Only Use Self-Storage If You Don’t Have A House? Wrong! 67% Of Users Live In Single-Family Villas

As a promising real estate industry, self-storage has developed rapidly in the past five years, and the growth of net operating profit in the past six years is twice that of most real estate industries.

The number of new self-storage stores is increasing year by year, and a large number of new self-storages have diluted the profits of the entire industry, which has led to a slowdown in hung hom storage revenue in recent years.

Although the entire industry maintains high growth, the industry has gradually become mature and stable from the initial peak growth period.

According to a November 2018 report by Green Street Advisors, a U.S. commercial real estate research firm, the three key factors for the success of REITs in self-storage are job growth, mobility and the formation of renter households, which are currently three factors. Growth is slowing.

According to CBRE, rents for self-storage properties are likely to rise by an average of 3.5% over the next year, the report showed.

Rent growth is likely to be close to inflation and at an all-time high.

From the perspective of technological development, in order to maintain competitiveness and attract discerning consumers and investors, most companies in the United States are increasingly investing in technological development, and self-storage companies are no exception.

The traditional nine-to-five self-storage business model of padlock storage will gradually lose its competitiveness.

More companies are already pursuing electronic locks that don’t require keys and remote real-time management.

The Global Distribution System (GDS) is currently widely used in the aviation tourism industry. Through a full range of information services, it can meet the needs of passengers for transportation, accommodation, entertainment payment, etc.

Many self-storage companies have turned their attention to GDS to save labor costs and meet customers’ needs for automation.

Through GDS, tenants can search for rental units, save and execute rental agreements, and manage their rental units 24 hours a day with just a click of a mobile app.

To fully digitize self-storage services, more businesses are incorporating tenant insurance, truck rentals and other ancillary services into the system.

From the perspective of business model update, self-storage is trending towards diversified development.

More technologies are applied to construction, personnel management, automated services and marketing, which are adding new colors to the traditional self-storage business model.

For example, in April 2019, U-haul, an American mobile equipment and storage rental company, was planning to add more than 500 thermostatically controlled warehouses to its 87,113-foot building in Kansas.

Real estate developer Bernard Edelman is preparing to build a four-story complex in Chicago’s Portage Park area with self-storage, retail and dining.

From the perspective of market demand, the average usage time of self-storage has changed from less than one year to an average of 15-18 months, and people’s usage reasons have also changed from the original lifestyle, such as divorce or students leaving school etc. The need to temporarily store items in one place transitions to the need to store idle items for a long time.

According to the National Self Storage Association, 67% of self-storage tenants live in single-family homes and only 27% in apartments.

Of these single-family homes, most have their own garages, and 33 percent also have their own basement storage.

Even with so much storage, these tenants opt for self-storage.

Because for these families, self-storage has become not just a method of storage, but a choice that can make family life more comfortable.

Self-storage has become a hot topic in the real estate investment industry, and its investment methods can also be diversified.

 

1. Direct investment

 

Investors can directly invest in the construction of self-storage facilities in the “Opportunity Zone” planned by the federal government.

The “Opportunity Zone” is a low-income urban and rural area divided by the federal government. The government hopes that investors will invest in developing these areas, thereby driving local social and economic development.

The federal government also promulgated the Tax Cuts and Jobs Act of 2017 (TCJA), which provides certain tax incentives for investors to invest in Opportunity Zones.

For example, investors who invest in projects in the “opportunity zone” can enjoy 10% tax exemption on investment income after the investment period of 5 years; after the investment period of 7 years, they can enjoy 15% tax exemption on investment income; Investment income is tax exempt.

During the investment period, if an investor sells an “opportunity zone” asset, as long as he reinvests in the “opportunity zone” within six months, he can continue to enjoy the relevant tax incentives.

To “qualify” invest in an “opportunity zone,” an investor first creates a Qualified Opportunity Fund (QOF), which can be a partnership or LLC.

