IF YOU WANT TO MAKE MONEY IN SELF STORAGE DON’T DO WHAT THE BIG COMPANIES DO

The concept of “income properties” revolves around that one sole focus: making income. There is no reason you would ever want to own a self-storage facility other than to make money. And making money is pretty simple too – you have to produce enough revenue to cover costs and your mortgage and still have cash flow to put in your pocket. Yet many of the largest self-storage companies fail miserably in this concept.

Where the big storage companies fail

There are only two ways to make money with a storage facility: 1) buy it at a good price and 2) increase the occupancy or rents. Large companies don’t seem to be good at either these days. While most of the REITs and bigger players in this sector knew how to make money in the 1970s and 1980s, as they became larger they focused more on management fees and pretty properties than ones that actually have strong operating numbers. Just take, for example, this year’s stats on the largest player’s rent increases that was recently published:

You certainly are not going to make any money with rent increases ranging from -8% to +1.8%.

What you need to do by comparison

If you are not trying to rest on your laurels but actually make money, then the action plan is simple and completely different from that utilized by the big companies:

Be like the big companies were before they became “big”

B. Wayne Hughes founded Public Storage (the largest owner of storage spaces in the U.S.) in August 1972 with $50,000. If you read stores of Public Storage in those early days, you will see it sounds like the bullet points above. However, as companies grow and founders become older, the direction often changes. But that does not mean there is not good material to emulate from the early “action” days when the business was built. And Hughes’ early deals were by far more profitable than recent ones.

Conclusion

There’s money to be made in self-storage, but not if you follow the route of the larger operators. Strike your own path based on the key drivers to success and profitability, and you can easily outperform the darlings of Wall Street that capture the headlines not because of performance, but simply size.

By Frank Rolfe

Frank Rolfe has been an active self-storage investor for around two decades, with self-storage units in many states throughout the U.S. His nuts and bolts knowledge of what makes for a successful self-storage facility has led to a three-decade career without a single failed property.