In times of economic uncertainty, people often seek to diversify their portfolios with different asset classes that can help hedge against inflation, such as real estate. However, real estate is an incredibly broad asset class that encompasses everything from single-family homes to multi-family apartment buildings, commercial real estate properties like office buildings or retail spaces, and more.
Deciding what type of real estate asset to purchase or invest in might seem daunting, but there is one often-overlooked asset that may be an attractive investment opportunity: investing in self-storage.
The inflation advantages of investing in storage and buying storage units and self-storage properties
As a whole, real estate is considered an inflation-resistant asset because property values and rental income tend to increase alongside inflation. However, we all know that this is the ideal and not always the truth. The housing crisis of 2008 brought into question the traditional wisdom about real estate investment and sent them looking towards other assets that may be more inflation-resistant.
Within the realm of real estate, self-storage has emerged as an investment that may be particularly attractive during economic uncertainty. That explains why you see so many self-storage facilities popping up in your neighborhood.
One of the key advantages of self-storage as a real estate asset is its minimal overhead and operating costs. To operate a self-storage business, you only need one or two employees on the premises during business hours. Other staff members can be on call or float between multiple locations. In comparison, other types of real estate, like commercial buildings or apartment complexes, require entire teams of administrative staff and maintenance personnel to be available and working during the day.
Beyond that, self-storage also has relatively low upkeep costs because of the no-frills nature of these properties. Unlike other real estate investments, like rental homes, you don’t have to worry about common maintenance issues like plumbing mishaps or appliance repairs, which can be costly over time. And unlike short-term rentals, you don’t have to worry about constant cleaning and repairs. Even costs like air conditioning are either nonexistent or charged as a premium for “climate-controlled” units.
Self-storage purveyors also don’t have to worry about demand for storage space because there is always high demand for self-storage. If anything, economic downturns can spur the types of events that will actually increase the need for self-storage units, rather than decrease it.
For example, economic strife may prompt people to downsize their homes, whether as a response to job loss or simply to cut costs. Rather than sell their extra stuff, they may pay a nominal fee for a self-storage unit, allowing them to downsize and save money without having to repurchase all of their items if and when they decide to scale back up.
Why self-storage units are advantageous over other real estate investments
That being said, one of the biggest benefits of self-storage as a real estate investment is built into the nature of operating them. Self-storage typically operates on month-to-month contracts, while leases for commercial or residential properties tend to be much longer-term. As a result, if a tenant of a self-storage unit does not pay their rental rates, the self-storage facility can terminate the contract much more easily than terminating a lease that was set to continue for several more months.
Self-storage businesses also have a simpler eviction process than other real estate investments. Although the requirements vary from state to state, generally speaking, the notice of lease violation and notice to vacate require a much shorter process than the legal process for a tenant eviction from a home. If a tenant does not pay their rental fee and abandons the property, the storage facility owner may sell the contents of the unit to recover costs through a legal process. (You may be familiar with this process in the self-storage industry from television shows like “Storage Wars.”)
Furthermore, self-storage investing benefits from having a more diversified tenant base compared to other real estate assets. For example, retail and office space are generally reliant on key “anchor” tenants, while single-family homes are, of course, reliant on a single tenant. If these key tenants decide to move, the landlord is left with a burdensome vacancy. On the other hand, with self-storage units, a single tenant leaving will not have a major effect on occupancy and cash flow, as you have dozens more to rely on.
Why you should start investing in self-storage facilities in times of economic downturn
For those looking to diversify their portfolios with an investment strategy centered around inflation-resistant real estate assets, investing in self-storage units might be a great place to start. Thanks to favorable characteristics like low overhead and maintenance costs, steady demand, month-to-month contracts, and a diversified tenant base, self-storage can be a great way for investors to hedge their portfolios against the effects of inflation.