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Should You Invest in Self Storage Property?

[fa icon="calendar"] 07.07.2016 / by Rory Williams

 

Investing in self storage units was a goldmine a few decades ago. Now that every town on the map has several of these facilities, the market is a little harder to break into. You’ll need to do some serious research to find out if there is room for another.

However, if there is a demand for more storage space in your town, it can be a great investment. Maintenance costs for a self storage facility are minimal and may not even exist for the first few years. Other costs are predictable and fairly easy to manage, which means that you could have a fairly consistent cash flow for the next few years or more.

Here are a few trends to consider before deciding if this a good investment for you:

Increased Competition

As more investors start to see the potential of self storage facilities, the market will become more and more competitive. This will naturally result in overbuilding for some areas which will make it harder for owners to attract and retain customers. Working efficiently and offering higher quality facilities will become necessary to survive in the self storage market.

High Tech Facilities

Storage facility owners will need to make improvements to attract an increasingly discerning customer base. Larger offices, user friendly layouts, increased security and climate controls are just a few features that owners will need to incorporate in their facilities. You can also expect to see increased competition for locations in high traffic areas closer to retail centers.

As a result, some towns will require facilities to have a retail element and to maintain a certain appearance to blend in with surrounding businesses. This could mean anything from mandatory landscaping to specific architectural features. Self storage facility owners will need to accommodate these demands if they wish to secure their ideal location.

Industry Consolidation

As larger public companies and Real Estate Investment Trusts (REITs) face increasing pressure to produce results, there is sure to be some consolidation of mid to large size companies. The problem is that these companies can’t develop their own facilities fast enough to meet their growth deadlines. This means there will be a big upsurge in mergers and acquisitions in the next couple years.

Increase in Value

The upward trend of self storage value will most likely continue for several reasons. The main one being that low interest rates will create larger net profits for investors who choose to sell their facilities. This will ultimately attract more investors and make self storage one of the more sought-after assets in commercial real estate.

Many investors have created valuable portfolios and, as they sell off their properties, are looking for ways to spend their 1031 tax deferred exchange dollars without paying taxes. Self storage facilities remain to be great places for investors to store their money before their tax deferred status expires.

Self Storage On The Rise

Self storage facilities are on the rise as a viable commercial real estate investment. The upward trend may not continue forever, but with reliable past performance and increasing demand, self storage is currently one of the more trustworthy investments.

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Topics: Investment Properties, Self Storage

Rory Williams

Written by Rory Williams

Rory is the managing partner of Demetree Real Estate Services, a diversified real estate organization focused on investment, development and real estate services. He has experience running the operations of a private real estate portfolio with 5MM square feet and operations in 8 states.