Research Equals Returns
hen I transitioned from real estate into self-storage 12 years ago, I was a complete newcomer to the industry. My only real experience was personal: I spent a significant amount on a storage unit to keep belongings I couldn’t part with at the time. Little did I know that this same reason would be echoed by many of the tenants I would later encounter as a self-storage manager.
People use self-storage for countless reasons, including divorces, relocating due to fires or natural disasters, downsizing, expanding into larger homes, coping with losses, and simply running out of space for hobbies, collections, or “toys.” I’ve rented to entrepreneurs needing space for inventory, employees needing extra room for company assets, charities storing donations, and even schools looking to store theater props. The list goes on and on. At some point, almost everyone finds themselves in need of extra space, which is precisely why self-storage has become such a compelling sector for investors.
If you search “top real estate sectors to invest in,” self-storage consistently appears among the top five. The beauty (and irony) of this industry is that demand remains steady no matter the state of the economy. When times are good, people acquire more and need extra storage; when times are tough, they’re reluctant to get rid of their hard-earned possessions, so they store them.
Each year, I speak with many people interested in self-storage investment. Most come from single-family or multifamily residential development, retail, or commercial real estate. When I ask why they’re drawn to self-storage, their answers are consistent: less daily interaction with tenants, lower maintenance issues, recession resiliency, cash flow potential, and scalability. Many even run the numbers and see it as a highly profitable investment. However, upon closer examination, when I ask about the research behind their projections or how they determined their anticipated income, many admit that their primary sources are the internet, generic proformas from other business types, and casual observations of nearby facilities appearing full.
This approach—relying solely on anecdotal insights and cursory advice—is a recipe for disaster. Investing in self-storage, like any business, requires a solid foundation of education and strategic planning. Just as you wouldn’t build a house based on minimal knowledge and assumptions, you can’t expect a self-storage facility to succeed without proper research. It all starts with education, education, education!
Starting in self-storage investing can feel overwhelming, but you’re already taking a great first step by reading this article. Education is key, and the more you learn from a variety of sources, the better equipped you’ll be to make informed decisions. Here are five essential steps.
A well-executed study provides investors with a realistic picture of the commitment involved, enabling informed decision-making and minimizing unexpected costs. This foundational step is essential for laying the groundwork for a successful project.
When interviewing companies to conduct your feasibility study, here are the essential questions to ask and the reasoning behind them. Remember, you need a thorough feasibility study, not just a basic desktop market analysis.
How long have you been conducting feasibility studies?
Look for a company with solid experience in the self-storage industry, as they’ll understand what it takes to make a facility profitable and sustainable.
How many feasibility studies do you complete each year?
Be cautious with companies that produce high volumes of studies, unless this is their core focus with a dedicated team. Ideally, you want someone who is exceptionally thorough and treats your site with care and attention, as though their own investment was at stake.
Will this be a full feasibility study or just a desktop market analysis?
A full feasibility study assesses the viability of a self-storage facility in a specific location, considering factors like market demand, competition, costs, and potential profits. In contrast, a desktop market study is a quick, preliminary review based on readily available data, lacking on-site research. Always choose the comprehensive feasibility approach to avoid missing critical insights.
Do you evaluate comparable facilities (comps) in person, or do you rely solely on online data?
Select a company that will physically shop competitors within the defined market radius (typically five miles for traditional storage and wider for RV storage). A physical review captures crucial details that online data might miss, ensuring accuracy in your competitive analysis.
What specific information do you provide about each competitor in your analysis?
You should expect a detailed account, including in-person photos, key features, estimated occupancy, both in-store and online rates, property class, operating style (remote or on site), customer service quality, property upkeep, mandatory fees, additional services, and operating hours. This detailed data offers a complete competitive landscape picture.
Do you include a detailed proforma with the feasibility study, and how do you determine the unit mix for projecting numbers?
A robust proforma should outline every foreseeable expense, not just lump sums for utilities or management. Look for a company that tailors the unit mix to optimize lease-up potential, not just to make projections look appealing. If working with a management company, they should recommend a mix likely to achieve the highest returns based on market demand, rather than arbitrary or inflated figures.
What additional services or insights are included in the price?
Clarify whether the service includes site design, estimated construction costs, and if travel expenses are included.
How long will it take to complete the study, and what are the key stages or milestones in the process?
Plan ahead; a comprehensive feasibility study can take 60-plus days. Also, negotiate for extensions in your due diligence period to avoid timing constraints.
Armed with insights from a detailed feasibility study, you’ll be well-equipped to make informed decisions, navigate potential challenges, and position yourself for rewarding returns in the self-storage sector. This initial groundwork is invaluable as you take your first steps in self-storage investing, paving the way for a prosperous journey ahead.