We’re going to be talking about the risks and benefits of investing in self storage. If you don’t know already, self storage is actually one of the fastest growing areas of commercial real estate. They also share a lot of the same attractive qualities as other commercial real estate investing niches such as your residential rentals, your apartments, your retail, office buildings and even industrial properties. But here’s the difference, self storage operating costs are significantly lower. They also have a lot lower default rate on their loans, which is why banks like this a lot more than say an apartment complex.
There are many other ways to profit other than the units themselves. You can sell locks, you can sell boxes, moving supplies and even incorporating a truck rental service to increase the income that way.
As a self storage owner, you have the right to change the locks and sell the contents to cover the losses for those people who do not pay their rent on time. Also, it’s virtually recession proof. And when the economy is good, people are spending money, they’re going to need places to hold their old things. When the economy’s bad, people are cutting back, downsizing, they’re going to need a place to store the excess. And this includes, when people move from a big home to a small home, big office to a small office, moving from a new home, an old city to a new city.
So there’s a lot of variations to why self storage is needed. But most importantly, what you’re not going to have to deal with are tenants and water problems, because there’s no water flowing through self storage facilities. You never have to worry about leaks, floods or plumbing issues.
Now let’s go ahead and move on to the benefits of investing in self storage. First you get to be your own boss. And like I said before, there’s significantly lower maintenance costs and operating costs. You also get to collect on a decent amount of cash flow. What that means is that basically self storage collect the same income as its sister components that I mentioned earlier, but you are experiencing much lower expenses, which means you’re going to be profiting more in this area than the other ones.
Now you also have to think that the the Rand per square meter of the entire unit is actually the same as other types of real estate investments, which is a powerful thing because most of these individual units are purely concrete. There’s no utilities that need to keep it running versus your other ones where utilities and maintenance are highly required.
Self storage deals are more appealing to banks, why? Because it’s like I said, it has good income potential and you have low operating costs. Therefore it’s easier for them to fund compared to say an apartment complex. There are also many tax advantages such as your cost segregation, which basically allows you to take certain components of your facility and put them into a separate depreciation bracket where you’re able to claim more losses for those items.
Increasing occupancy, increases the appreciation of your facility and increases your market value and that’s always good, especially when you’re looking to sell the property in the future.
Let’s talk about some of the risks involved. There is liability in case of theft, fire and structural damage that are caused harm to peoples goods inside your facility. You’ll have to take out a big insurance policy for that.
You’ll have to deal with nonpayment and evictions, but due to your lien laws, because you can change the locks, and because you can sell their things and actually kick them out, it’s much easier to manage this type of risk.
Something that you have to understand, is that self storage investing is one of the fastest growing areas of commercial real estate. The cash-flow potential is rather lucrative, but just like all real estate investment deals it all comes down to how well you manage the property and how well you control your profit margins. Any errors made in self storage such as overvaluation or overpaying for the property, having a bad location, having to much vacancy, these are very, detrimental to your bottom line in comparison to say if it was a residential property.
It’s very, very important that you do your research. There’s a lot of free information out there.