only a couple dozen units that can be bought for the price of a small multifamily building, the typical cost of a self-storage facility is going to be greater than the cost of a single- family home investment and many multifamily investments. For first time investors or one-man shops, this can be a deterrent from entering into the self-storage space, but syndications can be an excellent gateway into dipping a toe into the water. A common misconception is that self-storage does not have the security of other real estate asset classes that fall into the realm of necessities like single-family, multifamily, medical, and assisted living. Outside of the historical performance of self-storage REITS to dispute this notion, we have anecdotally experienced an unexplained uptick in self-storage demand amongst our facilities during downturns such as the COVID-19 crisis. It is a commonly iterated phrase amongst investors that “less risk means less reward.” We contest that statement, and have found that by investing in self- storage, you can have less risk and more reward. •
unit that does not come current, we can abide by local lien law timelines, collect the outstanding balance and fees through auction, and have a new renter in place in less than 45 days in most states. A far cry from residential, turnover costs are typically limited to sweeping a unit or disposing of any abandoned items post auction. LOW BREAK-EVEN OCCUPANCY Unleveraged self-storage assets have break-even occupancies in the low-to mid-30 percent occupancy. Leveraged self-storage assets have break-evens in the low- to mid-60 percent occupancy. This is partially due to much lower overhead because no “tenants, toilets, and trash.” This means minimal utilities in addition to minimal maintenance requests. Typically, the largest expense to a self-storage facility is property taxes followed by management costs. Renters typically use self-storage units for years at a time. A $20 increase on a $150 unit is not worth the $500+ moving bill to go to another facility but is a 13 percent HIGH STICKY FACTOR increase to the bottom-line. The majority of renter agreements for self-storage facilities are month-to- month leases. This allows for price increases and other profit-generating activities to be rolled out throughout the life of a rental. When a certain type of unit (e.g., 10’ x 10’) is in low supply in the market or at a self-storage facility, reactive pricing can be implemented to raise the rental rate in response to the REACTIVE PRICING MODEL demand for that unit. This strategy can result in a specific unit type generating significantly higher returns than the standard rate.
HIGH ANCILLARY PROFIT CENTERS In addition to unit rentals, self- storage facilities can generate income from packing and moving supplies, locks, truck rentals, business center faculties, renter’s insurance commissions, vehicle parking, cell tower leases, billboard advertisements, and many more ancillary profit centers. Crafting a list of 10 benefits of investing in a specific real estate asset class should not be a difficult exercise, and I suggest you try it for whatever asset classes you have been investing in. If you can’t come up with 10 good reasons specific to that asset class, it might be time to reconsider investing in that avenue. Every investment has its downsides. We have found self-storage to have fewer than others. ACOUPLE DOWNSIDES Difficulty in sourcing investment opportunities due to fragmentation in legacy inventory or saturation of new developments. While these challenges can be applied to many real estate asset classes, they are certainly applicable to self-storage. Other investors have found ways to overcome these challenges, but our firm has focused on secondary and tertiary markets with an emphasis on existing facilities with favorable market conditions to great success. As for development opportunities, strong barriers of entry are in favor of the determined investor. The best development opportunities in self- storage are available to investors familiar with zoning variances, adaptive reuse, government coordination, and extensive market research. High cost of entry level assets. While there are self-storage facilities out there in tertiary markets with
Fernando Angelucci and StevenWear are Senior Managing Partners and Co-founders of TitanWealth Group and IMPACT Self
Storage based out of Chicago. Fernando graduated with an Ag-Bio Engineering Degree in 2013 and went to work at a Fortune 50 company while also investing in single-family homes on the side. At only 23, he was able to invest in single-family and multi- family properties full time. He then began investing in value-add self-storage facilities nationwide and raising funds from his investors for self-storage syndications. With a background in Marketing and Advertising, Steven specializes in sourcing off-market self-storage facilities at drastic discounts nationwide. Info@TitanWealthGroup.com.
54 | think realty magazine :: june 2020
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