Beginners Guide For Investing In Storage Units in 2024

Wondering about investing in storage units? Many people see it as a viable investment opportunity and look for ways of buying a storage facility. 

Over the past four decades, the storage unit has skyrocketed and is one of the fastest-growing sectors of the U.S. commercial real estate market. Many people are drawn towards self-storage investment opportunities for a steady source of passive income and portfolio diversification. But not many people know how to invest in self-storage. 

This blog will discuss how to invest in storage units and how you can take advantage of this lucrative investment. 

Let’s get started. 

What is Self-Storage Investment?

Self-storage investment is a type of real estate investment where you invest your money in storage units and earn a passive income through rental revenue. For instance, a business might need storage units for storing surplus inventory. A homeowner might need extra room for lawn equipment and extra vehicles. 

Your customers can be individuals or businesses. Either way, they pay monthly rent to place their items in a secure storage unit. As an investor, you can capitalize on this opportunity by owning a storage facility or purchasing shares in a facility. 

Moreover, the risks of investing in storage units are generally minimal because of continuous demand and high-profit margins. People and businesses will need storage units whether the market is suffering or flourishing. 

Self-Storage Market Overview

In the United States, there are over 50,000+ storage facilities. This figure is more than the number of Starbucks, Wendy’s, Pizza Hut, and McDonald’s franchises combined. 

According to studies, about 20% of Americans rent a storage unit with an average tenure of 14 months. This signifies an ongoing need for storage solutions across the country. 

In 2021, self-storage revenues were around $39.5 billion. It is expected to grow to nearly $50 billion by 2025. The best part is that this market is not dominated by big corporate companies. Around 73% of locations are owned by small businesses or individuals. 

This highly fragmented market is welcoming to newcomers and is one of the best investment opportunities. 

Self-Storage Facility Classes: Types of Storage Units

Before knowing how to invest in self-storage, you must understand the different types of storage units and their classes. Typically, storage units are classified into three classes. 

Class A: These are newly built storage facilities in ideal locations with modern amenities like storage management software, climate-controlled units, and advanced security systems. Class A storage units are usually built in the last 10 to 15 years. Due to these cutting-edge amenities, these storage units typically have high occupancy rates. 

Class B: Storage facilities that were built more than 15 years ago are classified into Class B. These facilities also offer some amenities but not on the level of A-class facilities. Features like climate control and storage software are usually not available in B-class facilities. The rental charges of these facilities are slightly above average. 

Class C: These are old storage facilities at remote locations with minimal amenities. They generally have very low rental charges and subpar security systems. 

If you want to invest in storage units, you should consider the features and amenities offered by the storage units before making an investment decision. 

What are the Benefits of Investing in Storage Units?

Financial experts see self-storage investment as a profitable venture. The number one reason to invest in storage units is high ROI. But that’s not all. Here are some reasons to consider buying a storage facility. 

Low Risk

Every business involves some degree of risk. However, self-storages have lower operational costs and, therefore lower operating risks. This means you will have high-profit margins and manage revenue fluctuations easily. 

Moreover, the demand for storage facilities is high all year round. If your storage facility is in a good location and offers great amenities, you can always find tenants. All these factors make it a viable investment with minimal risk. 

High Demand

Everybody from individuals to businesses requires self-storage units. This means you can operate a storage facility at maximum capacity, making more rental income. Moreover, life events like job losses, divorces, moving, etc are one of the driving forces of storage demand. And the demand shows no signs of slowing down. 

In the past five years, 260 million square feet of new storage space has been added. This figure is nearly 15% of the total market supply. 

Potential for Automation

One of the best benefits of self-storage investment is that it can be automated almost completely. Everything from bookings to payments to customer service can be automated. This not only decreases your workload but also minimizes operational costs. 

This can effectively boost your net operating income and your property value. 

Capital Appreciation

The best thing about real estate investments like storage units is that their value appreciates over time, instead of depreciating. Upgrading facilities, optimizing units, installing cutting-edge amenities and more can significantly increase a property’s value. 

Moreover, as the area around your storage unit develops, the value of your property develops with it. 

Economic Durability

Self-storage has proven to be a durable business venture during economic crises like COVID-19 and the crisis of 2008. It is one of the best resilient businesses in the world due to its low operating costs and decent profit margins. 

The economic durability of investing in storage units makes it an ideal investment and a passive source of income for investors. 

Risks of Investing in Self-Storage

While there are many benefits of investing in storage units, all businesses come with some types of risks. Here are the most common risks associated with the storage business. 

Poor Location

No matter how many features or amenities you provide, if your storage facility is in a remote or undesirable location, you may struggle to get new tenants and turn a profit. 

