Inside Self-Storage

JAN 2019

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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S elf-storage has been among the most steadily growing U.S. industries for more than 40 years, and its expansion is predicted to continue through the remainder of this decade. Like other business investments, a storage facility can provide an income stream, employment independence, equity and appreciation, and tax benefits. However, before you embark on buying or building a property, it's important to dissect and dismiss common myths that woefully mislead many prospective investors in their decision to invest in the business. Myth 1: Business Operation Is Eortless A self-storage acquisition comes with many operational responsibilities. To successfully compete in a growing industry, they must be properly managed. Some of these obligations include: • Increasing rent to compete with nearby competitors • Physically maintaining the facility and grounds • Keeping detailed and thorough inancial records • Maintaining legal requirements Myth 2: Larger Facilities Mean Larger Profit In more traditional real estate, size is a huge factor in how profit is made. In self-storage, property valuation, cash flow, operating revenue and occupancy are the primary factors in pricing a facility for sale. Larger numbers of units and square footage can add value, but high occupancy rates and positive financials are what will make or break a deal in the end. Myth 3: Location Isn't Important to Revenue Whether a property is in a thriving urban area or a slow-paced rural market, self-storage has been popping up everywhere you look. This has resulted in a common misconception that facility location isn't important. The truth is location is one of the most important factors to success. As an owner or prospective buyer, you should be aware of the following: • Traffic: Facilities in areas with low residential and employment turnover rates are less likely to perform well than those in proximity to university dormitories, military-housing developments or multi-family apartments. • Visibility: Facilities in prominent locations are more likely to maintain higher occupancy and command higher rental rates than those in hard-to-ˆnd locations. • Accessibility: Properties that are easy and convenient to access, especially for large moving trucks, are more likely to perform well than properties with entryways on tight turns, or driveways built on steeply inclined or declined grades. • Surrounding area: Properties next to major retail chains tend to be successful, whereas facilities that are far from main attractions often struggle. Myth 4: Self-Storage Is Always a Sound Investment Self-storage carried relatively lower investment risk during the industry's early days than it does in many markets today. The industry has become much more competitive through growth. Incoming owners and investors need to enter flourishing markets with greater care. Determining whether a new development or acquisition will be a sound investment requires multiple analyses. These should include a thorough examination of the storage-rental market and competition, a feasibility study, and a broader regional and national, short- and long-term economic outlook. At this point in the industry's evolution, some markets are overbuilt or soon will be. These pose high risk in terms of initial lease-up and low average occupancy over time. These indicators also point toward predictably low return when the property is eventually resold. Myth 5: Storage Facilities Are Guaranteed Cash-Generators Self-storage businesses do have a comparatively low default rate among leveraged real estate purchases. However, due to inadequate planning, many owners who don't default on loans often find themselves struggling to meet financial obligations. New owners who don't anticipate having time to invest in the business or who lack Don't let these misguided notions derail your efforts By Ryan Clark Common Investment Myths Determining whether a new development or acquisition will be a sound investment requires multiple analyses. 16 ISS I January 2019

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