Over the past few years, a lot has changed in the self storage industry.
As a small investor, what we are doing now to get in or grow our business is very different from a few years ago.
I thought I would start 2022 off with a Back To The Basics series, showing the foundational aspects for the smaller investor of what it takes today to get in self storage business leading up to a live, virtual Self Storage Bootcamp Feb 4th & 5th, 2022.
If you think a deeper dive into the ideas and concepts this series offers, perhaps this Bootcamp will support you.
This series is designed to help you get in the business, period.
The Self Storage Bootcamp offers a much more in-depth, step-by-step process of what we are talking about. We cover the forms we use, videos and a workbook, and the chance to be part of a community of other investors who support each other as we all grow our business.
You can find out more about the Bootcamp below.
The Self Storage Opportunity
Let’s look at the current opportunity self storage offers us, the smaller investor.
As you can see driving into any city in the US, the secret about self storage is out.
There is a lot of self storage.
It occurs like it is everywhere. And indeed, many trade areas or submarkets are overbuilt. There is more supply than demand in these certain trade areas.
But here are the facts (as of 2021):
- There are 1.9 billion square feet of self storage in the US today.
- That represents 5.9 square feet per capita.
- Only 10.6% of households currently use self storage.
- Average occupancy for stabilized self storage is still over 90%
Most importantly, the industry is still fragmented from what I can see. In other words, for the most part, it is still a mon & pop industry.
The REITs have made significant gains, but they still only account for approximately 31.2% of self-storage space (by rentable square footage). However, this 31.2% is owned by six public companies. 16.5% is owned by the following top 94 operators, and small operators own 52.3%. (Self-Storage Almanac, 2021)
The secret is that self storage generates apartment-like rents but usually costs only half (or less) to create.
Drive-up Institutional grade self storage can still be built for $60 or so (depending on the market) per square foot.
Multi-story can be built, all in, $120 or so per square foot, depending on the market area.
There are no ongoing tenant improvements, no carpets to replace, no toilets to unstop, and no units to paint. We today still use .12 cents to .15 cents per square foot per year reserve fund that covers what few ongoing capital expenses we have.
That means other than our loan payment and this small reserve fund, and the rest is distributable income.
Yes, the secret is out.
The Challenges
But with the secret out, prices have gone very high for existing self storage. Cap rates in many cases are sub 5% for stabilized, existing self storage in major markets.
Construction costs have also gone up. The pandemic has created supply issues for some components, and steel costs have risen.
So many small investors are having a harder time finding deals that appear to work, and are unsure if they want or even could take on a construction project today, even if they wanted to.
Many I talk with say something like, “I really want to get in self storage, but nothing makes any sense.”
Or…
“I should have gotten in years ago when I was thinking about it. Perhaps I have missed my opportunity.”
I get it and understand.
But the reality is there are still lots of opportunities to get in self storage out there today.
Less than perhaps five years ago, but there is still opportunity.
However, it is different than five years ago.
As small investors, we must do different things. Be willing to expand the potential markets we may consider. Know our numbers. Or, said another way, have confidence in our strategies the analysis we come up with for a potential self storage opportunity (even if this is your first one) that allows us to powerfully negotiate and control deals.
In short, what we and the people I am working with are doing, and what we go into detail about in the Bootcamps today is this:
- We look for and create opportunities that the bigger players are not looking at or would not consider buying today.
We are seeing lots of opportunities in the second and third-tier markets. We and the people I work within the Bootcamps are utilizing a three-fold strategy:
- Smaller Mom & Pop Existing Facilities:
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- Look for smaller mom & pop facilities that can be brought into today’s self storage world (creating increased revenue and lower expenses in most cases); and/or
- Expand them, creating institutional-grade self storage the bigger players will (or would) buy from us.
- Conversions:
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- Buying existing buildings that can be converted to self storage.
- Usually, we can get in at a lower cost and start generating income faster than new construction, primarily because there is little or no site work, and we usually just have to pull building permits.
- Buying existing buildings that can be converted to self storage.
- New Construction:
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- Still a valid option, but depending on size and type of self storage as well as location, more risk can be involved.
But today, for the small investors, this is where we see where the opportunities are.
In short, again, we look for deals and situations, the bigger players are not focused on.
In the upcoming self storage Bootcamp, we go into a lot of detail on each of the above, with a big emphasis on expansions of existing mom & pop facilities and conversions.
However, as you can see, if we are focused on these types of opportunities, we have to (1) know how to find them and (2) know what we can pay today for them now and knowing what they will be worth after our value add play.
There is some the specific knowledge that is very different today than what it was a few years ago we need to know. This is the basic knowledge every successful small investor in the self storage space needs to know today.
We will discuss this next week.
The QuickStart Self Storage Bootcamp
My goal here is to create content that will support the small investor who wants to get in the self storage business, or grow their self storage business do so in today’s reality.
And I certainly do not want you to feel you are always be sold to by me.
However, if you are new to self storage or just want more support, a viable option for you may be to participate in the next upcoming Bootcamp.
I wish I could have 100’s in the Bootcamp, but I have to limit the number of people, primary because:
- I only have one person from any given part of the country so as not to have more than one person in the Bootcamp focused on a given market area or region. I just don’t want to create an environment where someone who has paid to be there feel like they have competition in the Bootcamp.
- Everyone needs the opportunity to get one-on-one support in certain areas of their development during the Bootcamp and in the three month follow up, and I could not do that with a very large group.
The Bootcamp isn’t for everyone, and many can get in or grow your business without the level of training this Bootcamp offers. But if you think this may support you, click below to get more information, and if you want to or feel you need to talk to me personally, there will be a link there to schedule a call with me to get any questions answered.
If you want to be in the self storage business in 2022, I want to support you however it may look.
Perhaps it is the QuickStart Self Storage Bootcamp on Feb 4th and 5th, 2022.
Click below to find out.
