Self Storage – Part 3 – the Characteristics

This is Part 3 of a multi-part series on investing in Self Storage assets.

Self storage is considered a type of real estate investment category. It has most of the typical characteristics of other real estate, but here are some details.

The building structures can be relatively simple compared to other types. Therefore, the construction period is usually shorter than other types and enables the investor to get to the rental periods sooner.

Self storage generally has lower operating expenses and not very energy intensive. This business is not labor intensive and maintenance is generally low. These characteristics lead to low overall operating costs.

The leases are month-to-month and can be highly responsive to the marketplace. The buildings will have a very high rentability factor. Single stories buildings are nearly 100% renatable. Multi-story buildings will be a little lower percentage due to the need for the elevators and hallways, but still very high compared to other types of real estate. An additional advantage is the high number of tenants which spreads the vacancy risk across a very high number of customers.

Some buildings are constructed with movable partitions that allow the owner-operator to adjust the mix of unit sizes to meet the demand in the marketplace.

The basic function of self storage is very recession resistant. When people are negatively impacted by a recession and forced to move to smaller housing, they often move a lot of their stuff into self storage which can increase demand during a recession.

Due to the month-to-month nature of the rentals, this business is also very cash flow oriented.