With rising demand for extra storage space, investing in storage units has become an increasingly attractive real estate investment option. However, there are several factors to consider before investing in storage units as an investment property. This article will provide an overview of storage units as an investment, including potential returns, risks, expenses, and tips for selecting a profitable location and facility.
Analyze supply and demand dynamics when investing in storage units
The profitability of a storage facility depends heavily on maintaining high occupancy rates. Therefore, investors should carefully analyze the local market supply and demand dynamics. Rapidly growing areas with limited storage availability present ideal opportunities. Slow-growing areas with an oversupply of units will make it harder to fill vacancies. Drive around the neighborhood to observe competitors, occupancy rates, and rental rates to gauge demand.
Factor in operating expenses when evaluating potential returns
Storage facilities require active management and have considerable operating expenses, including property taxes, insurance, utilities, repairs, on-site staffing, and advertising costs to attract new tenants. These costs can eat significantly into profits, so realistic expense estimates are critical when projecting returns on investment. Long-term maintenance costs also need to be budgeted for resurfacing parking lots, replacing roofs, upgrading security systems, etc.
Leverage economies of scale with larger facilities
The fixed costs of operating a storage facility, such as payroll and property taxes, can be spread across more units with a larger property. This provides bigger facilities with economies of scale advantages. Aim to acquire at least 500 units in a single facility. Smaller locations may suffer from tight margins and insufficient cash flow, especially if they cannot maintain high occupancy.
Select a location with convenient 24/7 access for tenants
Ideally, the storage facility should be located close to major residential areas and transportation routes to attract tenants. Units should be easily accessible to tenants retrieving items at all hours. Well-lit sites with paved driveways that can accommodate moving trucks are most functional.
Investing in storage units provides stable income streams and relatively low volatility compared to other real estate properties. However, conducting thorough due diligence into market dynamics, operating costs, facility size, and location accessibility is key to maximizing returns.