Is Self-Storage Good for Passive Income? - Investment Real Estate (2024)

FAQs

Is Self-Storage Good for Passive Income? - Investment Real Estate? ›

Self storage REITs own and manage self storage facilities and earn profits by renting storage spaces to individuals and businesses. They are one of the best investments in self storage in terms of performance and return. You can start investing in REITs with low capital and become a passive investor.

Depending on the local market, storage units can give real estate investors a significant return on investment (ROI). This type of commercial property is gaining popularity among investors for its many benefits, such as providing a reliable source of passive income.

Low Competition: Self storage facilities often face less competition compared to other types of real estate, which can result in higher occupancy rates and rental prices. High Demand: As mentioned earlier, the demand for self storage units continues to increase, making it a lucrative investment opportunity.

Common tax benefits for self-storage investors include deductions for property tax, interest expense, and depreciation. Depreciation is a non-cash deduction that is used to reduce taxable net income, which can be very beneficial when a self-storage investment is held in a taxable portfolio.

Self-storage is a solid investment for several reasons investors find attractive. First, the asset has high earning potential. Storage units cost less than residential real estate and other forms of commercial buildings, meaning more money in your pocket.

The typical profit margin of a self-storage business, according to Storable, is around 41%. Target-based pricing means setting the price in such a way that you'll meet that goal. According to QT Business Solutions, there are around $3 in operating expenses for every raw square footage of the facility.

Con: Potential Risk of oversupply.

Since self-storage facilities are relatively inexpensive to build and maintain, they get built quickly and easily during times of especially high demand. However, once demand tapers, there can be a resulting oversupply that puts downward pressure on rents at all facilities.

Disadvantages of self-storage

One of the biggest drawbacks is the cost. Self-storage units can be expensive, especially if you need to rent one for a long period of time. Another downside is that it can be difficult to get to your belongings once they're stored in a self-storage unit.

There are many advantages using long-term self storage, including convenience, security, and space management, but it also comes with drawbacks such as costs, risks of damage, and limited accessibility.

How does self-storage do in a recession? ›

Prices are retracting as the need for storage minimizes or consumers' disposable income disappears. Some tenants are vacating their units to minimize household expenses. Clearly, while self-storage is somewhat recession-resistant, it's far from being recession-proof.

To provide more space at home.

Many people will temporarily rent a storage unit so they can slowly go through the decluttering process and keep their home tidy. People who have a knack for interior decorating also may utilize storage units to house decor they can switch out from time to time.

Your job isn't the only way you can make money. The cash stream from sources of passive income requires some upfront work, but once established, takes little to no time to maintain. While it can take some time to see the fruits of your labor pay off with passive income, earning money without regular work is possible.

Annual Income Owning Storage Units. Whether you're using self-storage or full service storage, your net operating income could vary. A self storage business can net anywhere from $100,000 a year to $1,000,000 a year. Of course, It depends on a lot of factors.

The demand for self-storage facilities has increased due to growing urbanization, rising consumerism, and changing lifestyles. The trend of downsizing has also contributed to this growth as people look for alternative storage solutions.