Buying a self-storage or warehouse facility minimizes the amount of time spent on the businesses we invest in and maximizes the cash that's accruing interest in the bank and funding our lifestyle.
Otherwise known as a great passive income opportunity.
Before pursuing this acquisition avenue, however, there are some things you'll need to consider. Let's weigh the pros and cons of buying a self-storage or warehouse facility to find out if it's an option for you.
#1 Require Very Little Upkeep
If you are looking for a business venture that requires little to no maintenance, self-storage facilities are where it's at. Their hands-off business model functions similarly to traditional real estate investing. You rent out units for people to store their belongings, receive the monthly check, and prep for "tenant" turnover at the end of a contract.
#2 Provide a Steady Stream of Monthly Passive Income
Another similarity to real estate investing is having a renter who pays your storage unit "mortgage". Revenue is stable and predictable because you know how much money you'll make every month.
Where turnover and vacancy cost big bucks in investment real estate, storage units require a much lower occupancy rate to break even. And depending on where your facility is located, there should be no issue to fill them easily. Additionally, high occupancy rates mean you could implement a rent increase, boosting profits without a modicum of work.
#3 Practically Recession-Proof
A word you tired of hearing yet?
In this case, recession is not something you need worry about. Believe it or not, storage facilities are recession-resistant, tending to do even better when the economy tanks. The reason for that being when the economy downturns, people downsize. And the first thing they'll downsize is square footage and space rather than stuff.
#1 Problems are Inevitable
Renting out ANY property sets you up for possible problematic tenants. Storage units are open to anyone and everyone, which is one of the many things that makes them great. But, they don't have the vetting processes that you see with other investment avenues — credit score and background checks, references, secured financing, etc.
So, you'll want to prioritize security cameras, quality locking systems, and hiring the right people to manage the day-to-day operations.
#2 Location Matters
Convenience and accessibility matter. The best storage units are the ones that sit on high-traffic roads and close to well-populated areas. Work with a quality commercial real estate agent and use local rental comps to help with your due diligence on the location. Because low visibility means low cash flow.
#3 Occupancy Rates are Highly Variable
Just like with any business, demand for storage and warehouse facilities fluctuates. And occupancy rates matter.
High performing storage facilities run at a 90% occupancy rate resulting in high profit margins and dollars in your pocket. To break even, storage facilities need to operate at a 45% occupancy rate. So you'll want to stay above and beyond that to make the investment worth your while. In times of low occupancy, you can get creative with higher rent prices and shorter contracts to subsidize.
All is fair in love and [storage] war[s]. So, Flagship is here to help you navigate the intricacies of self-storage and warehouse acquisitions. Contact one of our experienced lenders today about financing for passive income investments.