11 Feb 5 Reasons Self-Storage Investing Will Continue Its Incredible Run
My wife and I raised our 10 kids (eight adopted and two biological) on a 70-acre farm in south central Virginia. We believed that to raise healthy kids with a strong work ethic, they needed lots of fresh air, room to run, and plenty of chores. And in retrospect, the formula worked out pretty well for the most part!
One advantage of owning a farm is that it provided a great place for children to learn. Our kids always looked forward to fall, which was hunting season, when we would spend time in the woods scouting for signs of deer, bear, wild turkey, and squirrels.
They knew that if they paid close enough attention they could spot fresh tracks, broken branches, rubs, scrapes, and even the occasional half-eaten acorn. These signs were a clear indication that animals were active in the area.
Somewhat surprisingly, investing in real estate has many similarities to hunting. If investors pay attention and learn to read the signs, they can often figure out when, where, and how to invest. All this work and due diligence will pay off as their “hunt” leads to one great investment after another, with each providing great rewards.
I have read a few stories recently claiming self-storage may be reaching the oversupply point. Supposedly the market is overheated and slowing way down for new product.
While a few of the very top regional markets may be reaching saturation, I personally think the future of the storage industry (in most parts of the country) still looks quite bright. Investors just need to pay attention to the signs.
I’ve observed five in particular that I believe point to continued success of the self-storage industry. Here they are.
1) Millennials Love Apartments
Most fresh college graduates don’t have the financial ability or desire to go right out and buy a house. In fact, two years ago when I was doing research for my book, the home ownership rate amongst 18- to 34-year-olds was 13.2 percent.
Many don’t want to make a major purchase like a home because they realize they will likely be moving a number of times before they find a job they like and settle down in one location. This is suggested by the high churn rate of recent graduates and new studies showing millennials are willing to move make higher salaries.
But that’s not the only reason millennials love apartments. They are also much more likely to spend money buying toys, such as surfboards, ATVs, jet skis, boats, and so on—all items they need to store!
Here are a few additional justifications for choosing apartment life:
- Love of amenities
- Love of community
- Love of flexibility
- Love of convenience
Related: How to Diversify Your Real Estate Portfolio With Self-Storage
2) High Divorce Rate
It’s a terribly sad statistic, but somewhere between 30 to 40 percent of all marriages end in divorce. When a family splits, someone has to move. That someone usually ends up in an apartment.
This change tends to create the need for storage. So, as long as divorce rates remain high, storage owners will find their product in demand.
3) Cost of Ownership
The cost of owning is rising faster than rent.
A report by ATTOM Data Solutions in October 2018 found that median home prices were not affordable for average wage earners in 84 percent of local markets. The report went on to state that rent is more affordable than buying in about 60 percent of U.S. housing markets.
And in its “2019 Rental Affordability Report,” ATTOM took a look at properties all over the country, discovering a three-bedroom rental to be less expensive than buying a median-priced home in 442 of the 755 counties it analyzed.
It’s almost always a given that apartments don’t have a lot of space. Therefore, apartment dwellers will typically need extra storage and will continue to make up for a large percentage of self-storage customers.
As the baby boomer populations ages, the death rate will continue to climb. With this, there is a constant need for storage space.
Why? Often times, the deceased leave a lifetime of possessions to their family members, creating a need for somewhere to put it.
This user group is one that tends to really push the storage owner’s bottom line. Short-term rentals can turn into years as family members with strong emotional ties to a loved one’s stuff continue to rent if only to avoid the painful process of deciding what to keep and what to throw away.
So, as long as it is coded into our DNA to avoid pain, storage units will be in demand.
5) The Walmart Sign
Practicing medicine full time, I have the opportunity to talk with many patients. “The Walmart sign” is an economic indicator I was completely unaware of until one of my patients introduced me to it.
This patient owns a manufacturing plant where they build small backyard storage buildings. They sell them to companies that sell them directly to consumers on corner lots all across the Southeast.
One day while he was in my office for treatment, I asked him how his business was doing.
He responded, “Well, Doc, as long as the ‘Walmart sign’ holds up, we are doing great!”
Perplexed, I asked him what he meant.
“Doc,” he said, “I drive by Walmart about once a month, and as long as folks are coming out with full shopping carts, my business is booming!”
Americans have a never-ending love affair with stuff; it’s a trend I don’t see ending anytime soon. Whether it’s off-roading, water sports, crafts, hunting, fishing, car collecting, antiques, or a hundred other hobbies that require supplies, Americans will need space.