Should You Invest In Self Storage Rental Real Estate?
If you've ever considered entering the realm of investment rental property -- whether a single-family residence, duplex, or apartment building -- self storage units may be completely off your radar. However, these buildings can be inexpensively constructed and provide a steady stream of income with relatively low expenses. Read on to learn more about how these units can fit into your investment portfolio and what you should consider when purchasing a self storage rental building.
What is the start-up cost of a self storage rental facility?
Your initial cost will largely depend on whether you purchase an existing facility or construct one on vacant land, as well as the size of the facility to be constructed. If you're building on your own land, you can expect to pay somewhere in the range of $16 to $28 per square foot of new construction. This includes the cost of labor and building materials only.
Although self storage facilities don't necessarily need to be climate-controlled, the most successful facilities offer climate control and 24-hour-a-day access (which means lots of bright overhead lighting, PIN-protected gates, and possibly security cameras). These costs will add several dollars per square foot to your estimate.
Purchasing an existing building is much simpler than building from scratch, but also gives you less flexibility to choose the number of units and level of security or automation you want.
What type of monthly revenue can you expect?
Storage units can be very lucrative -- renting at an average of $0.75 to $2.00 per square foot per month (for example, a 25 square foot storage unit will rent for $40 to $50 per month, while a 150 square foot unit will rent for $115 to $150). If your prices are on the high side, you can recoup nearly all your construction costs in a year. However, banking on a 100 percent occupancy rate can be a mistake, as you'll almost always have at least a few vacant units. The average occupancy rate is generally around 85 percent.
In addition to this 15 percent vacancy rate, you should likely expect occasional non-payment of rent (resulting in eviction or other legal action). Many self storage facility owners use a 75 percent occupancy rate as a conservative baseline estimate of their monthly revenues.
What will your typical expenses be?
In addition to the upfront purchase or construction costs, there are also the ongoing utility and maintenance expenses -- such as trash removal, snow and ice removal, gutter cleaning, and all the other maintenance issues that come along with a commercial property. These expenses can vary widely by region, but in nearly all cases should be easily paid from your monthly revenues, with quite a bit left over. If you're purchasing an existing facility, you have the advantage of access to information about previous years' expenses.
For more information about self storage, contact AAA Flying Trolley Self Storage or a similar company.