Why Invest in Self-Storage Real Estate Syndication?
The United States is a nation of big spenders. Americans are known for their consumer spending, and with all of that spending on new products comes a serious need for storage space. That’s just one of the reasons why the self-storage industry is booming in the U.S.A.
The self-storage asset class has produced growing interest for real estate investors. Buying and holding a self-storage facility, or a portfolio of self-storage facilities, is prohibitively unattainable for most investors due to the amount of capital needed upfront for acquisition. For this reason, self storage real estate syndications and funds have become a popular approach for investors looking to diversify their investment portfolios.
What is a real estate syndication? A real estate syndication is when a group of investors pool their own capital to fund a single investment that has the prospect of offering cash flow in the form of distributions, a benefit that is likely inaccessible to one single investor. Here’s a look at five reasons why self-storage has become a popular asset class to investors looking to passively invest in real estate.
1. The Self-Storage Market is Growing
Almost 10% of households currently rent self-storage units, and that number is expected to grow rapidly in the coming years. In 2020, the global self-storage market held an estimated value of $48.02 billion. That figure is expected to grow to $64.71 billion by 2026, a compound annual growth rate of 5.45%!
2. Customers Rent for a Long Time
You may think of self-storage units as short-term rentals. Research indicates that only 17% of customers rent a self-storage unit for 3 months or less. In fact, the average rental duration of a storage unit is about 14 months, which exceeds the standard 12-month lease contract that’s often used at multifamily properties.
A significant percentage of storage unit tenants lease their units for years at a time. About 15% rent for 3–5 years, 6% for 6–10 years and 4% for 10 years or more. Naturally, the longer a self-storage facility’s tenants rent their units, the more stable the occupancy and more profitable the investment.
3. Potential for Long-Term Appreciation
Real estate syndications or funds typically hold investments for some number of years. Self-storage investment has reached all-time highs in recent years, with an increasing number of operators replacing mom-and-pop operators. As of 2022, about 30% of self-storage facilities were owned by “REITs and large groups” rather than independent operators, and that percentage is growing — and expected to continue to grow in the coming years.
The value-add opportunity is one reason why these larger groups are investing in self storage syndications. They see a path to add additional units, to lease space to U-Haul operators and other moving services, to create and lease RV and boat storage areas, plus more.
The increasing number of operators investing in self-storage syndications also demonstrates the long-term value in the sector. While nothing is guaranteed, a syndication or a fund is likely to have a number of prospective buyers when it looks to sell self-storage facilities after a hold period.
4. High Performance, Recession Resiliency
Americans moved at record-setting rates in 2021 and into 2022. Moves naturally increase the need for self-storage space, which in turn is proving fruitful for passive investors who opted to invest in self-storage syndications. The need to move homes or cities is persistent no matter the economic situation, making self-storage recession resilient.
Compared to other types of real estate, self-storage requires less maintenance. This is especially true when compared to multifamily properties. For example, when ice storms swept through Texas in early 2021, multifamily properties experienced freezing pipes and other issues that required emergency repairs. Conversely, self-storage properties in the state required little in the way of repairs or maintenance afterward since there is usually no plumbing in a storage unit.
5. Opportunities for Ongoing Cash Flow
Buying an existing self-storage facility could result in immediate cash flow and that could extend into many years. While real estate investing offers no guarantees, the self-storage asset class is one that enjoys high performance, yields great returns and is expected to grow significantly.
While capable of producing attractive returns, real estate investing entails a high degree of risk, including illiquidity of the investment and loss of principal. Always consult with your financial advisor to determine whether real estate investing is the right investment vehicle for you.
Learn More About Passive Investing in Self-Storage
Want to learn more about real estate investing and the possibility of participating in syndications? We’ve created a free, 7-part course called “Blueprint” that walks you through key considerations along the real estate investment journey. Learn more about goal-setting, alternative investments, plus details on the benefits of syndications and how you can qualify to participate.
After completing the course, you will be armed with the knowledge needed to take action in pursuit of financial freedom. This path to financial freedom can help you unlock the greatest return — the gift of time.
