Investing in Self Storage OUT OF STATE - Pros & Cons!

Ways to Invest Out of State

Are you interested in investing in storage, but struggling to find suitable options nearby? Unlike single-family homes that offer numerous choices, storage facilities, being part of commercial real estate, are typically larger and less abundant. In rural areas, your storage options might be limited, while in big cities, prices could be prohibitive. Proximity alone doesn't guarantee a safer investment, and it's crucial to prioritize a good deal over mere convenience.

There are several approaches to investing in out-of-state self-storage. Firstly, you can take the DIY route, managing everything independently. Alternatively, you may choose to collaborate with partners, such as third-party property management companies, who handle all aspects of the asset on your behalf. Another option is to invest with professionals like myself, where you become a co-owner in a property, sharing the responsibilities and rewards. 

Your choice depends on your comfort level, goals, and desired level of involvement. Before venturing into self-storage investment, it's essential to understand the purpose of your project and the goals you aim to achieve. Therefore, what information should you gather before considering an investment in self-storage?

Questions to ask yourself 

When we began our investment journey, none of our properties were located in the city where we resided; instead, they were scattered in small towns far away. Some were even a 9-hour drive from our home. This posed significant challenges, especially considering our limited options at the time.

If you're contemplating out-of-state self-storage investments, there are key considerations to address before making a decision. The primary and crucial question is: Are you going to manage the facility? Managing it independently differs significantly from having a property manager handle all responsibilities. If you opt for self-management, you need to set it up effectively so you can oversee operations remotely without the need to be physically present every day.

When we started, there were no third-party self-storage management companies available to us. Consequently, we had no choice but to handle everything ourselves. We implemented remote management strategies and automated tasks that could prove invaluable for those considering out-of-state investments.

Pros & Cons of Investing in Self-Storage Out Of State

Pros:

• Exposure to More Deals
• More Opportunity
• Wider View of More Markets
• Running Like a Business

Cons:

• Less Knowledge = More Risks
• Set Up Operations RIGHT
• You Have to Rely on others
• You Can’t be there Often
  
  

Let's begin by examining the pros and cons of out-of-state investing. The majority of people reside in densely populated areas in the United States, such as Texas, California, New York, and Florida. These urban hubs attract significant investment, resulting in high-priced, often institutionalized assets. This scenario can push novice investors away from institutional capital, directing them towards smaller, more local assets, as was the case when we started.

The advantages of out-of-state investing are manifold. Firstly, it broadens your exposure to potential deals and markets. The increased opportunities for exploration can be beneficial. However, the drawbacks are noteworthy. The lack of intimate involvement in a distant market poses a challenge. There is a genuine risk associated with unfamiliarity, and venturing into unknown territory demands caution.

With around 60,000 storage facilities across the United States, the inventory is considerably less compared to other assets like homes. To navigate this landscape, you need to identify a good market and seize the best opportunity to acquire a facility. While you may not always have the ability to handpick locations, you can assess and analyze markets for demand and potential. It's crucial to establish operations correctly, especially if you can't be physically present every day.

This involves setting up the business like a well-organized operation with trusted individuals executing tasks. This structured approach can be advantageous but does come with the limitation of reduced personal interactions and immediate execution, relying on your ability to oversee from a distance.

Compensating for the Cons

To overcome the challenge of limited on-site involvement and transform it into an advantage, it's crucial to build a team of experts in the target area who can handle all aspects of the investment. This strategic move not only helps mitigate the risks associated with unfamiliarity but also facilitates scalability. Having good partners makes up for some of the risks in what you don’t know, providing diverse perspectives. 

Collaborating with a broad range of partners, including brokers, title companies, and property management firms, is vital. These professionals can conduct thorough assessments of the asset, assist in underwriting, and offer valuable insights. Utilizing feasibility studies, which delve deep into both the market and the asset, further enhances your understanding. These studies serve as valuable resources for banks, partners, and property management teams, helping bridge the gap of not intimately knowing the market.

Increasing knowledge through partnerships and comprehensive studies allows you to manage and limit risks effectively. While it's important to acknowledge and work within your comfort zone, geographic boundaries should not unnecessarily restrict your investment opportunities. Drawing on the knowledge of markets you understand well can provide a sense of safety and comfort. However, it's beneficial to expand the scope to include more deals and opportunities without compromising your understanding of the market. 

When making investments, risk mitigation involves enhancing our understanding to effectively assess and manage risks. In my case, I took deliberate steps to limit risk by focusing on areas within a specific geographic region that I was familiar with. Although the region encompassed Northwest Washington, Oregon, Idaho, Montana, and Wyoming—a sizable area—I confined my considerations to the internal parts I understood well. This strategy excluded coastal regions in Oregon and Washington due to my lack of comprehension of those markets.

By narrowing my focus to markets along the freeway within this extensive region, I targeted smaller markets where I felt comfortable. Growing up in similar market conditions, I was accustomed to minimal competition, resulting in favorable purchase opportunities. While this approach restricted my choices to what I knew, it still defined a substantial geographic boundary.

My advice is to merge market familiarity with safety and comfort. This entails acquiring knowledge of your chosen markets, increasing opportunities for deals, and ensuring a favorable market with potential upside. The key lies in balancing your comfort zone with the desire for a broad range of opportunities. Opting for a limited geographic scope allows for a deeper understanding of the market, fostering a sense of safety and comfort.

However, the challenge arises when managing properties remotely. Whether engaging a third-party property management company or handling it personally, this decision significantly influences the overall setup and preparation required. While many may choose third-party management for convenience, it comes at a considerable cost. Additionally, the availability of quality third-party management companies depends on the specific market conditions.

For those considering self-management, the challenge lies in developing a robust management plan that accommodates the constraints of long-distance oversight. This decision necessitates careful consideration and preparation, as it impacts your ability to be physically present at the property whenever needed.

Effectively Managing Out-of-State Self-Storage Facilities

Dealing with smaller storage facilities offers a distinct advantage: there's less that can potentially go wrong. Today's technology and available resources allow you to minimize risks effectively, making self-storage one of the most manageable and streamlined industries for long-distance management.

Breaking down the tasks for effective remote management involves two primary categories: onsite and offsite responsibilities. Onsite tasks are those that require physical presence at the property. While there's no such thing as a completely unmanned storage facility, you can automate many processes to enhance efficiency. Onsite duties include unit checks, cleaning out vacated units, conducting auctions, managing weeds, and general maintenance. Setting up a system for online renting and payment significantly facilitates remote management.

When potential tenants want to rent a storage unit, they can do so online through your website or by calling a designated phone number. Automation through your property management system can handle customer service, providing gate codes and unit information. Even when tenants vacate, you can outsource tasks like cleaning and unit preparation to local contractors, simplifying the operational side.

The backend processes, such as customer service, records, reports, legal and accounting tasks, can all be efficiently managed through your property management system. Additionally, managing third-party service providers, such as landscapers and on-site unit caretakers, becomes feasible with regular reports and communication. Ensuring tenants pay their bills and taking necessary actions, such as lockouts for non-payment, can also be handled remotely.

One of the notable advantages of investing in self-storage is its relative ease of operation, even when the facility is located across multiple states. It stands out as one of the most straightforward assets to own and manage remotely. To make informed investment decisions, it's crucial to assess whether the asset is a good investment and if the market is favorable.