What is Self Storage?
Self storage (a shorthand for
"self-service storage", and also known
as "mini storage")...
…is an industry in which storage space (such as rooms, lockers, containers, and/or outdoor space), also known as “storage units” is rented to tenants, usually on a short-term basis (often month-to-month). Self-storage tenants include businesses and individuals.
Self-storage facilities rent space on a short-term basis (often month-to-month, though options for longer-term leases are available) to individuals (usually storing household goods; nearly all jurisdictions prohibit the space from being used as a residence) or to businesses (usually storing excess inventory or archived records). Some facilities offer boxes, locks, and packaging supplies for sale to assist tenants in packing and safekeeping their goods, and may also offer truck rentals (or may allow free use of a truck for a new tenant).
Facilities vary in size, quality, construction, materials, and surveillance measures, and added services may include:
- 10,000 square feet to an excess of 100,000 square feet.
- Wide range of standard sizes - 5' x 5' to 10' x 30' or larger with the average unit size being about 100 square feet (10x10).Outside parking for RV’s, boats, etc.
- Single and/or multi-level facilities.
- Resident Manager apartment on-site.
- Converted buildings (old supermarkets, big box retail warehouses, etc.).
- Units divided by corrugated steel panels (most widely used), chain-link fencing, plywood upon stud and drywall or stud and particle board.
- Movable module units (storage containers).
- Automatic gates with keypad computerized access.
- Surveillance cameras and monitoring stations.
- Individual door alarms.
- Well lighted.
- Completely fenced.
- Paved or concrete driveways.
- Retail merchandise available.
- Ancillary income sources (e.g. cell towers, US Postal service, private mailboxes, EBay, overnight shipping, business centers, utility payments, etc.).
About Self Storage Investing:
Items are generally not covered by the facility’s insurance; the lessor may be covered by his/her own insurance policy (if such policy has coverage for items stored off the premises of the insured) or may purchase insurance to cover the items (which the facility may offer as a service through a third-party carrier, and in some cases may require the lessor to purchase as a condition of rental).
The rented spaces are secured by the tenant’s own lock and key. Unlike in a warehouse, self-storage facility employees do not have casual access to the contents of the space (and, thus, the facility is generally not liable for theft). A self-storage facility does not take possession or control of the contents of the space unless a lien is imposed for non-payment of rent, or if the unit is not locked the facility may lock the unit until the tenant provides his/her own lock.
Some storage properties offer climate controlled units, whether newly constructed or renovated buildings, usually offer access from interior hallways. Multi story construction, popular for climate control, also provides access through interior hallways and elevators. Usually, dollies and furniture carts for moving customer goods are provided as a customer service tool.
As Morgan Stanley notes, “Over the 1996 to 2004 period, annual growth in US personal consumption expenditures averaged 3.9% — nearly double the 2.2% pace recorded elsewhere in the so-called advanced world.” In the United States alone, the self storage industry has generated more than $22 billion in revenue in 2012. In 2007, the U.S. self-storage renting and leasing market was nearly $6.6 billion – so you can see how much it grew in just 5 years’ time.
- The average revenue per square foot varies from facility to facility; however, here are the data for Q2 2015: $1.25 PSF for a non-climate controlled 10 x 10 unit and $1.60 PSF for a climate controlled 10 x 10 unit.
- In fact, about 9.5% of all American households currently rent a self-storage unit (10.85 million of the 113.3 million US HHs in 2013; that has increased from 1 in 17 US HHs (6%) in 1995 (18 years ago).
- Of over 10,000 facilities surveyed, approximately 6,000 are single-story facilities and approximately 4,000 are multi-story facilities.
- Of over 10,000 facilities surveyed, the mean facility size is 546 units and the median facility size is 517 units.
- Of over 10,000 facilities surveyed, 18.7% offer Boat / RV parking and/or storage.
- Of over 10,000 facilities surveyed, 31% offer truck rental.
- About 13% of all self storage renters say they will rent for less than 3 months; 18% for 3-6 months; 18% for 7-12 months; 22% for 1-2 years; and 30% for more than 2 years.
FAQ - How Can Self Storage Investing help you?
If it’s such a great business, why would someone want to sell?
First of all, it’s worth noting that self storage are sold at a discount every single day all across the country, so this isn’t a “rare” situation where this would happen. An example of why a lender would sell a facility is when a borrower stops paying on their loan. This note then becomes classified as a “Non Performing Note” (NPN) or a “Delinquent Loan”. So rather than deal with the NPN themselves, lenders will very often sell these off at big discounts just to free up their money to make a new loan. In addition, there are many reasons a private seller would want to sell their facility at a fair price: Retirement, trading up to a larger facility, tax implications, health, divorce, bankruptcy…virtually any life changing event would cause a seller to sell their facility, or just because it’s time.
Where should I seek Financing my Self Storage Facility?
The first place to start is by asking if the owner is interested in holding the note and receiving payments directly from the buyer, as in a traditional borrower/lender scenario. The tax advantages for the seller are huge, and so are his profits. If that is not a possibility, the next steps are to contact any banks in the market that you have a relationship with, and then a commercial mortgage broker that specializes in self storage.
I see these facilities everywhere; is the market saturated?
The reason we see so many, is that roughly 1 in 10 households rents 1 or more units in this country. It has become a commodity that many Americans can’t live without – more space! But don’t worry, with average market occupancies approaching 90% in this country, the self storage business is far from becoming saturated any time soon.
What if I don’t have much Money or Credit?
The beauty of this business is that you don’t need a significant amount of capital or credit to start. In fact, many of our students have little to no money of their own and have still gone on to successfully own and wholesale self storage facilities. The fact is that there is so much money available through banks and private lenders to fund your deals that by simply deploying a few of our strategies that we teach about how to close deals will finally remove the barrier to success due to lack of money.
What if I have a full time job?
Can I still do this? Most of the people we train to invest are in the same position and have gone on to buy their own properties. The strategies we teach allows you to start the business in your spare time. What many people have found, or have in mind, is that as they acquire more facilities, ultimately, it would end up costing them more money to go to work due to the lost opportunity of ignoring their self storage investing business. That’s when people make the switch to becoming a full time self storage investor.
What are the risks?
As with any investment, of course there are risks involved. But as a responsible investor it is up to you to get the proper education and professional guidance to reduce those risks as much as possible. Without doing the proper due diligence, you could end up making a bad acquisition and end up losing money. However, it is important to not that the same risks exist even when purchasing your own house. With the right education, you can ensure you safely invest your money so there is a significantly reduced chance that your investment isn’t as profitable as anticipated.
How do I make sure I’m doing everything properly and legally?
Now, I am not an attorney so even I don’t know all the specific laws as they pertain to real estate transactions in each state. But the good news is that I don’t need to. What I do and what I teach my students to do is to work with specific attorneys in the situations where they need to, but the key is to only work with them when you need to. Knowing how to work with your team members, like attorneys, wisely and economically is an easy skill to learn and essential to your success.
Realistically, how long will it take for me to get my 1st Self Storage?
Investing in self storage needn’t be complicated. It’s a matter of understanding the deal, knowing how to complete the due diligence properly, and obtaining the necessary funding to close the deal. Once you understand these 3 steps, you can successfully acquire self storage facilities anywhere in the country – not just your own backyard. And the good news is that you can do this in as little as 10 hours a week or even less. Some of my most successful students have gone on to close their first deal in a matter of weeks. Like most things in life, the more time and effort you dedicate, the more successful you can become.