Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Well, well... right after I see an article about mobile homes being hot hot hot in 2017, I see another one calling self-storage The Next Big Thing.
I guess that’s not so surprising, having seen the Fed dump $10 trillion in liquidity in the financial markets over the past 8 years. Housing is up. Apartments are up. Commercial real estate is up. And mobile homes are up.
You follow that? If you did, you know that it also means that these days everything seems to be the “next big thing” simply because a rising tide lifts all boats.
That said, at the risk of abusing another metaphor, we need to make hay while the sun shines, because recent history has not so subtly demonstrated that the market doesn’t keep going up forever.
The article talked about 4 factors that make self-storage something you might think about looking at. Three are good reasons; the fourth is a reason to do your due diligence.
#1: Self-Storage Yields Steady Returns
Self-storage is much less risky than other commercial investments. With commercial properties, you have the potential to make a lot of money, but you also risk plenty of empty offices and apartments. With those vacancies, you run the risk of losing more than you gain from the rent your tenants bring in.
With self-storage, you make a smaller investment, meaning you owe less in the long run, but you’re promised steady returns from automatic monthly payments. Even if you have vacancies in your storage units, you’re still more likely to turn a solid profit in self-storage than in many other kinds of real estate ventures.
#2: Self-Storage Investments Are Growing
As of now, there are more than 58,000 self-storage facilities in the United States.
There’s nothing fancy about most of them, but they’re in very high demand as people jump on the minimalist bandwagon and look for ways to rid their homes of clutter. It’s truly an ever-expanding market.
#3: Self-Storage Withstands Good Times and Bad
Some investment experts argue that self-storage unit investments are recession resistant. Anyone can get into this trend, even ordinary investors who haven’t made an investment before because they’re low risk, low cost and easy to navigate.
Self-storage booms when times are good. When employment is high and the economy is performing well, people have more money. They buy new furniture, clothing, collectibles, and other items that add to a growing collection of material goods.
Then, they start to get overwhelmed by their purchases and need somewhere to put it. A storage unit gives people the option of buying more than they need, without throwing out things they once loved.
The need for self-storage won’t disappear at the first sign of hard times, though. Good times are particularly generous for storage units, but bad times don’t last forever. People will hang on to their stuff and continue paying the small price for a monthly storage unit because they know a better market is just around the corner.
#4: Get in While the Market Is Hot
The economy is better now than it has been in years, encouraging interest in self-storage from both consumers and investors. The stability and high-grossing nature of the business should be very attractive, and it’s always good to get in when the promise of returns is high.
It’s important to note that this is a stable market, but it’s not infallible, nor will it make you magically wealthy. Occasionally, self-storage investments go negative for short periods of time, and you’ll see some potential losses as a result. But despite the occasional dip, it’s by far one of the most stable and highly recommended real estate investments of the age.
This is the reason to do your homework and make sure your numbers work both now and if/when the real estate market tanks.
Even a blind dog with a note in his mouth can make money in real estate right now. The trick is to buy right so you can make money when the market eventually turns down.
Speak Up
If you have experience investing in self-storage, we want to hear from you below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.