Investing in Self-Storage Buildings

When it comes to commercial real estate investments, some types offer bigger and more reliable returns than others. Take the self-storage industry, for example. Unlike many industries that depend on a strong economy to succeed, storage unit businesses tend to maintain high occupancy rates even during economic downturns, making them a smart choice for anyone seeking a low-risk investment opportunity.

Occupancy rates in self-storage facilities vary to some degree based on geography, climate considerations and other factors. However, the average American self-storage business maintains occupancy rates that hover above 90% and generates a profit margin of about 40%. This ensures that these businesses produce a steady stream of rental income regardless of market conditions. It also makes self-storage buildings an appealing option for anyone looking to diversify their investment portfolios.

Find Funding for Self-Storage Buildings

Now that you know how profitable mini storage facilities can be, you may have questions about how to cover the initial costs associated with them. Many people who buy metal self-storage buildings rely on similar methods of financing.

Conventional loans

If you have a strong credit score and a reasonable net worth, you may be able to obtain a conventional loan for your mini storage building. This type of loan typically requires a sizable (roughly 25% – 35%) down payment. You may also have to follow certain covenants, such as Debt Service Coverage Ratios or Loan to Value covenants, when you take out a conventional loan.

Small Business Administration loans

Small Business Administration loans, or SBA loans, may be an option if you lack the down payment amount a conventional loan requires. There are two main types of SBA loans: the 7(a) and the 504.

With a 7(a) loan, you can finance up to 90% of the amount you need for your storage unit business, and you don’t have to adhere to the financial loan covenants you do with a conventional loan. A 504 loan, meanwhile, helps you finance between about 80% and 90% of your construction costs, allowing you to secure substantial funding for your self-storage facility.

In some cases, joint venture loans may also be an option. This financing approach involves partnering with experienced developers or investors with considerable industry expertise to fund your self-storage project.

Conduct Market Research

The success of your self-storage business will also vary based on how in-demand storage space is in your region. Thus, it pays to conduct thorough market research before opening a self-storage business in a given area.

Analyzing demographics, growth trends and other economic indicators can help you determine how much demand there is for storage space as well as how much competition you may have in the local market. Assessing consumer preferences and researching local self-storage occupancy levels can also help you pinpoint exactly what type of storage space to offer, i.e. climate-controlled storage, drive-up access storage, vehicle or boat storage, and so on.

Secure a Strong ROI

Investing in self-storage buildings can be quite lucrative for commercial real estate investors, offering impressive returns on investment. According to Forbes, the average ROI for a self-storage business between 2001 to 2023 was 20.87%, highlighting the resilience, profitability and long-term viability of the industry.

Connect With the Pros

A smart investment opportunity for those looking to diversify their portfolios and generate reliable rental income, metal mini storage buildings offer relatively low upfront costs and generous ROIs. Have additional questions about the cost of building a storage facility, or want to learn more about how to build storage units? Contact Mini Storage Outlet at 720.902.7861 or email [email protected] to discuss your needs today.