage units ranging from 5 feet x 5 feet to 10 feet x 10 feet are especially popular in residential areas where space is limited. With proper location selection and smart management, small storage units can generate considerable and steady rental income for investors.
Lower risks compared to other real estate investments
Investing in small storage units near residential areas is relatively low in risk. The default rate is very low compared to other real estate properties. Tenants are required to pay the rent upfront every month, ensuring timely payments. If tenants fail to pay rent for 2-3 months, owners can auction off the contents inside the unit to recover the loss. Such arrangements lower the risks significantly for storage unit investors. In addition, maintenance and management for storage units are straightforward and cost-efficient, without extensive repair and remodeling work needed. As long as the foundation and roof are intact, storage units can continue functioning well, making it ideal for passive investment.
Look for locations with high population density and low competition
The key to succeeding in small storage unit investment is locating in areas with sufficient demand. Investors should look for locations with high population density, limited living spaces, and not enough existing storage facilities. New residential buildings without storage spaces, apartments occupied primarily by young professionals, and areas populated with college students are great potential markets. Meanwhile, research competitors in the area and avoid oversaturation. Up to 5 self-storage facilities within a 5-mile radius is reasonable competition. More than that may lead to vacancies and a price war between competitors, negatively impacting the investment return.
Offer customized unit sizes with competitive pricing
One advantage of small storage units is the flexibility to cater to clients with varying needs. Investors can divide up the storage space into a mix of unit sizes, including 5×5, 5×10, 10×10, and climate-controlled units. Conducting local market research helps determine the ideal unit size mix. Units should be priced competitively but not the lowest in town. Low-balling will make it hard to raise rents later. Ideally, base pricing should reflect the average market rate while keeping acceptable profit margins. Also consider offering monthly discounts and referral bonus programs to attract tenants.
In summary, investing in small storage units near residential areas provides stable cash flow with minimal management requirements. Choosing the right location and offering customized units at reasonable prices are key factors for succeeding in this business. For investors who prefer hands-off real estate investing, small storage units present lucrative opportunities.