SSSE’s core values are Fun, Integrity, Drive, and Others-First. As part of our commitment to Others-First, we strive to educate our investors, partners, and the general public about self storage. The Roman philosopher Seneca once said, “Luck is what happens when preparation meets opportunity”. This Frequently Asked Questions page is to serve as preparation for anyone interested in learning more about self storage and SSSE. The opportunities come when you sign up for SSSE’s investors list or buyers list by clicking the links in our menu bar. We hope to be lucky enough to work together.
If there are any questions that you have that are not answered below, please contact info@ssse.com
How does self-storage compare to other real estate investments?
Self-storage can be compared to other real estate investments in terms of investment return, risk, and stability.
Investment return: On an individual facility level, self-storage has historically provided solid returns for investors, with returns typically ranging from 6% to 9% based on the cap rate. However, returns will vary based on location, competition, occupancy rates, and operating expenses. On a macro economics level, self storage has the highest return on investment in comparison to any other real estate asset class. From 1994-2017, storage returned an annual average of 17.43%. Based on that annual average, $100,000 invested in 1994 would be over $4,000,000 today.
Risk: On an individual facility level, the level of risk for self-storage is relatively low compared to other types of real estate investments. The demand for self-storage is generally stable and not tied to the performance of the broader economy. Additionally, self-storage tenants typically sign lease agreements, which provides a steady stream of rental income. However, as with any real estate investment, the value of the property can be impacted by economic downturns, changes in competition, or local zoning regulations. On a macro level, from 2007-2009, self-storage dropped -3.8% in comparison to the S&P’s -22.0%. This was the smallest drop of any real estate asset class. Self storage had some of its best performing years during the COVID-19 Pandemic when some other real estate asset classes performed poorly. According to Trepp, a Commercial Mortgage Backed Securities research firm, of the 1,700 CMBS loans made to self storage in the first 3 quarters of 2020 only 3 were delinquent– that is a 0.17% delinquency rate . During the same time multi-family was defaulting at a rate 1,800% higher or 18x that of self storage.
Stability: Self-storage is considered a stable real estate investment due to the consistent demand for storage space. Even during economic downturns, the demand for self-storage typically remains strong as people downsize or move to new locations. The stable demand and predictable rental income make self-storage a relatively stable investment compared to other types of real estate.
Overall, self-storage can be a solid real estate investment for those looking for a lower-risk, stable investment with solid returns. However, as with any investment, it is important to thoroughly research the market, competition, and local economic conditions before making a decision.
What are the most important factors in selling a self-storage facility?
The most important factors in selling a self-storage facility are:
Occupancy and Rent Rates: High occupancy and rent rates are crucial in attracting potential buyers. A well-maintained facility with high occupancy and rent rates will be more appealing to potential buyers and will likely command a higher sale price.
Physical Condition: The physical condition of the facility is also an important factor in attracting potential buyers. A well-maintained facility with modern security features and a clean and attractive appearance will be more appealing to potential buyers.
Location: The location of the self-storage facility is a crucial factor in attracting potential buyers. A facility in a high-density, growing population area with a strong local economy will be more attractive to potential buyers.
Financial Performance: The financial performance of the self-storage facility is critical in attracting potential buyers. A facility with a solid history of profitability, with consistently high occupancy and rent rates, will be more attractive to potential buyers.
Market Conditions: The market conditions for self-storage facilities can impact the sale of a facility. Understanding the current market conditions and the outlook for the self-storage industry is crucial in determining the sale price of a facility.
Legal and Regulatory Environment: The legal and regulatory environment of the self-storage industry can impact the sale of a facility. Understanding any local zoning, permitting, and licensing requirements is crucial in determining the sale price and attracting potential buyers.
Marketing Strategy: A well-designed marketing strategy that effectively showcases the strengths of the self-storage facility can be critical in attracting potential buyers. Utilizing online and offline marketing techniques to reach a wide audience can increase the chances of a successful sale.
Representation: Engaging a knowledgeable real estate broker with experience in the self-storage industry can be very helpful. An experienced broker can help market the facility, negotiate the sale price, and handle the legal and regulatory aspects of the sale process. Alternatively, selling direct to buyer can avoid the need for a broker, save money, save time, and be even more convenient than working with a broker.
What is the difference between internal rate of return and cash return on investment?
Internal Rate of Return (IRR) and Cash Return on Investment (ROI) are two commonly used financial metrics for evaluating real estate investments, but they measure different aspects of investment performance.
Internal Rate of Return (IRR): IRR is a measure of the profitability of an investment and is expressed as a percentage. It calculates the rate at which an investment’s expected cash flows equal its initial investment. IRR takes into account the timing and magnitude of all expected cash flows, both positive (e.g. rental income) and negative (e.g. operating expenses), to arrive at a single, annualized rate of return.
Cash Return on Investment (ROI): ROI is a measure of how much money an investment has earned relative to its cost. It is expressed as a percentage and is calculated by dividing the investment’s net cash flows by its initial cost. ROI measures only the amount of cash generated by an investment and does not take into account the timing of cash flows.
In conclusion, IRR provides a comprehensive measure of the investment’s performance over time, including the reinvestment of cash flows, while ROI provides a simple and straightforward measure of the investment’s cash return. Both metrics are useful for evaluating real estate investments, but the choice of which metric to use will depend on the specific investment goals and circumstances of the investor.