Self-Storage Investing Pros and Cons

October 19, 2023 by in Commercial Real Estate

With alarming recent headlines declaring an imminent crash in the commercial real estate market, you may be on the fence about pursuing any investment in this category. But the term “commercial real estate” applies to a wide variety of structures and businesses, not all of which stand to be affected by a market dip. One piece of commercial real estate that is likely to remain immune is self-storage. As with any investment opportunity, it does have special considerations. Let’s take a closer look at some pros and cons of self-storage investing.  

Pros of Self-Storage Investment

Self Storage Investing is Not Subject to Market Trends

As we discussed above, self-storage is not typically affected by market fluctuations. In fact, it is often called “recession resistant” due to its apparent immunity to the ups and downs of other real estate. In fact, self-storage often experiences an increase in demand during an economic downturn, when people need to downsize, move, or declutter. 

Low Operating Costs and Minimal Effort

Self storage investing typically requires less overhead to maintain than other forms of commercial real estate. Unlike office buildings, which require certain running water, WIFI, HVAC, and other considerations necessary for a human element, storage units require only basic utilities needed to keep belongings safe from the elements and unwelcome guests. 

You will also not need to worry about the frequent complaints and repairs associated with being a traditional landlord. And once you open your facility, the heavy lifting is literally up to your customers. 

High Profit Margins

Self-storage investing comes with a profit margin of approximately 41 percent in 2023. For reference, most experts agree that a good profit margin in general for a real estate development project should be 20 percent. 

Steady Cash Flow

One of the most significant benefits of self-storage investments is the potential for a reliable and steady cash flow. Rent is typically paid monthly, and as long as you maintain a well-maintained facility, you can expect a consistent income stream. 38 percent of Americans say they are currently using or plan to use self-storage in the near future. You will have a lot less difficulty finding renters than you would tenants for an office space of other development. 

Cons of Self Storage Investing

Initial Investment

 Acquiring or building self-storage facilities can require a substantial initial investment. Costs can include land acquisition, construction, security systems, and marketing expenses. This can quickly eat into your profit margins. 

Competition Can Be High in Self Storage Investing

Because self-storage remains a popular investment choice, competition can be fierce. Depending on your location, you may find yourself in a saturated market, which can impact your rental rates and occupancy levels. You may have to invest in additional offerings to set yourself apart, such as climate control or packaging materials. 

Economic Sensitivity

While self-storage is recession-resistant, it’s not entirely recession-proof. Severe economic downturns can lead to a decline in demand as people seek to cut costs by forgoing storage rentals.

Unique Management Challenges

Managing self-storage facilities can be more demanding than it initially seems. While you may not need to perform the routine maintenance and repairs associated with a tenant-occupied building, you will still need to handle customer inquiries, have professional security systems in place, and market your business to appear in online search results.

Get a Fast Loan for Self-Storage Investing

Investing in self-storage can be a lucrative opportunity with the potential for a steady cash flow and lower risk, especially when managed efficiently. However, it’s essential to carefully consider the pros and cons and conduct thorough market research before entering this field. Due diligence in selecting the right location and staying on top of management and maintenance is crucial for a successful self-storage investment. Balancing these factors can help you make an informed decision about whether self-storage is the right choice for your investment portfolio.

If you are interested in purchasing an existing self-storage unit, or if you want to build a new one, contact the professionals at Pinetree Financial. We loan on all sorts of projects in the state of Colorado, including  land, commercial, rental, new construction, and more. Call or office 

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