An Investor’s Guide to Self Storage REITs

Have you ever dreamed of owning your own business but weren’t sure where to start? Or thought about investing in real estate but were intimidated by the complexities and risks involved? An increasingly popular option for those who want the potential returns of real estate investment trusts (REITs) is self-storage REITs.

REITs are a great way to diversify your investments, with the potential for generous returns, and self-storage REITs are a perfect way to take advantage of this opportunity. Self-storage REITs allow you to invest in multiple properties without having to purchase, manage, or maintain them directly. In this guide, I’ll discuss what you need to know about investing in self-storage REITs: the benefits, how they work, and how you can get started. So if you’re ready to explore the world of self-storage real estate investment trusts and all the potential they offer, let’s get started!

What Is a REIT and Why Invest in Self Storage REITs

Real Estate Investment Trusts (REITs) are companies that own, operate, and manage income-producing real estate assets. They are publicly traded like stocks which provide yields on dividends, making them an attractive way for capital owners to invest in real estate.

When it comes to self storage REITs, these companies own and manage storage facilities for individuals and businesses who rent space to store their possessions. One of the oldest and largest storage REITs in the United States is Public Storage, which has been operating for over 45 years.

Self storage REITs are attractive investments because they offer regular dividends that are taxed at lower rates than other sources of income. Additionally, most financial advisors recommend these investments because they provide consistent high yields with built-in inflation protection over time.

Investing in Self Storage REITs Benefits & Risks

Investing in self storage REITs can provide passive income and require less capital expenditure than other real estate sectors. As self-storage facilities are cheap to build and operate, they often offer a low purchase price. Furthermore, the fact that these facilities have low barriers to entry makes them more attractive for investors who intend to invest in real estate.

Self-storage REITs have also proven to be profitable investments during times of economic upheaval—self-storage was the only real estate investment trust sector to post a positive return during the 2008 economic downturn.

However, investing in self storage units comes with its share of risks as well. First, while rental demand is strong and occupancy rates are high, it is important to take into consideration all the variables associated with investing in this space such as location, size of the facility, and state regulations. Additionally, if interest rates move up too quickly over a short period of time then it could cause a decrease in demand for renting storage units and consequently lead to lower returns for investors. Nonetheless, proper due diligence on the investor’s part combined with a solid understanding of the risks associated with this type of investment can ultimately lead to profitable returns from self-storage REIT investments.

Understanding the Different Types of Self Storage REITs

One of the most important things to understand when looking into Self Storage REITs is the different types that are available. The two main types of Self Storage REITs are public and private.

Public Self Storage REITs

Public Self Storage REITs provide a way to invest in the self-storage industry without having to own an entire facility. The most significant player in this space is Public Storage, which has been around since 1972 and is the oldest and largest self-storage REIT in the United States. When you invest in a public self-storage REIT, you’re essentially buying stock in a real estate investment trust (REIT) that owns many storage units around the country.

Private Self Storage REITs

Private self-storage REITs offer investors a more hands-on approach to investing in self storage. Instead of buying into a business like Public Storage, investors gain ownership in a single storage facility or multiple facilities under one owner. This type of investment offers the potential for higher returns than public investments, but it also carries more risk due to its lack of diversification.

Analyzing the Financial Performance of Self Storage REITs

Once you have some knowledge of self-storage REITs and you’re confident that it’s an industry worth pursuing, the next step is analyzing their financial performance.

Dividend Yield

Self-storage REITs pay an average dividend yield of 3.5%, which is higher than the average 2.2% for all equity REITs and far higher than the 0.7% for S&P 500 companies. This means that investors can expect a steady income stream when investing in self storage REITs.

Vacancy Rates

Vacancies are a major factor in the success of self-storage REITs. Fortunately, self-storage vacancies fell by nearly 2% from 2019 to 6.6% in June 2021. This drop came after an 18% year-over-year increase at the end of 2019 as demand surged in 2020 due to people needing more space to store their belongings as they moved during the pandemic.

Return on Equity (ROE)

The return on equity (ROE) measures how effectively a company earns profits from its shareholders’ investments—and in this case, we’re looking at two popular Self Storage REITs: Extra Space Storage and CubeSmart. Extra Space Storage had an ROE of 27%, while CubeSmart generated an ROE of 9%. Overall, these returns indicate healthy numbers for both companies and show that investors should look closely at these names if they are interested in investing in Self Storage REITs.

Total Returns

One final measure to consider when considering investing in Self Storage REITS is total returns—the combined benefit from dividends and share price appreciation over a certain

Researching & Selecting the Right Self Storage REITs

One of the perks of investing in self storage REITs is that there are already a number of them listed on the FTSE Nareit US Real Estate Indexes, so you can get a good idea of what’s out there. But, you’ll need to do your research and select the right one for you.

You should consider:

Occupancy Rates

Self storage properties tend to have far higher occupancy rates than other commercial property types since they are relatively recession-resistant. Research the REIT’s current occupancy rate so you know how well they’re doing and if they’re likely to continue to thrive.

Competitive Edge

The self-storage market is extremely competitive, with even more competition expected as researchers estimate 10% of US households regularly pay for self-storage by 2021. Check out what the REIT does to stay competitive and make sure it aligns with your own approach.

Future Growth

Look into the future prospects of any potential investments you’re considering before committing. For example, US Self-storage REITs have an estimated market cap of $77.7 billion in 2022. Given this impressive statistic, make sure the REIT has strong plans for future growth that align with your goals as an investor.

Strategies for Investing in Self Storage REITs

Are you looking for a reliable real estate investment opportunity? A Self Storage REIT offers a great way to invest in commercial real estate. Nearly 145 million Americans are now living in households that invest in Self-Storage REITs, and savvy investors realize that this is one of the most lucrative options on the market right now.

What are Self Storage REITs? They are Trusts Real Estate Investment, publicly traded like stocks, and offer high liquidity. Investing in self-storage units through REITs is the easiest and quickest way to get into the self-storage market. These REITs rent out space to both individuals and businesses, offering investors great returns over an extended period of time compared to traditional investments. Shares in a self-storage REIT are more liquid than most other real estate investments.

But how do you choose which Self Storage REIT is right for you? Here are some strategies for investing:

• Research your investment thoroughly – take into account current trends, property locations, tenant profitability, and concentration risk.
• Carefully review management’s track record of performance to ensure consistency across their portfolio.
• Utilize technology to track your investments’ performance in real time and have timely insights on any changes or updates in the market conditions.
• Get professional advice if needed – speak to an expert that has extensive knowledge & experience on how best to proceed with your self-storage investment plan.

Conclusion

Self Storage REITs offer investors a great opportunity to diversify their portfolios with a solid asset class. Although the investment does require some due diligence, the long-term returns have been consistently solid and rewarding.

Ultimately, Self Storage REITs provide a great opportunity for investors to capitalize on the steady growth of the self-storage industry. With a little bit of research and knowledge, you can feel confident that you’ll be able to find the right REIT for your own portfolio.