Active Management

Contrary to popular belief, a storage unit investment can not be completely automated. Even if you install the latest storage management software and automate most things, you will still need to actively manage some business operations. 

You must ensure that all the services like the security system, climate-control unit, and other utilities are working properly. 

Oversupply

As storage facilities are a profitable and viable business, most investors are drawn towards self-storage investing. This can create the risk of oversupply. It means more competition and less demand for your particular storage facility. 

Minimalist Movement

The minimalist movement is at an all-time high, especially in the United States. An increasing number of people are adopting a simple, clutter-free lifestyle. This shift towards minimalism could be detrimental to the overall demand for storage facilities in the future. 

How to Invest in Self-Storage Businesses?

There are several options to invest in a storage business, each with its own pros and cons. You can analyze each one closely and choose which one is most suitable for you. 

Real Estate Investment Trusts(REITs)

The easiest and one of the best ways of investing in storage units is buying shares in a Real estate investment trust(REIT) that focuses on self-storage units. This allows you to invest in a storage facility without actually owning or managing a property. 

Moreover, you can start investing in REITs with relatively low capital. Self-storage REITs earn income through multiple revenue streams, including management fees, overdue fees, reinsurance income, and more. 

Pros of Investing in REITs

• Benefit from rising demand
• High ROI
• Passive form of investment(you don’t have to own or manage a property)
• You can start with low-capital

Cons of Investing in REITs

• Risk of oversupply and high competition
• No control over business operations

Here are some popular storage REITs to get you started- 

• Public Storage(NYSE: PSA)
• Extra Space Storage(NYSE: EXR)
• National Storage Affiliates(NYSE: NSA)

Buy a Self-Storage Facility

If you are not held back by budget, you can consider buying a storage facility. This involves buying an existing property. You don’t have to do the initial work and you can start earning as soon as you get possession of the property. 

If you are a beginner, buying an existing facility might be better than building it from scratch. This means you can buy a facility, add some features, and start charging high rentals to earn profit. 

Pros of Buying a Storage Facility

• Complete control of business operations
• You are in charge of decision-making
• Faster market time
• No profit sharing

Cons of Buying a Storage Facility

• Expensive venture
• Risk of operation shortfall or hidden maintenance charges
• Lack of knowledge may result in buying the wrong storage class
• Security expenses are relatively high

Invest in a Self-Storage Syndicate

Self-storage syndicates are another popular way to invest in self-storage. Real estate syndicates are a group of investors who pool their resources to invest in multiple self-storage projects. 

These syndicates also provide access to professional management, meaning there won’t be any management issues. This is especially beneficial in the self-storage industry where operational failures can significantly impact your profits. 

However, joining a self-storage syndicate means less control over investment decisions. This can be worthwhile for beginners. 

Pros of Self-Storage Syndicate

• Higher returns than self-storage REITs
• Investing in a group reduces individual risk
• Tax advantages to passive investors

Cons of Self-Storage Syndicate

• Self-storage syndicate projects generally lack liquidity
• Your investment is committed until the project concludes. 
• Lack of control over business operations
• Increased risk of fraud

Build a New Storage Facility

Building a new storage facility is perfect for investors who want to customize their projects and want to have full control. 

This will offer you the freedom to design and construct a storage facility that meets the market's needs and offers modern amenities. However, building a storage facility requires a lot of work and significant investment. You will need to find a desirable location and extensive marketing efforts to attract customers to your business. 

Pros of Building a Storage Facility

• Cheaper than buying one
• Full control over design, location, and construction
• New facilities are more appealing to customers

Cons of Building a Storage Facility

• Higher market risk than buying
• Requires industry expertise and construction knowledge
• Time and Labour-intensive
• Requires strong marketing efforts

Are Storage Units a Good Investment?

Despite its growing popularity and high-profit margins, self-storage investing is not everyone’s cup of tea. It is important to understand how to invest in self-storage before making the decision. 

As mentioned above, there are many reasons to invest in self-storage and many reasons not to. Make sure to analyse your investment goals and analyse the long-term opportunities and risks before making an investment decision. 

Read Also:- How to Buy Fractional Shares on Fidelity?

Final Words

The demand for self-storage units is at an all-time high as Americans continue to buy more stuff. Positive growth trends coupled with efficient automation and high demand make it a lucrative investment opportunity for investors. It also allows you to diversify your portfolio while enjoying returns from a passive revenue stream. 

However, make sure to understand the market conditions, conduct research, and consult a financial advisor before making a decision. This will help you gather important information and make better self-storage investment decisions. 

Frequently Asked Questions(FAQs)