self storage
- Thread starter JohnKrahn
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No experience myself however I certainly have always thought they would be far lower maintenance. Still dealing with people but not for the same reasons. They seem pretty hands off overall, at least in comparison to how I do my current rental property.
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A couple of cons that come to mind are: It's harder to get financing, since you're getting closer to running a business and further from a pure real estate investment. It can often require an on-site person, which adds to your fixed costs.
Because of some of these factors, self-storage typically sells at higher cap rates (lower price per $ of net income). That can be a plus if you're buying, since for the same amount of available capital you get more net income per year. If you're looking to build one, stabilize it, and sell it, then that would be a negative, since you'd get less money back for every dollar of net income you create. On the other hand, developing one should be simpler than other types of construction, as the required infrastructure is much less.
I think they can also be harder to stabilize (lease up) than residential property, as not everyone needs self storage.
Anyway, just a few thoughts,
Michael
PS I once rented a self storage unit in a converted warehouse/big box store. It had been vacant, and someone bought it and put car/RV storage in one half and self storage units in the other half. Something similar might work.
Because of some of these factors, self-storage typically sells at higher cap rates (lower price per $ of net income). That can be a plus if you're buying, since for the same amount of available capital you get more net income per year. If you're looking to build one, stabilize it, and sell it, then that would be a negative, since you'd get less money back for every dollar of net income you create. On the other hand, developing one should be simpler than other types of construction, as the required infrastructure is much less.
I think they can also be harder to stabilize (lease up) than residential property, as not everyone needs self storage.
Anyway, just a few thoughts,
Michael
PS I once rented a self storage unit in a converted warehouse/big box store. It had been vacant, and someone bought it and put car/RV storage in one half and self storage units in the other half. Something similar might work.
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... I once heard tale of an RV "storage" which was a quarter section of land near Ft. Mac where the owner had divided it into "lots" 12'x12'x40 I believe and had rented them out. They were "storage" as he was providing no utilities at all however the RM evaluated and required a stop sign at the approach due to increased traffic flow. If the story is true it was brilliant, as the version I heard also mentioned $2,000/month for a "lot". That's my kind of storage unit!!
Around here there are numerous outdoor storage area for RV/boats. The local Harley dealer will store your bike for ~ $600 for December - March.
Lots of opportunity if you look for it.
Around here there are numerous outdoor storage area for RV/boats. The local Harley dealer will store your bike for ~ $600 for December - March.
Lots of opportunity if you look for it.
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- Jan 2, 2008
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I just sold my self storage business last spring because I had a very interested buyer, otherwise I would have hung on to it. I agree it can be a bit tougher to get financing and cap rates will always come into play in any kind of commercial venture. However, I think there is lots of upside.
Often you can use land that is sitting vacant that no one else will use. Self-storage tends to be on the outskirts which puts you in line for future development potential while you are collecting decent cash flow. Self storage falls under the wharehouseman's act which allows you to liquidate assets you have stored if your clients don't pay hence no eviction hassles as with residential tenants.
If your self storage client doesn't pay you just lock out access to their stuff. etc. etc. If you are using some of the REIN principals like getting in the way of expansion, creating value by changing use of existing property etc., it can be very profitable. I have also heard that self storage businesses are booming right now in the US because so many people are parting with their big houses but are having a harder time parting with their stuff (like grandma's antique couch) and are choosing to pay people to store it for them. I think its a great business.
Glen Dahlke
Often you can use land that is sitting vacant that no one else will use. Self-storage tends to be on the outskirts which puts you in line for future development potential while you are collecting decent cash flow. Self storage falls under the wharehouseman's act which allows you to liquidate assets you have stored if your clients don't pay hence no eviction hassles as with residential tenants.
If your self storage client doesn't pay you just lock out access to their stuff. etc. etc. If you are using some of the REIN principals like getting in the way of expansion, creating value by changing use of existing property etc., it can be very profitable. I have also heard that self storage businesses are booming right now in the US because so many people are parting with their big houses but are having a harder time parting with their stuff (like grandma's antique couch) and are choosing to pay people to store it for them. I think its a great business.
Glen Dahlke
Thanks for the input, it validates what I'm finding as I research this investment. My goal is exactly as stated by bizaro86: "build one, stabilize it, and sell it", which I expect to take 3-5 years because I will be building in phases as the units fill up. My field of work is general contracting and building construction so this project is a good fit for my existing business.
I'm using an 8% cap rate to determine value, versus using 6% on new residential units. Is that reasonable?
I'm using an 8% cap rate to determine value, versus using 6% on new residential units. Is that reasonable?
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An issue I've seen is that often where you can create this, many other people can nearby = zero barrier to entry