You found the perfect building, you know that it is in a great location, now it is time to determine if the market can support a self-storage facility in that area. You can do a little research on your own, but ultimately, you want to do a feasibility study to verify everything that you learned. For more information on feasibility studies check out our blog.
Now it is time to look at the demographics of the surrounding area. When you are investing in Self-Storage you need to find out about the area, especially if you are investing out of state. You need to know if this is an area that is appreciating or declining. We are in the trauma and transition business, but we cannot make that work if there is no one left to rent to.
You can go to the cities webpage and look and see if the city’s population is increasing or decreasing. You also want to look at the demographics to see what the average income is. People who make less than $25,000 a year really cannot afford storage. People who make too much have a big enough house that they do not need storage. You are looking for that sweet spot. $45,000 is a good median household income.
You also want to be in an area that is roughly 25% multi-family properties. They typically need self-storage because they do not have enough room in their apartment for all their belongings. However, you do not want this to be student housing because they have not had time to accumulate things that need to be stored. Students are not the demographic we are looking for. 25% multi-family is also a ratio that lenders look for when they are evaluating your feasibility study.
Always do a search to see how many self-storage facilities are within a 3 mile radius of yours. If there are several, are they between you and most of the homes? People like convenience. They are not going to drive past other facilities to get to yours. You do not want to be out located. People usually try to stay within 3-5 miles of their home when they are looking for self-storage. Obviously in some areas, that is not feasible, but this is a good rule of thumb.
People also do not tend to cross major barriers. For example, if there is a large river that divides a city, that tends to be a mental barrier. People will try to stay on their side of the river. If you live in an area with a lot of little cities, even if your property is on the border, people may not go from one city to the next because it is a natural barrier to stay in their own city.
You found the perfect property. You know that it is in the right area and you know that the demographics work, but does the configuration of the building work? Find out in our next blog. As always, Happy Investing.