How One Investor Discovered the Huge Opportunities of Self-Storage Assets
In today’s economy, smart investors are thinking outside the box to build wealth and fund their retirement. What with Social Security’s precarious future combined with the sheer unpredictability of the stock market, many are realizing there’s a better way to create abundant income for retirement that’s consistent and reliable.
These investors are prioritizing income-producing assets over more traditional growth assets. One such income-producing asset is self-storage, which has been described by some as a “cash cow” investment.
To give you an insider’s peek at how self-storage facilities can be used to generate income for retirement, I sat down with a long-time client of mine, Mitch Argon. Mitch shares his experiences of how he got started in self-storage investing, what kind of decisions he makes to purchase and manage his assets, and how he ensures they remain a solid part of his portfolio strategy.
How Mitch Got Started in Self-Storage Investing
Growing up, Mitch’s father was a real estate investor with a portfolio of petrol-related properties, so he was familiar with the opportunities — and risks — inherent to investing in commercial property from an early age. The petrol industry was one where his father could identify the risks and knew an underrated asset when he saw one. Watching his father become an expert in one industry helped Mitch learn the advantages of specializing in a single area of commercial real estate.
Before Mitch bought his first self-storage property, he was a residential real estate investor. He got started early simply by making intentional decisions about his living arrangements. When he bought his first home, he invited two roommates to move in with him. He had the best bedroom in the house and didn’t have to pay rent, allowing him to jumpstart his savings and investing strategies.
As he expanded his residential real estate portfolio, managing these types of properties became more time-consuming. Mitch grew curious about self-storage, so he went to a trade show in Las Vegas. He notes that at the time, the trade show was pretty overwhelming. In fact, he left the conference thinking he was under-capitalized to enter this kind of business (although he did learn about SBA loans, which ended up being helpful down the road).
In the meantime, Mitch kept buying and renting small residential properties. Then in 2021, he attended an online seminar that focused in-depth on how to finance self-storage projects. This was when he realized that he didn’t need to save up heaps of cash to get started — he already had options in front of him.
How Mitch Finds Self-Storage Properties to Invest In
Once Mitch realized he could leverage debt to invest in self-storage, he hit the ground running. Mitch uses LoopNet to find commercial listings, but he notes there is a lot of competition for these types of properties. Some of the larger players have a team or a member designated just to cold call smaller self-storage facilities to see if there is an interest in selling. So while it does take quite a bit of research to find projects that are right for him, he says it’s well worth the effort.
Mitch believes the best self-storage investments are small projects that have already been built, as the costs and permit requirements are significantly reduced. Properties that aren’t well-run and that charge below-market rents can be the most profitable. He looks for properties that are already up and running that also have additional acreage for expansion. (These are referred to as expansion projects.) He will then finish the expansion and refinance to an SBA permanent loan.
To evaluate a property as a potential investment, he always takes note of the age and types of buildings that are there. He also looks at the cash flow and value creation to estimate the profitability of a particular project. If the project he’s interested in is a mom-and-pop business, he has to really run the numbers to see if they are pulling cash out of the business and off the books before he makes a decision.
Mitch has learned that in this business, it’s important to purchase the land cheaply vs. more expensive property with highly visible buildings. One of the most surprising things he’s learned is that 78% percent of his renters never come into the office at all — they find his properties online and sign their lease agreements virtually.
Benefits and Challenges of Self-Storage Investing
Mitch’s favorite part of self-storage is that there is less interior modification required than the constant replacements and upgrades needed in apartment leasing. And of course, Mitch notes that the cash flow is excellent. Even though leases are month-to-month, he’s found that most people don’t move to another storage facility, so he’s able to raise rents more quickly.
On the other hand, there are government approvals, legal requirements, local permits, and zoning codes that you have to keep in mind with self-storage properties, which can be a challenge. For example, if you’re converting old hardware or grocery stores into self-storage, most of these types of properties will require the high expense of sprinkler installations.
There are risks associated with self-storage investing, as there are with any type of investment. Mitch remarks that you could begin a project and have a competitor start up down the street, which can be especially tough if the competitor is a national company with deeper pockets. However, Mitch doesn’t believe these risks should be a deterrent to investing in self-storage. Simply being aware of the risks can help investors mitigate them as much as possible.
Mitch observes that self-storage is a business that is not dependent on high labor or ‘sweat equity,’ which is very important to him. His intent with self-storage investments is to build sufficient cash flow so he can retire early or change professions without adversely affecting his family's income stability.
Mitch’s Advice for New Investors Interested in Self-Storage
Although Mitch prefers to invest in projects that have already been built, he has some good advice for ‘start-from-scratch’ investors interested in conversion opportunities (also known as conversion projects). He recommends that if you plan to build a new storage facility, look for small strip malls with large vacant boxes where you can go in and have temperature controls already in place.
No matter what kind of projects you invest in, Mitch advises new self-storage investors to focus on building their business off the equity in their investments. Once they’ve improved their first facility, most owners refinance and use the cash to purchase their next project. Cap rates 10 or more years ago were at 10% or higher in the self-storage industry, so the temptation will always be there to sell. But holding on to your investments and using the equity you’ve built to purchase more properties will likely help you build a more secure future in the long run.
As we wrap up our conversation, Mitch reminds me that self-storage is really based on micro-markets that are underserved and below the radar for national self-storage companies (i.e., 35,000-square-foot building sites). He advises new investors to pay attention to the fundamentals when looking for properties to invest in:
Where is job growth occurring?
Where are people experiencing employment changes?
Where are people relocating to, especially in light of recent workplace shifts and high-cost-of-living areas?
Perhaps most importantly, Mitch wishes he had bought his first self-storage facility when he was in his 30s or 40s. So if you’re interested in self-storage but not sure you have the cash needed to get started, take this as your sign to learn more about your options. (And if self-storage investing sounds too involved or overwhelming for you, you can still get started by investing in a REIT that specializes in storage facilities.)
How Chicago Trust Administration Services Can Help
Mitch’s portfolio focuses mostly on income generation rather than on traditional growth assets like stocks and bonds. He notes that there is growth, but the growth happens through the appreciation of income-generating assets rather than securities he has no control over. For questions, Mitch Argon can be reached at (775) 473-9543.
At Chicago Trust Administration Services, we’ve helped Mitch and other clients use their tax-advantaged retirement savings to invest in income-producing assets like self-storage facilities. To see how we can help you add self-storage or other income-producing assets to your retirement portfolio, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.