Why Are Storage Units Considered One of the Best Income Producing Real Estate Investments?

Updated: April 07, 2010

For income producing real estate, self-storage is one of the easiest, cheapest and highest yielding types of property. Many investors are enjoying some freedom of lifestyle and passive income from owning storage unit rentals and employing a full time on site manager. It has become a multi-billion dollar industry because of the growing residential and industrial population which calls for a rising demand for self-storage facilities. The self-storage industry has also flourished because some city ordinances or home owner associations don't allow homeowners to build sheds or store vehicles or equipment on their property.

What draws investors to the self-storage industry is its "high returns, low maintenance" reward. Passive investors prefer self-storage over residential or commercial real estate because it is basic, logical and presents low risk. It is a fixed investment with very little fluidity, yet the investor can become creative to maximize profitability. There was a time when people didn't perceive self-storage as a real business at all, but when the demand for storage grew in the 90's, it has intensified the call for a steady demand for self-storage units.

Just think about it. The land that is used to build storage facilities is usually cheap although zoned commercial. It is usually not good for building a housing development, not good for retail commercial shopping centers and not good for office buildings or apartments. It is commercial land that no one else wants and therefore is relatively cheap compared with prime commercial real estate. The buildings themselves are also very cheap. Plain metal buildings with hardly any plumbing, often no insulation, concrete floors, no windows, no trim, no kitchen countertops and no hardwood or marble tiles.

There is very little maintenance involved in storage units and very little headache of management compared with houses or apartments. There are no calls from tenants to unclog the toilet, no extended families tearing up the place and no pets leaving odor in the carpet. A metal storage unit is almost completely free of maintenance. Tenants come and rent a unit. They load it up with their stuff and then they come back later and empty it. If they don't pay the rent the contents are auctioned and the unit rented to another tenant.

A typical storage facility may have several hundred units renting at $50 to $100 each. Larger units can cost much more. With low cost land, low cost building and low maintenance, storage units remain one of the easiest and best ways to create passive income in real estate. These are often mentioned among students of Robert Kiyosaki as well as T. Harv Eker's Millionaire School as being a desirable investment.

The Self Storage Association in the U.S. defined a typical storage facility as approximately 2.5 to 5 acres with five to seven one-story drive-up buildings with a good unit size mix of 40 to 80 thousand square feet of rentable space, large roll-up doors and direct drive-up access to outside units. There are over 52,753 self storage facilities in the U.S. alone and the figures are still increasing. As of 2008, California, Florida, Georgia and Illinois topped the most number of self storage facilities with an average of two to five thousand storage facilities all over the said states. Today, the self-storage industry is a mix of large REITs (real estate investment trusts), mid-sized partnerships, and small "mom and pop" facilities. Self-storage facilities can earn an average of $361,000 to $798,800 gross per year with the states of Maryland, Arkansas and New York earning the highest number of sales.

Recently, I was fortunate to meet a guy who owns a self-storage facility in Florida. 18 months after purchasing the facility, the occupancy rate is up to 87% even if Florida is a highly competitive location for self-storage business. With that kind of occupancy rate, his income cash flow has increased $5500 a month! "Location is the key," he said sounding like a pro. Handling the self-storage business in an effective and efficient way also matters a lot too.

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