Is self-storage a good investment and is it as good as or better than multifamily?
The short answer to the first part of that question is yes, but if you want the reasons for that, you’ll have to keep reading.
The second part of the question will be answered at the end of this post.
Here are the reasons why I like self-storage:
It's largely recession-proof.
This makes it profitable not only during the good times, but also during the rough times. During the Great Recession of ‘08, self-storage was among the only real estate classes that produced positive returns.
In past recessionary periods, self-storage occupancies and revenues were generally not negatively impacted. In fact, for most facilities, revenue continued to increase year after year.
There’s continued and rising demand for self-storage.
This is true, especially in areas experiencing increasing populations or high unemployment rates. The reason for this is as people move, they need a place to store their belongings.
High unemployment rates could potentially be good. Since people can’t afford their rents, they may be forced to move in with friends or family. Now they don’t have space for all their stuff, which leads them to searching for a place to store it.
But as the world becomes more and more digital, will there no longer be a need for storage units?
That’s an excellent question, which we’ll have to wait and see the answer to. But for now, the demand for storage is steadily increasing.
The eviction process is simple.
The process is very well defined and there are even shows like “Storage Wars” that’s all about auctioning off the contents of storage units.
When someone stops payment, it’s a clear procedure that’s laid out in the contract. For example, if you’re 30 days late, on day 31 they’ll send you a letter. And if you haven’t responded by then they’ll start the eviction process.
That’s when they start the actual auctioning of units; they cut the locks off and auction off the proceeds and they keep everything. The whole thing is a very simple, well-defined process.
The value-add component is compelling.
I like this a lot because the application of self-service technology increases revenue, and at the same time, simplifies management.
If all you have is the “guy in the chair” who answers the phones and talks with all the clients, then when he’s gone you can’t lease any units and your business goes stagnant.
So applying technology to that could be beneficial (i.e., setting up a website). Also, the client doesn’t always necessarily want to directly deal with “the guy in the chair”. They want to do everything by themselves and they really like it.
The more self-service it can be, from sign-in or access, is something that the clients want and are willing to pay for.
So for me the value-add aspect using technology is something that really appeals to me, because I love technology in all its forms.
Why I Don’t Like Self-Storage
Self-Management is a Must in Self-Storage
There are some things that I don’t like about self-storage. One of the biggest reasons for me is that it’s difficult to outsource management to professional management companies.
The people I know who’ve tried haven’t gotten very good or consistent results. There just aren’t that many people who specialize in outsourced, professional management of self-storage units. As a result, most successful self-storage operators self-manage.
I talked with Hunter Thompson, who owns thousands of self-storage units, about this on our podcast. He went through this and in the beginning he was struggling with the first 3 or 5 deals. He really struggled with it until he shifted and started to self-manage.
And that’s the secret to being successful in self-storage: self-managing.
But for me, right now, I don’t want to self manage. It’s something that I don’t like about these types of asset classes, where if you want to be successful from the beginning, you have to get into self managing.
There can always be exceptions, for example when a certain stage in a multifamily portfolio is reached (1,000 or 2,000 units), it might be smart to start self-managing. And the same thing is true for self-storage.
So at a certain point, those 2 different asset classes merge in that respect. But I find it very difficult to get into the asset class because you have to self-manage.
My Time and Effort is in Multifamily
Another point for me when comparing multifamily and self-storage is there is a matter of focus. I want to focus on one thing, and get really really good at it before looking elsewhere.
But for right now, I want to focus on multifamily and build my portfolio, so that I get repeatable, consistent results for our investors. I want to get to the point where we have systems set up so the whole process can fly on autopilot.
Once that’s in place I might consider looking into different asset classes and self-storage is a strong one, but for now, I’m focusing on multifamily.
So there you have it: self-storage versus multifamily.
To answer the second part of the question in the beginning, “is it as good as multifamily?”.
No, not for me.
That being said, it’s still a solid choice for investing because of its recession proof nature and the fact that it’s increasing in demand in growing areas.
The self-service automation part of it is really compelling and is what makes this asset class so appealing to me.
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>> Want more self-storage vs. multifamily conversation? Take a listen to episode #80 on the podcast with Hunter Thompson. He shares what inspired him to invest in self-storage, explaining what makes the opportunity truly recession-proof.