How to correctly buy a self-storage facility
Buying a personal storage facility is much more difficult than you might think, especially if you want to make money from it. Over the years, there are some basic traits that separate winning facilities from losing ones. And that genetic code is difficult to decipher.
There are many people who will tell you all about buying a self storage facility to sell you a book, a course, or a boot camp. But they really have limited or no experience. The concepts we are going to tell you about here are based on real life information, and much of it, from operating one of the largest dedicated websites in the industry. And it may be very different from what you have heard before.
50,000 residents within a 3-mile radius of the facility.
The myth that you can build a storage facility in the middle of nowhere and fill it up needs to be exposed. Self-storage depends on people: people who need to store things. In the absence of population, there is no demand. You can’t build or buy a storage facility in a small town of 5,000 and be successful, at least not enough to make money from it. Population density is key.
Traffic count beyond the installation of more than 25,000 cars per day.
Most self-storage customers find their storage location by passing through. It is, in many ways, a purchasing decision. Few people conduct a scientific study on where to store their things. They look to convenience and often just stop at the first one they pass near your home or business. As a result, it is also a myth that you can have a successful self-storage facility that is hidden from view or stuck on a two-lane street with no traffic.
$ 50,000 median household income.
To pay for storage, to pay $ 100 per month or more, the customer must have discretionary spending power. If you are struggling to cover your rent or mortgage, you will not have the desire to increase your already difficult finances. Also, to have the need for storage, they will have to have an excess of belongings. Only people with higher incomes can accumulate enough material items to need storage.
400 units onwards.
There are some significant fixed costs in a self-storage facility, the biggest of which is the manager. You must have enough units to support the personnel 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 kind of management. That is why small complexes in rural markets are always for sale on the market.
High barrier to entry.
You may have noticed that there are a lot of storage units in almost every major city in the US, and most midsize markets as well. It is extremely important that you select a market that practically does not allow the construction of your own 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 no properly zoned property, or a high price per square foot for properly zoned land, making building a new facility unprofitable.
No more than 6 square feet of storage space per person on the market.
A 100,000-population market must 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 market density has a lot to do with this. In areas with much denser housing, there is less land available for storage facilities and a larger population to maintain it. San Francisco, which is extremely dense, is a huge self-storage market, where 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 facility. When you find fees significantly below $ 1, it not only implies that the supply / demand is out of control, but that you will not be able to generate enough returns for the facility to be a winner.
Buy in a hurry, if you can.
We are entering a period of unmatched dislocation in the credit markets, coupled with the current US recession. Many commercial real estate properties, perhaps most, will have problems for years to come, as their existing promissory notes cannot be renewed because they paid too much for the property. There will be a plethora of REO properties on the market, as well as desperate sellers.
This is a once in a lifetime time to buy a self storage facility, when you can buy quality property for a penny on the dollar.
There are strict rules and guidelines for purchasing a successful self-storage facility. Once you know and understand them, you are already a mile ahead of the competition. And that, coupled with the timing of the commercial real estate crash, can give you some of the highest-yielding self-storage investments of all time.