May 20, 2016
Why Storage Facilities Appeal to First-Time Real Estate Investors
Many people begin their foray into real estate investing with a self-storage facility.
Why? Because operating a self-storage business is easy, safe, and profitable.
1. Entering the Self-Storage Market
No real estate venture offers an easier way for entry-level investors to get into the game than the self-storage business.
- Self-storage facilities involve far less initial capital outlay than many other real estate ventures.
- Because their high success rate, lenders look favorably on self-storage startups. Down payments may run as low as 25% on conventional business loads. Loans through the Small Business Association (SBA) may require only 10% down.
- Operating a self-storage business is straightforward, requiring little experience. If operational training is warranted, it is readily available. The Self-Storage Training Institute (SSTI), for example, offers online certification classes in self-storage management.
- Although 80% of self-storage businesses are independently owned and operated, many companies offer self-storage franchise opportunities. Marketing is handled by the company, relieving the owner of that expense and responsibility.
- However, the franchise company requires royalties for the use of their name and system.
- Unlike residential real estate ventures, well-built self-storage facilities demand little upkeep and maintenance.
2. Self-Storage Businesses Constitute a Safe Investment
While no business venture promises a risk-free ride, a self-storage operation comes very close.
- Only 37% to 47% % of office, multi-family, and retail real estate ventures succeed. A whopping 92% of self-storage business succeed. (No wonder banks eagerly finance loans for self-storage projects!)
- Americans’ reluctance to jettison their stuff is legendary. Consequently, the self-storage market continues to grow at an astounding rate.
- The self-storage business is practically recession-proof:
- One in 10 Americans currently rents self-storage space.
- Each year 12% of Americans move. Many will need extra space to store the overflow.
- When kids return home after college, job loss, or divorce, the excess stuff often goes into a self-storage unit.
- Downsizing baby boomers rent space to avoid parting with mementos cherished mementos and furnishings by shoving them into storage facilities.
- As a surge of elderly Americans move into assisted care facilities, families pack away their belongings. Lacking extra space, their grown children deliver their parents’ lifetime of possessions to the local self-storage facility.
- Military personnel, who make up 10% of storage clientele, relocate frequently and use self-storage units to house their belongings.
- While most self-storage facilities offer short-term contracts, most renters procrastinate about clearing out the stored items. On average, renters keep their units for over three years.
- Self-storage owners confiscate all the stuff stored in the units of non-paying renters. The owners then auction the goods off for a profit.
- ISBS World expects the self-storage market to enjoy 2.9% per year growth rate through at least 2020.
3. Self-Storage ROI
An impressive return on investment (ROI) awaits most self-storage business startups. Projecting profits takes a lot of local market research, a little patience, and a few tips.
The median size of self-storage facilities in the U.S. is over 500 units. However, starting with a great location with ample room to expand allows new facilities to start smaller and grow as needed.
Take the number of net rental square feet and multiply by the average cost per square foot in your local market. Operating costs— including utilities, marketing, security, insurance, taxes, payroll, and the like— on average run about $3.25 per square foot. (These figures do not include franchise royalties or debt service.)
Typically, a self-storage facility still makes a profit at 70% of full occupancy. The industry average is 90%. Experts say you should plan on it taking one to two years to reach 90% of capacity, depending on your market and strategy.
Many independent self-storage owners run the facility as a family. However, others not interested in hands-on management simply hire a qualified facility manager.
Constructing Self-Storage Facilities with Steel Buildings
Self-storage establishments prefer constructing pre-engineered steel buildings for their facilities. Metal self-storage building businesses are:
• An eco-friendly building system
• Energy efficient when insulated
• Fast to erect
• Less expensive for builder’s risk insurance
• Less expensive to insure long term
• Long lasting and durable
• Simple to clean and maintain
• Suitable for one or two-story operations
RHINO Steel Building Systems includes many superior waterproofing features at no additional charge and are ideal for those looking into the storage building business.
RHINO’s Pro-Value insulation system chops utility bills in half on climate-controlled self-storage units. The faster construction of pre-engineered metal buildings cuts builder’s risk insurance.
Our self-storage buildings arrive clearly marked and ready to assemble.
RHINO ships prefabricated self-storage systems and other steel buildings all across North America. Each order ships from the nearest factory to reduce freight costs.
Please call the RHINO hotline— 888.320.7466— now for details and ordering assistance for your self-storage project.