Readers who prioritize second homes and investment properties turn to Inman’s weekly Property Portfolio email newsletter, whether they’re agents who work with this special class of clients or investors themselves. This month, we’ll go deeper on everything from the latest at Airbnb and Vrbo to the changes investors are making to their portfolios in a shifting real estate market.
Unlike many other speculative markets, such as cryptocurrency investments, self-storage and real estate investments are tangible assets that can be touched, seen, and managed. They are predictable and have a stable history of profit-making in a number of different market conditions.
Self-storage facilities are affordable to the mass market and a great value for investors since the facilities require few staff members, little infrastructure, and have a nearly immediate turnover rate, with most units requiring little more than a sweeping before a new tenant can begin using it.
With low costs for maintaining the property paired with the demand for the units, self-storage has steadily been an investment space increasing in interest. For both self-storage and real estate, investors can physically visit their property and make necessary repairs or upgrades, which increases its value and generates more income and above-average returns.
Diversification
Building a diverse portfolio is a challenge for many after they decide to become investors. Self-storage and real estate investing provide diversification from traditional investments like stocks and bonds. It allows investors to spread their risk across multiple properties and asset types, reducing the impact of a single property’s underperformance on their portfolio and avoiding the risk of over-concentration.
Diversification is especially important as it reduces the amount of personal risk in times of economic turmoil.
Increased demand
The demand for self-storage facilities and real estate properties is increasing due to population growth and urbanization. The ever-present need for homes and storage facilities is great for earning a profit, but this increasing demand also creates opportunities for investors to capitalize on the trend and generate high returns.
“Almost everyone needs a self-storage unit at some point in their life. It’s more like retail or a hotel than anything else. Because of the short-term contracts, people come in every day, month-to-month, and need our service. We get clients from upscale neighborhoods, small apartments, mobile home parks; they all use it differently,” said AJ Osborne, CEO of Cedar Creek Capital. “And when people do leave, it’s very easy to get a new tenant in. You just clean the space and bring a new tenant in with few capital expenditures, keeping that margin high.”
Steady cash flow
Self-storage facilities and real estate properties provide steady cash flow in the way of passive income that can then be reinvested to expand and improve the business. Unlike stocks or bonds, real estate investments generate income through rent, making it an attractive option for investors.
Self-storage facilities especially are a service utilized by people of all ages and all income levels, making the consumer market nearly limitless.
Tax benefits
Real estate investing is considered one of the most tax-advantaged classes in the country. Self-storage and real estate investments offer various tax benefits like depreciation deductions, which are available to all investors with the added perk of any investment loss being deductible against other income, capital gains tax exclusions, and 1031 exchanges.
Every investor is constantly on the lookout for the hottest new market in which to place their capital. Whether they love the excitement of diverse new investments or simply hope to make better returns in the long term, it’s a topic that always sparks conversation among those who invest, especially during a downturn in real estate.
Self-storage investments are among those hot new markets to watch. Over the last several years, more and more people across the country have been using self-storage in short-term or long-term capacities. In fact, self-storage was one of the only commercial real estate investment fields that actually experienced growth and thrived during the global COVID-19 pandemic as people were forced to move back to family, work remotely, and navigate other challenging circumstances.
Overall, self-storage and real estate investments provide returns and benefits that traditional investments may not offer, making them an attractive option for investors looking to diversify their portfolio and generate steady income.
Victoria Kennedy is CEO of Atman Real Estate. Connect with her via email.
