245: How Self Storage Investing Works

Way back in early 2015, I planned and developed my self-storage business with my partner Dan. It took a total of 2 years to prepare and set this thing up right. From finding property and looking for the right deals and LPs, in May 2017, we opened our doors for business with 5 outside investors. Fast forward to today, we have 4,930 self-storage units, 24 properties, 642,000 sq/ft all in properties in Ohio, Pennsylvania, New York, and Connecticut, and aren’t stopping there. With four acquisition employees, we are making offers in Georgia, Kentucky, and Indiana, and our goal is to have 50 units in 30+ states.

What makes self storage different from investment deals? Compared to the other asset classes, self-storage is a high-touch business, which means we have a ton of tenants all on a month-to-month lease and have an “operations heavy business”, meaning we have systems and employees in place to help run the day to day. In our portfolio, our cost-basis is $34 million and we have 12 employees to help manage this high end asset. From leases and vendors, there is a lot that goes into owning a self storage facility

If we zoom out and look at self storage as the asset class, 2016 was a record year that really turned up the heat for the industry, and as far as its popularity and value as investment capital, self storage is becoming a fantastic real estate investment strategy, making 2021 look like another up year. Now, there are different types of self-storage.

  1. Big Box-Type A: Cube Smart, Public Storage, Extra Space Storage, Life Storage, and U-Haul which own 20% of the market. They own what is called “Institutional Assets”, or multi-level, climate controlled facilities.
  2. Small Row Facilities or Drive-in Facilities, which is what I own and operate with Bolt Storage.

My model is to own and operate in small towns and do so remotely, making my model more efficient with overhead and operational cost. As long as you keep the facility clean, using reliable customer manager software, and answering calls to handle operations, you don’t need to worry about any of the headache that comes from infrastructure costs.

It’s all about returns though, isn’t it? Even though self storage is a more profitable business, as far as an expense ratio (property taxes, utilities, snow plowing, lawn care, maintenance, etc.), on a facility that does about $100,000 in revenue per year, you’re looking at about a 30-40% expense ratio. The best part is, with my model, the bigger you get, your expense ratio actually goes down and your operations become more efficient.

The biggest and most unique advantage self storage has, making it extremely sought after by investors is what is called revenue management. With the big players, revenue management is something that they have mastered and it is guaranteed that your rent will go up 3 months into your lease by 10%, 9 months by 6% and another 6% every 9 months after that until you move out. Smaller row facilities don’t usually implement revenue management, however, in our model at Bolt Storage, revenue management is extremely important. The way we use it is that since everybody is on a monthly lease, with 30 day notice, we create the flexibility to raise the rent to help make more money off the same asset.

Three Key Takeaways

  1. Self storage is a sought after asset class. One of the main reasons for this is because operational costs and expense ratios are rather low, 30-40% and if you structure it right, can be even lower the bigger you get.
  2. There are two types of self storage: the big players which own 20% of the market, and smaller row facilities. There is a lot of room to grow within this industry if you know what you’re doing.
  3. Revenue Management is key. This is what makes the big players so successful, and it’s a shame that a lot of the smaller row facilities don’t implement it, making it a missed opportunity that is extremely profitable.

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship. 

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