Top Ten Reasons to Invest in Self-Storage

1) Higher cap rates and cash-on-cash returns than most other forms of commercial real estate.

Self-storage facilities historically trade for around 2 points higher in yield than multi-family, retail and industrial properties. If the apartment cap rate in a market, for example, is 7%, then self-storage would probably sell at a 9% cap rate.

2) Lower expense ratio than most other forms of commercial real estate.

Due to the unique function of renting storage area, the costs in operating self-storage are traditionally lower than most other asset types. An apartment complex, for example, has very high management, utility and repair costs. None of these really apply to self-storage.

3) Diversity of tenants.

A typical self-storage facility may have 400 tenants. A typical commercial building has normally one or two. Since the income stream is dependent on many separate, small units, there is much greater safety in that income stream than situations where you are fully dependent on just one or two tenants.

4) Superior delinquency process.

When a tenant does not pay in a self-storage facility, the laws are in place to get that tenant out within 45 to 60 days. They also provide for auctioning the contents, to reduce the amount of indebtedness or, in many cases, to cure it completely. In apartments, for example, the process can take months and, even then, you have no way to recover any rent owed.

5) Month-to-month tenancy.

In self-storage, most tenants are on a month-to-month lease. This allows you to move rapidly to increase rent when desired. In an apartment complex or industrial building, for example, rents are often multi-year, and cannot be increased until the rent anniversary.

6) No rent regulation.

There are no current laws, to our knowledge, that restrict a self-storage owner from increasing rent at any time, subject to the rules of due notice. All forms of multi-family, in some states, are subject to rent controls and other tenant-friendly regulations.


7) Easy management.

Managing a self-storage facility is remarkable easy. You show a space, rent it, sell a lock, and follow along with the monthly payment. When someone moves out, it’s pretty much “sweep and go”. Compare this to the normal multi-family or retail center.

8) Demand projections are favorable.

Self-storage demand continues to rise dramatically, as more people move around or downsize and want to store some of their “stuff”. There are no changes apparent in the future that will reduce this demand.

9) Availability of debt.

Due to the existence of several public companies dealing in the ownership of self-storage facilities, as well as many other private REITS, there has been an enormous amount of education for lenders as to the attractive attributes to self-storage assets. Obtaining bank financing for self-storage facilities, in most cases, can be successfully completed. This leverage results in higher returns.

10) No on-site tenant equals low liability.

Most self-storage tenants are only on-site for brief amounts of time and, even then, only a few times per year. As a result, they are not around to have the typical accidents and other liability claims that, for example, apartments do. In a world of litigation, it’s nice not to have suits for black mold, slips and falls, and the many other types of legal woes that plague multi-family owners.