Successfully buying a self-storage facility is based on making good choices established through proper research and due diligence. Yet, despite the roadmap being publicly available, many buyers screw things up for no reason. Here are what some buyers do to destroy their ability to succeed.
Following the herd
The worst thing you can do as in investor is to chase after what you think everyone else is doing rather than to think for yourself. As Sam Zell (the largest owner of office buildings, apartments and mobile home parks in the U.S.) once said “when everyone is looking right, look left”. Being contrarian meets that you are buying when others are selling and getting in on the ground floor and not just buying at the value peak. Right now, a huge amount of self-storage was built in Las Vegas just because others said it was a great idea. Now the Covid-19 has collapsed the market there, which was always one-dimensional and risky to begin with. Often the herd flies right off the cliff while following the leader.
Pursing deals because of looks and not numbers
You are in the business to make money with real estate investing, not stroke your ego at a cocktail party. Pretty deals typically are unprofitable because their pricing is too high. There’s nothing wrong with a prestige property as long as your bought it cheap (maybe before it looked good). But stay away from any deal that does not make money regardless of how impressive it is to others.
Overlooking basic markets with solid needs
There’s more to storage investing than glamour markets like Denver and Austin – both of which are horribly overbuilt and are showing decreasing rent levels and occupancy. The heart of the profitable part of storage investing right now is in the “fly over” states – those solid markets of demand that offer consistent employment ands strength, as well as no overbuilding of new storage properties. In addition, the demand out there is for the traditional product – three walls and a roll-up door that you can pull your car up to. Multi-story and climate controlled storage is a risky venture compared to good old-fashioned storage that most Americans prefer.
Not understanding what’s required to make money
To make money in storage you have to maximize revenue and minimize cost, plus buy the property at a reasonable price. And you have to collect that money every month from willing renters who appreciate your product. Any idiot can buy a storage property (and many do) but there’s more to it than just getting a loan and writing a check for the down payment. You have to know how the business model functions and how to push those pivot points that make the difference between success and failure.
Conclusion
You can succeed at storage investing if you base your property search on proper economics and your buying on solid due diligence. This list are the attributes you never want to participate in.