Top 5 Reasons to Invest In Self Storage
The Stock Market is on a wild ride these days. As such alternative assets, with little correlation to general markets are in demand by investors.
I’d like to quickly spotlight the Self-Storage Market here below and provide an overview on the Top 5 Reasons to Invest and why we like the asset class.
Here are a few stats:
• annual self-storage revenue is over $37.5 billion
• Number of self-storage facilities in the U.S: 44,000+
• Amount of self-storage space per capita in the U.S.: 5.4 square feet per capita
• Percentage of U.S. households that rent a self-storage unit: 9.5%
Now I'll provide the reasons, and some context behind each one.
Top 5 Reasons to Invest in Self Storage:
1) Asset Class Returns:
The self-storage sector produced an average annual return of 17.43% from 1994 to 2017.
In comparison the S&P 500 during this same period returned 7.54%.
One can do some simply do the math to see the difference in each portfolio's value during the time.
2) Recession Resistance:
From 2007-2009 the Self-Storage sector returned an Avg. of 3.8% outperformed only by
healthcare, while just about all others were in the negative. Storage works in
both an up and down market. In good times people tend to have more disposable income,
which leads to material purchases, which often can end up in storage. In down
markets or even a recession, people leaving the housing market will enter the
apartment market and use storage to hold their excess belongings.
3) Rent Growth and Positive NOI:
In-place self-storage tenants are generally not price sensitive, as the self-storage
rental fee is normally a small portion of a tenant’s monthly disposable
income. This allows operators to raise rents as the market demand grows
without an impact on occupancy. A raise on rents is typically not enough of a
burden to motivate the tenant to go through the hassle of moving of all their
stuff out, and across town to another location. Additionally, since most
tenants never see one another, price increases on a unit by unit basis are much
easier to accomplish.
4) Cash flow:
in the 8 – 10 % annual range is typical. This income is offset by common deductions that
many real estate properties take advantage of such as property taxes, debt
interest, and accelerated depreciation. As a result, this asset can be very tax
efficient when held in a taxable portfolio. We invest primarily through
syndication structures with limited partners (our investors) that take
advantage of these passthrough deductions which allows them to keep more money
in their pockets.
5) Fragmented Market:
The top 6 public companies control approximately 18% of all the facilities with the remaining
approximately 82% of the facilities controlled by independent owners. This
fragmentation should provide for the opportunity for well capitalized and
sophisticated players to selectively target individual assets and portfolios at
attractive cap rates thereby enabling these players to gain scale. The top
companies as well as the large REITS and institutional buyers are all perfect
buyers of the product once it has been stabilized and any value add, or managed
plays have been executed.
For all these reasons and more we believe the storage market is and will continue to be a
great place to invest and diversify your portfolio.
Here is our Free Ebook on passive investing in real estate: http://bit.ly/FREE-Ebook-PassiveIncome
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