[ad_1] The post The Beginner’s Guide to Self-Storage Investing appeared first on Millennial Money. When it comes to finding real estate investment opportunities, it’s wise to leave no stone unturned. Investors should explore all options and strive to build a diverse real estate portfolio with multiple types of investments. One unique way to diversify a real estate portfolio is to invest in the growing self-storage industry. Keep reading to learn more about how investing in self-storage works and its benefits for investors, along with some key points to keep in mind. What Is Self-Storage Investing? Self-storage investing is a type of commercial real estate investing that involves putting money into self-storage facilities and leasing units to renters. Self-storage facilities are small, private units that people can rent out for short or long periods at a time. For example, sometimes families rent self-storage units when they accumulate too much stuff and don’t have any place to put it all. Other times, people may temporarily use self-storage units when moving from one place to another. Self-storage is considered a strong asset class, and the market fared well during the coronavirus pandemic, even as other markets faltered. What do self-storage units contain? Self-storage units are typically only for household items like boxes, furniture, lawn care equipment, and old clothes, to name just a few examples. They may also contain cars, motorcycles, or other motorized vehicles if permitted. Self-storage units aren’t meant to house people or pets, although this sometimes does occur with rogue renters. Living in a storage unit or housing people in them is against the law and grounds for eviction. Landlords are encouraged to use security cameras and monitor their facilities to prevent unauthorized dwelling or squatting activities. Types of self-storage facilities As with all commercial real estate, there are three classes of self-storage facilities: Class A, Class B, and Class C. Let’s take a closer look at each one. Class A Class A self-storage facilities were typically built after 2000 and can be found in nice neighborhoods. Class A facilities usually are the most valuable, offering amenities such as climate control and elevators. Therefore, owners often incur higher operating costs and can charge higher rents. Class B Class B self-storage facilities are often mom-and-pop-owned businesses that were built in the ’80s or ’90s. You won’t find any bells and whistles here, but these types of units are most often well-run and profitable. Class C Class C self-storage facilities are often found in undesirable neighborhoods and may have serious structural or maintenance issues. As a result, they’re riskier investments, but you may be able to find a bargain and enhance the property’s value — if you time the market right and really know what you’re doing. Benefits of Self-Storage Investing There are several enticing benefits to investing in self-storage facilities. Here are a few that stand out. Growing demand Demand for storage facilities is growing, especially in heavily populated areas. Strong demand for storage can lead to high occupancy rates, a steady residual cash flow, and solid long-term profits — all of which are important factors when investing in real estate. Low overhead Another benefit to investing in self-storage is that these facilities typically come with low overhead. The amount of overhead usually depends on the quality of the storage unit. For example, some units are bare-bones and don’t come with electricity. These minimalist structures typically have concrete or brick walls, a roof, and a sliding metal door. A growing number of self-storage landlords choose to upgrade their facilities by offering electricity and heating, air conditioning, and ventilation (HVAC) for climate control. This can be attractive to clientele looking to store climate-sensitive items like expensive furniture, artwork, and clothing, which can potentially degrade if exposed to high and low temperatures and humidity. These types of amenities cost more, but landlords can charge more rent as a result. Less management Generally speaking, landlords can typically get away with minimal upkeep as long as buildings are operationally sound and renters can safely access units. For example, common residential and commercial retail maintenance issues like plumbing or appliances failing are not likely to occur. The less upkeep, the better. That also makes self-storage investing a potential stream of passive income. How to Invest in Self-Storage Facilities As you can see, there are some great benefits to investing in real estate self-storage. Here’s how you can get started. 1. Real estate investment trusts (REITs) The easiest way to invest in self-storage is to invest in REITs, which are bought and sold like stocks. REITs are companies that invest in publicly traded properties and offer shares to consumers. The great part about investing in a self-storage REIT is that it offers hands-free investing. Investors don’t have to worry about being landlords or running a busy commercial enterprise. Instead, they can put money into REITs that invest in self-storage facilities and make money from capital gains and dividend distributions. Of course, it’s important to read each REIT’s prospectus to understand the exact properties in each fund and outline any potential fees or restrictions. It’s also important to analyze the REIT’s growth over time and get a sense of where it could be headed in the long term. REITs are typically medium- to long-term investments. One of the most popular self-storage chains, Public Storage, is run by a REIT. Learn More: Are REITs a Good Investment? How To Invest in REITS (Real Estate Investment Trusts) 3 REITS for Monthly Passive Income 2. Buy a self-storage facility One of the most common ways to invest in self-storage is to buy an existing facility and start your own small business. The upside to buying an existing facility is that you can avoid purchasing land, getting clearance from the town, and going through the lengthy and costly construction and marketing process. At the same time, you’ll inherit a customer base, so you won’t have to start from scratch. Most facilities are priced based on total square feet and facility quality.
