Self-storage is a unique business that offers a safe and secure place for people to store their belongings. Nowadays, people are increasingly adopting the “capsule lifestyle” and are always searching for newer ways to save space, which has contributed to the skyrocketing popularity of self-storage facilities.
But, is self storage a good business? In general, self storage can be a good business with a projected CAGR of 134.79% between 2020 and 2025. Self-storage facilities are recession-proof investments and one of the most profitable passive income sources. They have a 92% success rate, and typically the average profit for a storage unit business owner is $184,500 annually.
However, before jumping into starting a self storage business, it is essential to weigh its pros and cons. In this blog, I will discuss the advantages and disadvantages of investing in the self-storage industry and find out if it’s a good investment opportunity. You might also enjoy reading: 11 Best States for Self-Storage Investment.
Advantages Of Starting a Self-Storage Business
According to a report by Statista, by 2026, the global self-storage market is predicted to be worth 64.71 billion U.S. With such impressive numbers; it is no wonder that investors are closely watching this industry.
Here are the pros of investing in a self storage business:
1- High Demand
One of the key advantages of investing in self-storage is the high demand for this service. People are always looking for extra space to keep their belongings safe and secure, whether it’s due to downsizing, moving, or a family member’s passing.
Unlike other real estate investments, self-storage is not tied to the economy’s ups and downs, so it is more resistant to recession. High demand often equates to high returns on investment.
2- Low Maintenance
Compared to other real estate investments, self-storage requires minimum maintenance costs. Unlike other properties, self-storage facilities don’t require tenants to customize or decorate their storage units, resulting in low maintenance costs for the facility owner.
Furthermore, as the tenants are responsible for their own personal belongings, you are not responsible if anything is damaged, stolen, or misplaced on those premises.
3- Diverse Customer Base
One of the underlying factors that make self-storage a promising investment opportunity is the diverse customer base. Generally, self-storage facilities cater to individuals, families, entrepreneurs, and business professionals.
Because self-storage attracts diverse types of customers, typically from diverse age groups and economic backgrounds, it becomes a versatile business opportunity. Moreover, the diverse customer base can help to increase occupancy rates, making it easier to surpass break-even costs.
4- Property Appreciation
As an investment, self-storage facilities appreciate over time. With minimal maintenance and low operational costs, the facility’s value can appreciate proportionally with the increase in demand.
If you have a well-performing storage facility, you can expect to get good returns even if you choose to sell it.
5- Other Advantages Of Investing in Self Storage
- Low Risk: Self-storage is considered a low-risk investment due to its long-term tenant retention rates.
- Predictable Income: The steady flow of monthly payments from tenants reduces the risks inflow in a self-storage business.
- Low Maintenance: Self Storage facilities usually require low maintenance. With minimal demands for utility services, property taxes, and minimal upkeep, maintenance costs are low.
- High ROI (Return on Investment): Self-storage facilities tend to have a high return on investment due to lower maintenance costs, steady growth, high demand, and predictable cash flows.
Disadvantages Of Investing in a Self-Storage Business
Like anything in life, investing in a self-storage business comes with a few disadvantages; below are the key drawbacks of investing in a self-storage business:
- The Initial Capital Required: The startup costs for a self-storage facility can be substantial. As with all investments, you must put in money to make money. Overage, the cost of starting a self-storage business is about $1,988,075, meaning about $38.31 per square foot (Source: LoveToKnow Media)
- Competition: The popularity of self-storage in recent years means that the industry has become more competitive. So, locating the right area is a crucial factor to consider. In 2022, the average rent per square foot of storage space decreased, meaning lower profit for the owners (Source: Statista)
- Time-Consuming Nature: The self-storage industry demands manual work such as operating large gates, renting units manually, responding to tenant concerns, and maintaining facility security.
- Property Taxes: Property taxes, along with other expenses, constitute a significant part of self-storage facility costs. The tax can be high, depending on the location and the state.
- Regulations and Codes: Self-storage facilities are subject to specific and sometimes convoluted regulatory standards. It is essential to undertake the necessary research and adhere to the regulations provided by the local municipality.
What to read next:
- 8 of The US Most Popular Cities For Self Storage.
- Why Self Storage is a Good Investment? (7 Reasons!)
- Top 9 Best Real Estate Investing Books For Beginners.
- 7 Creative Ways to Create Wealth with Real Estate Investment.
Wrapping Up
Self-storage can be a good business venture if you have a solid business plan and are willing to invest the time and effort it takes to manage it successfully. With the rising demand for storage solutions, investing in a state-of-the-art self-storage facility can be a profitable business opportunity now and in the foreseeable future.
More importantly, investing in self-storage offers an attractive combination of high demand, low maintenance, a diverse customer base, property appreciation, and a growing market. However, competing in the self-storage industry requires proper market research and strategic planning.