Why Investors Should Consider Joining the Self-Storage Boom
If you’ve been looking for your next great business venture, chances are you’ve heard about self-storage. In the last few years, major media outlets have covered the growth of the industry, including “Forbes,” “The New York Times,” the “San Francisco Chronicle” and many others.
According to Bloomberg, the number of available storage units on the market more than doubled from 1998 to 2012. Business-media website Bold Business reports the industry comprises more than 2.3 billion rentable square feet, growing 7 percent annually. This $38 billion business shows no sign of slowing, but that isn’t the only reason it’s a prime investment opportunity.
Every market has its idiosyncrasies and revenue drivers. Generally, a storage facility with 40,000 rentable square feet in a market bearing monthly rental income of $9 per square foot will generate $450,000 in gross annual rent at 100 percent occupancy, according to The Parham Group (TPG), which specializes in self-storage consulting, construction,development and management. A 29.6 percent return on investment is a standard profit margin in the industry, company officials say.
In self-storage, income is primarily derived from the rental of space, but add-on products and services can also yield healthy profit. Many facility operators sell locks, moving and packing supplies, and other retail merchandise. Additional profit centers include truck rentals, outdoor vehicle storage, records storage, wine storage, pack and ship services, and others. Additional ways to incrementally increase revenue include charging late fees and offering tenant insurance or a tenant-protection plan, on which the storage operator earns a commission.
Of course, the best way to operate a stable business is to have great tenants who pay rent on time, but TPG estimates that add-on income streams such as retail sales can add another 5 percent to facility revenue. That may not sound like a lot, but that’s supplemental income that typically doesn’t require a lot of heavy lifting.
Ease of Operation
Many small businesses require years of constant hard work to stabilize and maintain efficiency. While operating a self-storage facility isn’t always easy, modern advancements can make it a relatively painless and even remote process. By leveraging a call center, online rental tools, automatic gates, smart devices and other technology, storage operations can function with little overhead and few employees. Setting up a fully automated facility takes some initial investment, but the long-term convenience and revenue opportunities are plentiful.
Those looking to profit from self-storage without having to own or manage a facility themselves can consider hiring a third-party management firm to oversee day-to-day operation. To be even further removed, consider investing in an industry real estate investment trust or becoming an angel investor to an existing operation. Hands-off investment can be a great way to get your feet wet before diving in headfirst with your own business.
Entering the self-storage industry isn’t a quick process. Begin by deciding how involved you want to be. If you prefer to invest in someone else’s company, do research to find one you trust. If you want to operate a facility of your own, explore the many industry vendors who can help you along your journey. Investigate applicable land issues, zoning laws and business licenses.
There are no guarantees that your business will be successful; however, a self-storage facility is widely considered to be one of the safest real estate investments you can make. It might just be worth taking a chance to be part of this $38 billion and growing industry!
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