Investors looking to diversify their investment portfolio may be considering self-storage. It is a rapidly growing asset class that offers lucrative returns for those who invest in it.
Before entering the self-storage business, make sure you thoroughly research its local market, identify potential tenants, and make sure the property has all the necessary operational features for success. To know more information visit https://www.jpost.com.
Building Your Own Facility
Building your own facility is an option for self-storage business owners. It can be a cost-effective way to break into the industry.
If you’re considering investing in this venture, it is essential to assess your finances and decide how much money can be allocated toward purchasing and constructing the facility. If additional capital is necessary, investors may provide assistance by helping fund your endeavor.
Once you know how much money you can invest, it’s time to create a business plan. A business plan can be used as collateral when applying for loans or pitching investors.
Once you have a comprehensive business plan in hand, it’s time to put your plans for your new storage unit business into motion. The first step should be conducting market research which will give you insight into the demographics of the area where you plan to construct the facility.
Buying an Existing Facility
One of the most lucrative self-storage investment opportunities is purchasing an existing facility. Doing so offers several advantages, including rapid cash flow generation and lower construction costs.
Robert Bellomy, senior vice president of commercial real estate at Bank of America, advises that you can find a great deal on an existing storage facility already leased with tenants. Doing so can expedite the process of stabilizing your business and starting to generate positive cash flow quickly.
Success when purchasing an existing facility lies in conducting due diligence on both property and tenant quality. You should review leases, request copies of federal tax returns and inspect the rent roll to determine how many tenants are currently paying their rent on time.
Additionally, you should look into any environmental contamination or other problems that could impact your business. For instance, if the site has a history of environmental issues like contaminated soil or groundwater, you could be held accountable for remediation costs.
Buying Shares in a REIT
If you’re searching for a hassle-free way to invest in self-storage, consider purchasing shares in a REIT. REITs are publicly traded companies that own real estate and generate operating income through leases with tenants.
REITs are an ideal way to invest in the self-storage industry, as they offer portfolio diversification while avoiding some of the risks associated with individual self-storage investments.
Furthermore, REITs offer tax advantages that could lower your federal tax rates when investing in this type of investment. This benefit is especially applicable if you hold the shares within a tax-deferred retirement account.
Self-storage REITs have historically outperformed other real estate investments and delivered market-beating total returns. Furthermore, they remain resilient during economic booms and busts alike, generating high free cash flow with minimal capex requirements.
Developing a Facility
If you’re thinking about developing or purchasing a self-storage facility, there are several options to consider. Construct it from scratch yourself, purchase it from an existing owner, or create a joint venture with another developer.
Establishing a facility requires extensive effort and planning from the new owner or operator. This includes conducting a feasibility study that determines whether the business venture is feasible.
Once the feasibility study is complete, you can move forward with development plans. This could include a site plan, design concept, and layout.
When planning your facility, you must factor in factors like land costs, construction budget, and how it will be utilized. All these elements will influence your rents as well as their size.
Before you begin development, it is essential to have an understanding of these factors so you can make an informed decision and invest in the correct facility. Selecting an unsuitable self-storage facility could prove costly in the long run.