Investors self-certify by completing QOF Form 8996 at the advice of attorneys and accountants, and do not require IRS approval.

In addition, an opportunity fund (QOF) must invest 90% of its assets in “opportunity zone” projects, which can be stocks, equity or tangible assets.

 

2. REITs

 

REITs is a kind of trust fund that collects the funds of most investors in the form of issuing income certificates, and is managed by specialized investment institutions for real estate investment management, and distributes the comprehensive investment income to investors in proportion.

Most of the self-storage REITs are investment institutions that manage their own self-storage, or acquire other self-storage for repair, and then reopen for business. The source of income is the rental of these self-storage customers.

Investors can invest by buying self-storage REITs in the secondary trading market.

For investors, REITs are a product with low risk and stable returns.

Specifically, REITs have the following investment advantages:

First, the long-term returns of REITs are determined by the specific value of the real estate project invested, and the correlation coefficient with other financial products is low. When other financial markets fluctuate, REITs are less affected.

Even when inflation is severe, investment in REITs will preserve value due to the special nature of real estate.

Second, general REITs do not have minimum investment requirements.

Third, in many other investment project categories, investment companies often invest the proceeds directly into new projects, but REITs are required by law to distribute 90% of the income to investors as dividends.

This guarantees investors a stable immediate income.

Fourth, REITs projects have certain preferential tax policies.

Fifth, REITs are generally listed on major exchanges, so they have better liquidity and higher information exposure, and are directly supervised by various professionals.

Looking at the average return of REITs in each real estate category, self-storage REITs performed better among all REITs, ranking fifth among 14 real estate branches with an industry P/E ratio of 18.38.

The average return from 1994 to 2017 was 17.43%, much higher than the second-ranked residential REITs.

In addition, self-storage has certain economic pressure resistance due to its special operation mode.

During the 2008 economic crisis, self-storage REITs were far less affected than other types of REITs except mobile homes.

Under the economic crisis, people have no money to invest in real estate, and the items they put in self-storage will not be taken out because of the economic crisis. Therefore, the utilization rate of 紅磡迷你倉has not been affected by the economic crisis and has fluctuated greatly.

However, as a sub-industry of commercial real estate, the overall performance of self-storage REITs has a certain relationship with other commercial real estate, and even the upward and downward fluctuations seem to be more sensitive.

Like any REIT, self-storage REITs are vulnerable to interest rate hikes.

As interest rates rise, interest payments on loans to buy and build self-storage facilities increase.

In addition, when the economic situation in a certain area is not good, large REITs covering a wide area may be less affected, while small and medium-sized companies in this area may be more affected.

Since the cost of self-storage is only a small part of the tenants’ usual living expenses, tenants are not very sensitive to the increase in the price of self-storage, which is also one of the reasons for the high net operating profit (NOI) of self-storage.

Good operating net profit provides stable returns for investors who invest in REITs.

 

3. Development space

 

Since the market is not yet saturated and the market potential customer base is still very strong, self-storage is still an industry that is optimistic and given confidence.

The stable business model of self-storage can provide investors with stable cash flow compared to other commercial real estate investments.

The shorter investment period and smaller investment quota of the self-storage industry provide investors with flexibility, and the good economic resilience of self-storage provides investors with resistance to risks.

However, due to the large-scale construction of self-storage facilities in recent years, the profits of the self-storage industry have been diluted. Investors also need to carefully consider factors such as the geographical location of their projects to avoid repeated construction in the same area.

Although the return of fund investment is not very low and relatively stable, the investment time limit is more than 3 years.

Investing in REITs is a relatively flexible and safe way. It is as flexible as investing in stocks and bonds, and the yield is considerable, and the risk is greatly reduced compared to the stock market.

In general, self-storage, as a branch of real estate, has little correlation with other financial products such as stocks and economic development. Investors can consider choosing 1 or 2 real estate investment projects to enrich their investment portfolio to achieve the purpose of risk diversification. .