A lot of storage is a real estate play. Buy land in the direction of where cities are growing. Pay your mortgage with storage facilities sitting on top until the land appreciates.
It's actually the opposite, it's more akin to a SaaS company. I've worked with Owner-Operators of facilities and the ones who do it right are printing money.
The smart ones optimize towards revenue per square foot and can pull in upwards of $30,000+ of profit per month. And that can be on a single facility. Typically the smart ones own 2-3 facilities. They buy an underperforming facility and optimize its functions and reap the rewards.
How do they do it? One method (of a few) is by constantly pushing the rates up and churning customers that have lower rates. Once their occupancy hits a certain threshold (typically above 85%) they start really trying to push customers out with higher rates. If the occupancy starts to dip below their target, they start to offer deals. That way they can keep the monthly recurring revenue flowing while still optimizing towards revenue per square foot.
Edit: This is why there are specific REITs that focus on self-storage.
I love reading about interesting business models such as this. A similar one I've read about before is vending machines. Apparently a well-run vending machine business (ignoring labor costs) can easily achieve 50-100% ROI per year per machine. The vending machine owners don't usually have to pay for the electricity of the machine and each machine only costs $2-3k. Maintenance/restocking has relatively low labor requirements and the stock itself is so cheap it's almost a negligible cost.
It depends on how the Trust wants to focus its funds. Similar to how a VC fund might focus on enterprise software or B2C. For a reference of Self-Storage REITs, this is a good start(1).
Different markets are definitely hotter than others. Houston, Miami, Austin, Los Angeles are some of the more lucrative markets, but even small markets have strong players. Self-storage is fairly democratic in the markets served. I've visited facilities in rural town that are wildly successful for the owners, as well as small facilities outside of Manhattan Beach.
Land is usually a very long play (trust funds, REITs, endowments, etc), I'd say this is a relatively new strategy in the past 10-20 years in most places. They likely won't be looking to do that until the storage building reaches its useful life and needs major repair. Then, the question is, do we have a thriving storage business or is there a better use for this land?
Buy industrial land relatively close to residential/commercial areas. Build self storage, wait 20-40 years. Eventually people are going to feel the need to upzone that under utilized industrial land that is so close to a thriving, gentrified neighbourhood.
The City of Vancouver recently upzoned its Flats industrial area, and went to the extra step of banning self storage to ensure people actually build buildings that are capable of employing people.
I have. Some of my extended family almost certainly by luck built their storage unit complex right where the state decided to move the highway. The made millions.
I've been wondering why so many of them are popping up in the city core where I am, instead of more far-flung light industrial areas where they typically existed.
The construction costs $/sqft must be a fraction of commercial building for Class A office or housing.
Usually city core real estate is controlled by a small cartel of owners. They usually cover their carrying costs with parking, as the class-B office space is worthless from a revenue perspective in most places.
If it's a small/mid-sized city, sometimes these property guys get squeezed enough by periodic nuking of people at the local Bank of America/etc office that they actually need to do something with the property. Storage is great because it fits with commercial zoning has overhead similar to parking.
> sometimes these property guys get squeezed enough by periodic nuking of people at the local Bank of America/etc office that they actually need to do something with the property.
Can you please explain this further? I am not sure what "nuking" here refers to.
A neighbour of mine has a spare piece of waste land in an industrial area on the edge of a nearby town. He has opened a storage facility using shipping containers. They come over to the UK from China and are not worth shipping back empty, so you can buy them cheaply and then just supply a padlock to clients.
