According to Sparefoot, self-storage investing has experienced tremendous growth over the last few years, with an estimated 49,000 facilities nationwide.
Investors that seek to diversify their assets in the high-priced and competitive market are presently considering commercial real estate investments like storage.
Suppose you’re interested in self-storage properties for sale. In that case, you’ll need to understand how self-storage works, factors to consider before entering the storage market, and the financing options available for a storage investor.
And the most important thing is, you’ll need to learn how to find storage units for sale in Indiana and nearby cities.
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Why Invest in Self-Storage?
Self-storage is very appealing to several real estate investors because it has huge income potential with minimal expenses, fewer construction costs, and low facility management than other sectors in commercial real estate.
A mid-size or even small self-storage business is mainly self-sufficient and requires only part-time management. Since humans don’t reside on the property, fewer damages can occur in the building.
And the best part?
There’s less emotional equity. Leases are often monthly, meaning that owners can quickly implement rental increases.
You can also decide to dive into this market by buying from the various established self-storage properties for sale scattered around.
A survey by Self-Storage Almanac discovered that about 73 percent of self-storage businesses in 2019 were owned by small operators, which are investors that own about two facilities or family-run businesses.
In March 2020, the average self-storage industry revenue was $39 billion, and 9.4 percent of US households rent storage spaces. There’s an increasing demand for storage space, and this growth will continue as long as generations transition into different life stages.
Factors to Consider Before Investing in Self-Storage
Before starting a self-storage investment, there are several factors to consider. They include:
1. Condition
Before buying storage units for sale in Ohio, check the facilities’ amenities like office/showroom, access gates, security cameras, and manager’s apartment. Carefully inspect the facility to determine if the property is in perfect condition or have deferred maintenance.
Check the roof’s condition. Is the roof standing-seam or screw-down? Also, check if the latches are rusted or new and the doors easily open.
Suppose you discover some substantial damages like cracking pavement and roof leaks, then get the estimates on the repairs to ensure the cash flow or acquisition financing generated by the building can cover the expenditures.
2. Upside Potential
If you list your property, a good property broker will offer ideas on the best way to improve the business’ performance in a detailed financial statement.
Maybe you have your own ideas, too; find a way to incorporate them. Check if those ideas can increase revenue or reduce expenses because they will dictate the property’s expected investment return.
Ways to reduce business expenses include using new marketing tactics, handling maintenance, changing insurance coverage, and incorporating efficient labor practices.
Opportunities for increasing revenues might come from late fees enforcement to ancillary services and products. So explore all options.
3. Competition
Study your competition to pick one or two points regarding customer service and marketing. If your competitor has more customers regularly than you, it means there’s something you aren’t doing right.
Also, check your competitor’s unit mix and rental pricing and compare it to yours. Do the competing businesses charge less or more? Do they have various storage types like outdoor, climate-controlled, or conventional units?
4. Location
One major factor you’ve got to consider when venturing into self-storage investment is the location. Pay adequate attention to this factor because it might affect your ROI.
While the Internet has made it easier for prospective tenants to see your facility, you may witness low tenancy if not on a good site.
The ideal self-storage location is at the city’s center or the corner of two major cross streets, where it’ll be noticeable to vehicles.
Sadly, city planning approval like zoning makes this challenging and nearly impossible for setting up a self-storage business.
Nonetheless, ensure that the facility isn’t far from the major road and that its signage is visible.
5. Information Integrity
When buying self-storage properties for sale, make sure your broker’s information is consistent with the first-hand analysis or facility audit you conducted.
Ensure all the units have leases and locks attached to them. Check the leases to confirm that the rental price is consistent with the broker’s and owner’s reports.
Request for last three year’s copies of the federal tax return. Are the expenses and incomes the same in the report you received?
Also, review the rent roll. Check if tenants are current on their rent. Is the price consistent with the lease? How many tenants are on auto-pay? Are some tenants on prepaid?
These questions will help you analyze your tenant quality. More so, you’ll understand whether collecting rent will be an easy process like the report claims.
Financing for Self-Storage Investing
Getting financing for a storage shed business for sale is vital when investing in this commercial real estate sector.
SBA loans are the most popular for self-storage investors, especially the SBA 504, which is ideal for facility development, and SBA 7a, the loan for existing facilities.
Although SBA loans are also recourse loans, their rates are ordinarily competitive without balloons, requiring about 10 to 15 percent down. SBA loans might also include capital improvement costs and working capital into the loan.
You can also find conventional financing, requiring at least 20 percent down and generally wouldn’t include capital improvements and working capital into the loan cost and can have a balloon in a few years.
Investors may also pursue owner financing. Here, the seller carries the buyer’s financing. There are also other commercial real estate loans, for instance, bridge loans, crowdfunding, and private funding. However, those loan options aren’t popular.
Lenders consider the debt service coverage ratio (DSCR) when trying to find a storage deal. As such, if the facility’s NOI is high, it’ll likely be underwritten. Many self-storage industry lenders look for a DSCR that’s within the range of 1.25 to 2.0
Conclusion
Acquiring self-storage facilities for sale in Tennessee or other neighboring cities is an important undertaking. You’ll need to thoroughly research the competition and acquisition target to ensure the financial return is more than the investment risk.
Although it’s hard getting the complete detail about the self-storage industry, the areas mentioned above will help you address the vital factors, giving your lender confidence that the storage facility is a good investment opportunity.
To learn more about self-storage and how best to proceed, visit Self Storage Investing.
