The Investors Guide to Growing Wealth in Self Storage

1. Self-storage is a business, not just real estate

Self storage is not a real estate asset; it's a business.

Business mindset. Viewing self-storage as a business rather than a static real estate asset is crucial for success. This perspective shift allows investors to identify opportunities for increasing revenue and improving operations. Unlike traditional real estate investments, self-storage facilities require active management and strategic decision-making to maximize returns.

Revenue potential. Self-storage businesses offer multiple revenue streams beyond just renting units. These include:

• Selling add-on products (e.g., boxes, locks, packing materials)
• Offering tenant insurance
• Providing climate-controlled units
• Renting truck space or parking spots

By treating self-storage as a business, investors can leverage these additional income sources to significantly boost profitability and overall asset value.

2. Find underperforming facilities in growing markets

Buy based on pro forma information but don't pay for it.

Market research. Identifying the right market is crucial for successful self-storage investments. Look for:

• Growing population and diverse employer base
• Steady economic growth
• Limited competition from large REITs or institutional investors
• Underserved areas with demand for quality storage options

Opportunity indicators. When evaluating potential acquisitions, focus on facilities that show signs of underperformance:

• Below-market rental rates
• Poor online presence or marketing
• Outdated technology and operations
• High vacancy rates or long-term delinquent tenants
• Neglected appearance or security features

These factors indicate potential for significant value creation through strategic improvements and professional management.

3. Implement a value-add strategy to increase revenue

The value of a self storage facility is based on the revenue.

Facility upgrades. Implement targeted improvements to attract higher-paying customers:

• Enhance curb appeal and landscaping
• Renovate the office and showroom
• Upgrade security systems and access control
• Add climate-controlled units or specialized storage options

Operational improvements. Streamline management and increase efficiency:

• Implement modern property management software
• Automate billing and payment processes
• Develop clear policies for delinquencies and auctions
• Train staff in customer service and sales techniques

These upgrades and improvements allow facility owners to justify higher rental rates and attract quality-conscious tenants, significantly boosting revenue and overall asset value.

4. Understand and target quality-conscious customers

Do not count on market appreciation because that's out of your control.

Customer segmentation. Self-storage customers typically fall into three categories:

1. Price-conscious: Seek the lowest rates, often unreliable
2. Location-centric: Choose based on convenience
3. Quality-conscious: Willing to pay premium for better facilities and service

Target audience. Focus on attracting quality-conscious customers, typically homeowners with disposable income. These tenants:

• Stay longer, increasing lifetime value
• Are less price-sensitive
• Require fewer resources for collection and management

By upgrading facilities and marketing to this demographic, investors can significantly increase revenue per square foot and overall profitability.

5. Optimize operations with technology and marketing

Understanding how the people in that three-mile or five-mile radius are consuming and which units they are consuming, is critical.

Technology integration. Implement modern systems to streamline operations and improve customer experience:

• Cloud-based property management software
• Online rental and payment options
• Mobile-friendly websites and apps
• Automated access control and security systems

Marketing strategies. Develop a comprehensive marketing plan to attract target customers:

• Search engine optimization (SEO) for local visibility
• Pay-per-click advertising to capture high-intent searchers
• Social media presence for community engagement
• Referral programs to incentivize word-of-mouth marketing

Leveraging technology and targeted marketing efforts helps facilities stand out in competitive markets and attract higher-quality tenants.

6. Manage revenue through dynamic pricing and add-ons

Revenue management is more than just adding on more products and offerings and raising your street rates.

Dynamic pricing. Implement a flexible pricing strategy based on:

• Unit size and type
• Occupancy rates
• Seasonal demand fluctuations
• Local market conditions

Regularly adjust rates for both new and existing tenants to maximize revenue per square foot.

Add-on products and services. Increase revenue by offering complementary items:

• Tenant insurance (required for all renters)
• Packing supplies (boxes, tape, bubble wrap)
• Locks and security devices
• Moving truck rentals or partnerships

By strategically pricing units and offering valuable add-ons, facility owners can significantly boost their average revenue per tenant.

7. Reduce risk through market knowledge and business structure

Reducing risk is about minimizing your exposure to the investment.

Market knowledge. Thorough research and understanding of local market conditions help mitigate investment risks:

• Analyze supply and demand dynamics
• Study competitor occupancy rates and pricing
• Monitor local economic trends and population growth

Business structure. Protect personal assets and minimize liability through smart organizational choices:

• Create separate LLCs for each facility
• Establish a holding company for managing multiple properties
• Consider non-recourse loans for additional protection

Continuous improvement. Regularly assess and optimize facility performance:

• Monitor key performance indicators (KPIs)
• Stay updated on industry trends and best practices
• Invest in ongoing staff training and development

By combining market knowledge, proper business structure, and a commitment to continuous improvement, investors can significantly reduce their exposure to risks in the self-storage industry.

Last updated: November 19, 2024