Posted by JT-IN on October 19, 2006 at 09:15:00:
The self storage business, like many businesses, is one that implements the economy of scale principle. I suppose if you had 500 units, you could and would need help with this business. At 100-200 units, there is little need for outside help, and if you use outside help at that size, there goes the neighborhood… (No profit). You are simply collecting rents and fees to then pay overhead.
I did have another retail business, located appx 5 miles from the storage facility, and the idea was to have that business field calls and handle contract/leases. The only problem was that by the time the storage was open and running, I had sold the other business… which left me plenty of time to handle storage rent-up.
All in all, it worked out well for us. However, there are many other (better) ways to make $$$ in the RE biz, which I wasn’t privy to at that time. Hence, I wouldn’t consider the self storage approach today, for me. That doesn’t make a bad idea, if it fits into one’s repoitore, then it can be a good thing. It is simply not a passive investment, but an active business operation.
Self storage business’s work best for land banking… Let’s say that one owns a comm’l property in a fringe area, that in todays mkt has x amount of value. The property owner adds storage units to the property to create income. The net income provides a reasonable cash on cash return on the underlying investment, which would otherwise be raw land, and have NO yield. Fast forward 10 or 20 years down the raod, and what was once fringe property is now prime real estate. The ultimate underlying vlaue eventually becomes worth more than the income stream from the storage units. Of course the seller may also get a higher price for the property at the time of sale, since it also has an income that they are losing, hence compensation for loss of the income… Not that the buyer will maintain any of that income, but it is a factor in determining value to the seller, and drives the price of the ultimate sale price, as opposed to vacant land with NO income.
Hope this helps the view of self storage.
Just the way that I view things…