Self storage facilities have become an increasingly popular investment option in recent years. As housing costs rise and living spaces become smaller, more people are turning to self storage to hold their extra belongings. This growing demand has led investors to consider storage facilities as a way to generate steady cash flow. However, the high operating costs associated with running a storage facility can eat into profits. Key factors to analyze include location, local market demand, cost structure, and financing options. By understanding the pros and cons, investors can determine if a storage facility presents a good investment opportunity for their goals.
Demand continues growing as households become more mobile
The documents provided highlight that demand for self storage is being driven by more mobile households and apartments with less storage space. As people change homes more frequently, they need temporary places to store their belongings. And as micro-apartments become popular in cities, residents have less in-unit storage and so turn to external facilities. These cultural shifts indicate demand should keep expanding going forward, supporting the investment case for storage facilities.
Steady cash flows but intensive management oversight needed
Storage facilities can generate steady cash flows from tenant rental income if high occupancies are maintained. However, hands-on management is required to operate facilities efficiently and keep costs in check. Investors must directly oversee aspects like pricing units competitively, minimizing delinquencies in rental payments, controlling labor and maintenance outlays, and keeping spaces filled. Without proper oversight, the high operating expenses can rapidly erode profits from a storage investment property.
Local market conditions significantly sway financial viability
While national demand trends may be favorable, local market dynamics can determine whether a specific storage facility investment succeeds or struggles. Factors like population density, home sizes, income levels, move-in/out volumes, and competing facilities heavily influence the occupancy rates and rental rates a given facility can support. Investors must carefully assess the local area demand when considering a potential facility purchase to confirm strong fundamentals are truly present.
Complex financing arrangements available but come at a cost
The documents discuss financing considerations like using a combination of debt and equity, tapping private capital sources, forming REITs, and more. More complex partnerships and corporate structures can facilitate larger-scale investments in the sector. However, higher leverage and more exotic financing options also increase the investment risk profile. Investors must weigh the trade-off between easier access to capital and higher potential returns versus heightened risk exposures when evaluating financing strategies.
In summary, self storage facilities come with trade-offs for investors to weigh. While market demand is clearly growing and cash flows can be steady, operating expenses are high and hands-on oversight is a must. Carefully analyzing factors like location, local demand, and financing can clarify if a storage property presents a good investment opportunity or not.