Why I bought Self Storage in a Recession

Feb 22, 2024

The current economic downturn is marked by escalating inflation that eludes government control, leading to market collapses and plummeting returns. In such a challenging environment, identifying the safest and most lucrative real estate asset becomes crucial. Allow me to introduce the answer: storage units, specifically storage doors.

What is Self-Storage?

Self Storage is the most reliable type of real estate investment compared to other commercial assets. It has consistently shown superior performance during economic downturns, outpacing all other commercial real estate assets for over 26 years. If you look at the data, Self Storage has a default rate as low as three percent, while other types of assets experienced significant declines during past recessions. 

This resilience was particularly evident during the 2008 real estate crisis when self-storage not only survived but actually flourished.

Why does Self Storage do so Well?

  • Margin

Self Storage stands out as a recession-resistant investment for three key reasons. Firstly, it boasts a high margin due to its minimal capital expenditures and operating expenses. This means that the cost of running and maintaining self-storage facilities is relatively low, allowing for a larger profit margin.

  • Tenant Loyalty

Secondly, the stability of tenants is crucial. In times of economic shifts, people often require storage space even more. This consistent demand contributes to the resilience of Self Storage as an investment.

  • Diversification of Revenue

Lastly, the diversification of revenue is a significant factor. With numerous storage units, the departure of one tenant has minimal financial impact, especially when there are hundreds of other units. This inherent diversification helps cushion against any potential financial setbacks and makes Self Storage a reliable choice for investors.

Why does Self Storage Thrive?

Self-storage thrives for several reasons. Firstly, it's hard to leave for tenants to leave a storage facility. Moving out involves effort, time, and can be costly, making it less likely for people to vacate their storage units. Even a small rent increase is often preferable to the hassle of moving.

Secondly, attracting new tenants is straightforward. The turnover process is simple, requiring minimal capital expenditures. Sweeping the floor and finding a new tenant is a quick and cost-effective process, helping to maintain a high-profit margin.

Additionally, the flexibility of month-to-month leases sets Self Storage apart. This flexibility allows for quick adjustments in response to economic changes. If occupancy drops, the facility can implement marketing strategies, discounts, or even raise prices using dynamic pricing and revenue management. This adaptability maximizes revenue in the Self Storage asset class.

My Experience

Drawing from personal experience, I'm not just discussing information from a book – in fact, I authored a book on Self Storage. I have hands-on involvement as an owner, operator, and investor in Self Storage since before 2008. Having navigated through the challenges of the Great Recession and the COVID-19 pandemic, my team and I successfully optimized our assets, consistently exceeding expected returns. Through these experiences, we have never lost an asset, showcasing the resilience and success of our approach in the self-storage industry.

How to Invest

Investing in Self Storage presents a unique opportunity, as it's primarily dominated by individual or "Mom and Pop" investors rather than large institutions. This allows individual investors to enter the market and compete, offering a chance to tap into the wealth and income potential of this asset class.

There are various ways to invest in Self Storage. While publicly traded REITs (Real Estate Investment Trusts) exist, they don't provide the same direct involvement and benefits, such as tax savings. Direct investment is an option, allowing you to find, purchase, and learn to operate a storage facility.

Alternatively, you can invest with experienced operators, like myself and my team at Cedar Creek. To get started in self-storage investing, there's a learning curve. You need to understand how storage facilities work, learn how to value them, and grasp the operational aspects. That's why we've created the Self Storage Income. You can find more information in the form of videos on breaking into and thriving in this exciting market. 

In conclusion, the current economic challenges characterized by escalating inflation and market collapses highlight the importance of identifying a secure and lucrative real estate asset. Self Storage emerges as a resilient and thriving investment option, particularly during economic downturns. Investing in self-storage, dominated by individual investors, provides a unique opportunity for wealth and income generation, whether through direct involvement or partnering with experienced operators. Overall, it stands out as a stable and rewarding option in the dynamic real estate market.

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