Why Invest?

Everyone has their own goals when it comes to investing. Some seek high returns and are willing to take significant risks to achieve them. Others invest quite safely and are most concerned about not losing money. There are those that want to turn quick profits, others are thinking long term. Some like investments that only they control, while others prefer a more inactive position.

So where does self storage fit in to this? Self storage can meet a variety of investment goals. For me, self storage offers the ability to quickly produce high investment returns, with minimal risk, and allows me to choose my level of involvement. By effectively investing in self storage you can:

• Produce returns that exceed 20%
• Quickly establish cash flow
• Significantly increase your investment value
• Manage your investment risk
• Control your investment involvement

To illustrate, let’s take a look at the Investment Summary Report of a self storage facility that I produced using QuickStart Self Storage. This model is reflective of industry averages to represent facility size, development cost, rents, operating cost, and collections.

Investment Summary Report
(Source: QuickStart Self Storage)

It may also help you to take a glance at the Development Lifecycle to become familiar with the timeline of events that occur with self storage.

Investment Returns

Some investors prefer to look at Return on Investment (ROI) to compare investment opportunities. Others want to know the Cash on Cash Return that they can expect each year. I like to look at both because they allow me to compare multiple self storage investment opportunities and I can compare a self storage investment to other types of investments.

Our Investment Summary Report shows this investment producing nearly a 20% ROI by the fifth year. Year 5 Cash on Cash return is over 26%. Both numbers continue to increase over the life of the investment. This is why so many self storage owners choose to stay with their investment over the long term.

Cash Flow

A well planned self storage facility leases-up at a rate of 5 to 7% per month. A positive cash flow exists once an occupancy level is achieved that produces income that exceeds the monthly operating expenses and debt service payments. The point at which the positive cash flow commences is known as the Absorption Point.

The Investment Summary Report reveals that we achieve absorption in 23 months. After only 15 months of leasing (note: there are 8 months of construction) the facility achieves a 56% occupancy level and begins producing a positive cash flow.

A real plus with self storage is that most facilities must only achieve a 55% to 65% occupancy level to reach their absorption point. Mature self storage facilities generally average over 85% occupied.

Increase in Value

To understand how the investment value increases, realize that its initial value is the land costs plus all costs to develop the site. Upon opening, valuation begins to shift from a physical asset to a higher valued, income-producing asset. As the facility demonstrates its ability to lease, the value further increases. Once the facility achieves its stabilized level of operation, the value goes even higher.

Our Investment Summary Report shows us that the initial value is just under $2.6 million. This is represented by the total funding which includes all construction, finance, and land costs. Additionally, we can see the facility’s value at stabilization. We see that the value has increased to nearly $2.75 million. Our initial investment of $520,000 is now worth $666,000. Our gain of $146,000 ($2,745,495 minus $2,598,797) represents a 28% increase in just 34 months. This explains why some investors will simply get the business started and then sell their investment shortly thereafter.

Any additional information that you would like to see regarding this model plus explanations about terminology or calculations can be found within QuickStart Self Storage.

Managing Risk

Nearly every investment involves risk. In self storage, the primary risk is getting the facility to successfully achieve its projected, stabilized level of occupancy. Executing the right steps when developing and managing the facility will significantly decrease risk. For example, it is important to have a clear understanding of the current market conditions such as rental rates, existing supply, and facility features. This knowledge will allow the investor to plan a facility that will effectively rent. Use of a program like QuickStart Self Storage really helps to point the investor in the right direction.

Investment Involvement

An investor can control the amount of time that they will spend with their self storage investment. There are experienced developers and management companies that offer turnkey services for those who wish to minimize their involvement in the day-to-day matters. But do keep in mind, most self storage is not overly complicated. Therefore, it is not unusual for investors to take on the responsibilities themselves once they have a clear understanding of the business.

The rewards from investing in self storage go far beyond that of producing big returns, minimizing risk, and investment management. Consider these rewards plus all of the other advantages when deciding if investing in self storage is right for you.