Passive Storage Investment: Tips for Beginners

Americans love storing their stuff. In fact, the self-storage industry is primarily a US-based industry, where out of the 58,000 self-storage facilities that you can find around the world, 46,000 can be found in the US. 

Although the average size of the American home has tripled over the past 50 years (according to the independent, non-profit media organization NPR), many homeowners still rent self-storage units for their extra belongings. The industry has become one of the fastest-growing sectors in the commercial real estate industry. Thus, investing in a self-storage business is a promising way to earn passive income.

If you’re thinking about making a passive storage investment, read this article to learn more about it.

Self-Storage Investing: What Is It?

Short for “self-service storage,” self-storage is an industry where people can rent out units to store their belongings. These units may be lockers, rooms, container vans, or open spaces. Many people store a variety of items in self-storage units, such as furniture, appliances, art, vehicles, decorations, or documents.

Some businesses also rely on these storage solutions to hold their stocks, pieces of equipment, and supplies. Several creative customers even converted their self-storage units into sheds and man caves.

Self-storage units can be rented on a short-term (monthly payments) or a long-term basis.

What is passive storage investing?

Investing in passive self-storage businesses means that you will put your money into real estate syndications (also known as group investments).

This means that, instead of buying a property or building storage units from scratch, you will pool your money with the company together with other investors. As a result, you’ll be able to acquire larger commercial properties. This also means more income for all of you.

As a self-storage investor, you don’t have to do any kind of work. You can simply invest your money and start getting cash flow checks.

What makes self-storage a profitable investment?

Real estate can be an overwhelming and challenging industry for entry-level investors. However, self-storage investment is one of the easiest, safest, and most lucrative businesses if you’re a beginner. 

Before you familiarize yourself with how to invest in storage businesses, you should first know the advantages.

Lower starting capital. Unlike most commercial real estate businesses that require a hefty amount of dollars as a starting capital, passive storage investment needs far less than that. Also, if you’re applying for a loan from the Small Business Administration (SBA) to build your capital, they will only require as little as 10% downpayment.

Fewer risks during economic downturns. No business comes free of risk, especially during economic downturns. However, the self-storage industry was the only sector to report positive returns during the Great Recession of 2008. 

High consumer demand. As the residential market continues to rise and more people earn higher disposable incomes, the demand for self-storage will also continue to grow.

How to Invest in Storage Business

Eager to earn passive income through self-storage? Fortunately, you don’t have to open up your own warehouse from scratch. You can invest in an established self-storage facility by purchasing shares and receive return-on-investment (ROI) through dividend returns.

Self-storage companies usually have different methods of receiving applications from investors, but here’s a general overview of the process:

1. Send in an application form. The first step to starting a passive storage investment is by filling out an application form or writing a letter that expresses your interest. This form can usually be found on the website of the self-storage company.

2. Discuss your goals with the company. After sending your application, one of the company’s representatives will contact you once you are accepted. From here, you can discuss your goals, and then they will provide you with the best investments that will help you meet those goals.

3. Start your passive investment. The company’s representatives will guide you through the process of making a passive investment.

4. Wait for your income. Once you are done with the application and have completed the initial investment process, you do not have to do anything. Just sit back and wait for your quarterly cash flow payments from your passive self-storage investment.

Managing and Maintaining Your Self-Storage Facility

In general, passive self-storage investors don’t have to do any work at all. The company will be responsible for the operations and maintenance of the facility. But if you’re interested in learning more about managing and maintaining a self-storage facility, here are several tips:

Check the roofs.

One of the most important parts of the facility is the roof. You’ll need to ensure that it is reliable and strong enough to protect the tenants’ items inside the units. Clear out debris and residue on a regular basis, especially after storms. Clean out the gutters and downspouts regularly as well. Remove any debris that could clog the downspouts and prevent rainwater from flowing down. This measure will prevent leaks and roof deterioration.

Clean the exterior walls.

Since cleaning the interiors of the occupied units aren’t possible, make sure that the exterior walls are spic and span. Wash out the dirt, grime, and dust that have accumulated over time. Giving it a paint job whenever necessary will keep it looking new and attractive as well.

Perform regular general inspections.

With the help of professional building inspectors, you should schedule general inspections regularly to ensure the building’s structural integrity. Inspect the doors, the interiors, and the plumbing system. Ideally, this should be done when most of the units are empty.

How Much Self-Storage Passive Income Can You Make?

According to a study, self-storage investment only has an 8% failure rate compared to other real estate investments. Meanwhile, multifamily residential units have a  58% failure rate, office spaces have a 63% failure rate, and retail spaces have a 53% failure rate.

What do these numbers mean? The low failure rate of the self-storage industry means that it has the extra edge to survive tough economic times. According to Inside Self Storage’s financial model, an investment of $397,615 can generate a positive cash flow of $117,761 or a 29.6% cash-on-cash return on investment (ROI). 

Additionally, the self-storage industry in the US has a profit margin of 11%. That’s a stark contrast to the profit margin of restaurants, which is just 3-5%. Therefore, it’s no wonder that plenty of business beginners are enticed to earn self-storage passive income.

Can you imagine how much passive income you can make with self-storage businesses? And to think that you don’t have to do anything at all!

Final Thoughts

Commercial real estate is a promising industry for budding entrepreneurs. However, if you’re looking for an easy, safe, and profitable business opportunity, you should consider investing in self-storage units. Self-storage investing for beginners is pretty easy. Among other real estate sectors, self-storage requires the least starting capital. Plus, it’s the most resistant to economic downturns.

Need help with maintaining your self-storage units and other commercial spaces? Kevin Szabo Jr. Plumbing can help you with installing and updating your plumbing fixtures and systems. For more information, you may read more of our blog articles.

Guest Contributor: Edwin Sutton