The Best Way to Invest $100,000 in the Storage Industry: Part Two

By Scott Myers

The second part of this story spells out how to get a great return from storage by looking more closely at investment options.

Storage REITs

REITs, or real estate investment trusts, are one of the best ways to invest your money in self-storage. Investing your money in shares of these firms allows mutual funds to handle/develop the investment and avoids additional risks (directly owning and managing, etc.). In return, REITs give shareholders at least 90 percent of their income per year. A very good level of risk tolerance makes REITs companies one of the safest ways to invest 100,000 dollars.

If you like to diversify your portfolio with various types of investments and don’t want to participate in the managing part, self-storage REITs can help you start investing in publicly traded companies with mutual funds. Also, the liquidity of this type of investment enables you to buy and sell your shares whenever you need to. This way, you don’t own storage; you just make money off it via the stock exchange.

Active Participation in Self-Storage 

When the self-storage sector got off the ground, it was more of a mom-and-pop kind of business. It is still a great opportunity for those who want to get involved in investments, whether by developing a self-storage facility or purchasing an existing one.

Developing a Self-Storage Facility

If a self-storage investor has sufficient experience/knowledge, developing a self-storage facility can be extremely efficient and lucrative. You need an expert group of laborers and proper financial support. With expertise, you can use the resources at hand to build an optimal self-storage facility.

The better your storage looks aesthetically, the more money you are likely to rake in. Any kind of modern facility you develop increases your services’ price and attracts a more specific group of clients. You offer a valued service; the customer pays more! That’s how it works.

To develop a self-storage facility, you need to be fully informed about local zoning details, municipality permits, etc. Construction must adhere to established standards, and before you decide on the development procedure, you need to be fully on top of how to manage costs, rate of return, etc. There is no mutual fund. It is all on you. It is up to you to make it work by lowering costs and maximizing profits, but by doing so, you can make more money than if you went in on the investment with a group.

Purchasing an Existing Self-Storage Facility 

While developing a self-storage facility is an excellent option for investors to start their investment journey, purchasing an existing one is also a way to build a significant income potential. The first step is to find a proper facility to buy. That is the easiest step.

It is possible to find a facility online. The best websites that provide such services make sure that all details are available to help you establish a self-storage facility. There are various options available, such as SelfstorageInvesting, Sparefoot and Neighbor.  So make certain to choose wisely based on your priorities. 

To achieve a high return in self-storage investments, it is vital to analyze the financial scenarios of a facility. When you want to purchase a self-storage facility, the cap rate of the facility you are buying, related to the property’s net operating income (NOI), determines the rate of return on investment. Also consider expanding the facility to offer RV and boat storage, the hottest and most desperately needed niche within the industry.

An investor requires various details (revenues, expenses, etc.) to come up with an accurate net operating income of a property. The cash flow that your new facility produces is called NOL. Facilities with higher cap rates have higher rates of return on investment. You must also forecast the budget you require for operating the self-storage facility.

The Best Investment for $100,000 

Now the question is, how should you invest $100,000 dollars in self-storage? When it comes to real estate, the amount of money you need depends on the business. One hundred thousand dollars may seem like nothing in a massive project, but in self-storage, everything is different.

First of all, participating in any kind of self-storage investment needs less money than constructing a complete structure/building. Storage spaces are mostly basic construction and cheaper than commercial real estate. Also, you don’t need a lot of money for maintenance; hence, it is easier and cheaper. 

Secondly, one of the best options for those who want to invest $100,000 in self-storage continues to be REITs. As we said, this option gives you the opportunity to be an investor and not be involved with the process, management, etc. 

Is $100,000 Enough?

If you want to pull the trigger, yes! It is enough, and you can start your investment journey. 

The real estate market and especially the self-storage sector have changed for investors in the recent past. They are no longer for the super-rich. With modern tactics and up-to-date real estate investment methods, it is even possible for students to enter this field. What about $100,000? Of course, that’s enough. We will provide you with some guidance on how to invest 100,000 dollars in self-storage.

Your Cash Flow

In the self-storage industry, your first need as an investor is cash flow. Most investors financially manage their facilities. Cash flow is there to expand their operations and develop properties. When you invest in self-storage (at any scale), you will frequently need credit. If credit is available to you, you should jump in.

Cash flow is necessary to manage investments as well as for not missing out on any profitable property opportunity that may come along. Every time you are about to deal with your clients, analyze your preceding cash flow situation.

Occupancy Information

Occupancy in the self-storage industry consists of economic and physical occupancy. The actual number of storage units that are occupied by tenants is called physical occupancy, and the actual income the property generates is called economic occupancy.

You need an authentic method for pricing each type of occupancy, and that would be possible only with proper data about these technical aspects. However, investing in the self-storage sector with REITs does not require a profound mastery of information analysis.

Market Analysis

Analyze the market before investing in self-storage. The local market you are investing in needs to be growing and profitable. To understand whether it is profitable or not, you can obtain reliable data on average home sizes, rental rates, etc. 

A simple tip: If there are a lot of small houses in a town, it is a telltale sign that demonstrates there is an opportunity for a self-storage investment. Small houses mean a large percentage of people in that town require proper storage spaces for their stuff. You should analyze the market, put the numbers together, and make a decisive decision.

Competition

Understand your competition. No one embarks on a new endeavor without knowing all about his/her competitors. If you want to start your investment where big companies and REITs are actively working, then the outcome is obvious. You will likely not succeed, and there is very little market for you.

Don’t forget that you don’t have to be a big-time investor or have a lot of money to have success in the market. However, you must know your competitors and attempt to apply a proper strategy that works for you. It’s not about comparing numbers but about strategizing to get customers to come to you.

A Takeaway Note

The optimum way to invest $100,000 in the self-storage sector is to understand the market and learn how to manage it. Make your best decision, and try to have a profound comprehension of what you are about to do. Can you handle competing with big investors? Do you want to let REIT companies do the management? Whatever your answer is, there is no ideal way to do that. Even $100k can start this journey for you. To keep yourself updated about how to invest $100,000, register for Self Storage Investing’s FREE Masterclass.

Scott Meyers is one of the nation’s leading experts in the self-storage business. Scott has a passion to share his experience and wisdom to help others succeed. Since 1993, he has architected dozens of extremely successful real estate transactions. He has built several multi-million-dollar businesses in real estate including single-family flips, to multi-family projects, industrial buildings, commercial office buildings, cold-storage buildings, warehousing, parking lots and his favorite – self-storage. Learn more about Scott’s expertise and his company, Passive Storage Investing, click here. 

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