Commercial Real Estate Investing From A-Z Making a Case for Self Storage Investing
In this episode we're learning why you should invest in self storage, how to select the location to invest, what are the biggest challenges with self storage and how to select and hire the best property manager for your locations. We're interviewing Ryan Gibson, a co-founder of Spartan Investment Group.
You can read the full interview here: https://montecarlorei.com/making-a-case-for-self-storage-investing/
Why should real estate investors invest in self storage?
Self storage is something that we looked at back in 2016, we made a pivot from investing in residential real estate, we were building condos, new houses, flipping houses, and we landed in self storage for a couple of reasons: 1. We liked how straight forward it was, how operationally easier it was to manage than a multifamily property. We looked at vacancy trends, rent growth, saturation and all the things that people like about self storage. It is also one of the least foreclosed upon asset classes during the last recession.
How do you guys go about deciding where to invest in self storage?
We focus on 150 MSA’s across the United States. And those MSA’s have a key component of population growth. Population growth is the number one driver of self storage utilization, overall market saturation, job growth, demographics of our ideal consumer, income levels, job placement, migration trends, and we look for cities and areas, or an MSA that are trending positive and have a good outlook for population. We look at rental rates as well. We have a hard time justifying building in certain markets, brand new storage, if the rental rates are, say less than $6 a square foot, it would be difficult to do that.
What are some of the biggest challenges with self storage?
I would say the number one challenge is finding the right projects. We looked at 880 projects last year, we put out six offers, and we bought three. It's a very institutionalized asset class. A lot of projects that are over $5 million are getting all cash offers, so it’s very difficult to compete with a lot of the institutional capital, and larger players in the market because they have a lower cost of capital than we do. Because we're offering our investors a market rate return on equity and they have a good team of folks that can find the same data that we're finding.
Moving on to property manager, how do you select and hire the best property manager and what do they do all day long? Some folks will hire third party property management companies like Cubesmart, Extra Space, West Coast Self Storage, Public Storage. They might hire a company like that to come in and do the property management for them, but they're still going to have to hire somebody that works at the desk, that the owner is responsible for covering that expense. The property management companies will take a fee, usually 6% of gross revenue, to manage that facility. We do the property management asset management in house.
What is your second favorite asset class after self storage and why?
We own an RV park in west Texas and that has been my favorite deal ever. Very similar in characteristics to a mobile home park in that the tenants are there full time and they live there right now, rent is about $800 a month (and utilities are included in that). Not to have a whole lot of amenities and have the lowest entries for housing, we just collect a lot rent and the folks bring in their own RVs and mobile homes, they purchase their own homes, it does well in good times, and in bad times.
Ryan Gibson
www.spartan-investors.com
ryan@spartan-investors.com