• Population
  • Example: I only want to buy properties that have more than 50,000 people living within 5-miles of my site.
• Net rentable square feet
  • Example: I would prefer to buy properties that are less than 40,000 square feet since I’m just breaking into the industry.
• Supply-per-capita
  • Example: I’m targeting markets with lower supply (8.0 or less).
• Median household income and home value
  • Example: I prefer areas that are showing signs of economic health by targeting markets with incomes greater than $60,000 and home values greater than $350,000.
• Price
  • Example: I’m targeting acquisitions less than $4 million due to my capital situation.
• Year built
  • Example: I’m willing to get my hands a little dirty, so I’m targeting older properties that need renovation in hopes of being able to charge higher prices.
• Owner type
  • Example: I’m looking to buy from a less-sophisticated owner in hopes of improving management and capturing upside.

 

Once you have a defined buy-box, you can use it to find opportunities through brokers or through owners directly. You can discuss your buy-box with your broker so he or she can help find deals for you. Check out this resource about top brokers to work with in the self-storage industry. In addition, many investors utilize TractIQ to find opportunities through owners directly by inputting their buy-box and filtering out properties that don’t fit.

For example, from the graphic above, you can filter out markets that have supply-per-capita greater than 8 and median household income less than $60,000. You can then drill down and find specific facilities and owner contact information that fit your criteria. All that’s left would be to call the owner and see if they are open to selling! 

There are many things to consider when creating your buy-box. Putting in the effort to understand your goals is well worth the time, and will help you create an efficient process to analyze deals. 

Demographics

One of the most important factors to consider when analyzing self-storage deals is the demographic makeup of your customer base. Uncovering the full demographic picture of your market will help you understand who your customers are, what needs they have, and where to find them. Below are some critical demographic indicators the best investors look at when analyzing deals.

Population

• How many people live within 1-mile, 3-miles, or 5-miles of your site?
• How many people live within 20 minutes of your site?
• Typically, the more people that live close to your site, the easier it will be to find new customers or replace customers that decide to leave because you have a greater population to draw from.
• According to the SSA 2023 Self Storage Demand Study, nearly 70% of renters live within 20 minutes of their self-storage unit.

 

Population Growth

• Is the population in your area growing or shrinking? By how much?
• What residential construction projects are underway in your area?
• If the area around your facility is desirable and people want to live there, it’s a positive sign for the future demand potential of your site.
• Investors typically favor markets with positive population growth trends. However, just because a market isn’t growing doesn’t mean the deal is bad. It could just mean that the market is more urban or has higher barriers to entry (which is a positive sign for investors and is something we will discuss in a later section).
• By the way, TractIQ tracks projected population based on census data and housing starts (which can be ahead of the census data in showing growing markets).

 

Housing

• Does your customer base mostly own their home in the area or rent?
• Does your customer base have attics, basements, or garages?
• Apartment renters typically don’t have basements, attics, or garages and may have a greater need for self-storage due to lack of space.
• According to the SSA 2023 Self Storage Demand Study, 72% of long-term renters use storage because they don’t have room at their residence.

 

Income and Home Value

• What is the median household income in the area?
• What is the median home value in the area?
• Although the above indicators aren’t the best predictors of storage performance, they will give you a snapshot of an area’s economic stability, desirability, and long-term wealth accumulation. Areas with higher income and home values can generally support higher rental rates.
• Though many investors use median household income, median home value is a much better predictor of higher rental rates. Click here to learn more.

 

Daytime Population

• How many people travel to or away from your facility during the day?
• According to the SSA 2023 Self Storage Demand Study, over 30% of renters first learn about a facility from driving by.
• If your facility is located within a hub where people naturally travel daily, your organic leads will be much better than a facility located in an area where people migrate away from daily.

 

Supply Per Capita

• What is the supply per capita within 3-miles and 5-miles of your site?
• The supply per capita metric is widely used among investors in the industry. It is simply the amount of self-storage space per person in a given area and is calculated by taking the total net rentable square footage of every self-storage facility within a particular radius divided by the total population of that same radius.
• Typically, the lower the supply per capita metric is, the better. If there is a low amount of self storage in an area compared to lots of people, self-storage owners will have greater pricing power.
• While many investors will set an arbitrary threshold for supply per capita and ignore all deals above that threshold, the data actually shows that once supply per capita is above 8.0, there is little correlation between rental rates and supply per capita. Click here to learn more.

 

Demographics are important when analyzing self-storage deals, but it’s only the beginning. Let’s dive into some more critical factors to consider when underwriting properties.

Competition and Incoming Supply

Imagine you have found the perfect self-storage facility that checks all the demographic boxes, is well-located, and can be yours for a great price. What if you uncovered that a developer is planning to build another self-storage facility across the street from yours? Would you still buy the deal? What if you found out there’s a competitor just down the road undercutting the market on rates? Would you still buy the deal?

The above snapshot comes from TractIQ and shows 2 existing self-storage facilities (green pins) and 5 under-construction self-storage facilities (yellow pins) all on the same road. Understanding this data would make any investor think twice before buying or building self-storage on this road.

Competition and supply are some of the most important factors to consider when underwriting deals. Even if you own a high-quality, well-located asset, it’s going to be hard to perform well if the area is burdened by too much new supply or competition. Below are some questions to consider when looking at the competition.

 

• How closely-located are your competitors?
• What are your competitor’s rates compared to yours?
• When was the last time rents were raised at your property?
• Is there room to increase your rental rates based on what competitors are doing?
• How occupied are your competitors?

 

Understanding what your rates are compared to other facilities will help you uncover how much upside there is in the deal. If your competitors are charging $100 for a 10×10, and your subject property is only charging $50, there may be room to increase your rental rates. On the flip side, if your rental rates are above competitors, there may not be as much upside in the deal as originally thought. Often, investors will call or visit competitors to uncover information on pricing and occupancy. Below are a few more questions to consider when looking at new supply.

 

• How much land is available around you where competitors could build more self-storage?
• Are there any zoning restrictions around you that could prevent competitors from building more self-storage?
• What barriers to entry are there, if any, to prevent future self-storage construction?
• Are there any moratoriums on self-storage in your area?
• For new self-storage facilities being built around you, what stage of construction are they in?
• Have you contacted the storage developers around you to understand if their projects are moving forward or stalled?
• When will the proposed self-storage facilities around you complete construction and begin lease up?
• Will the new competition have a similar product type as you or different? (Climate vs. non-climate, drive-up vs. multistory, etc.)

 

Lack of available land around your site, as well as restrictive zoning laws or other barriers to entry will be beneficial to you as the investor in terms of competition. However, investing in areas with low barriers to entry isn’t a bad business plan. It simply means the reward (upside) needs to justify the added risk.

It’s also important to understand what product type your competitors are building around you. Perhaps there’s a self-storage facility being built down the road, but it’s multistory climate-controlled, and your property is single story non-climate-controlled. These two different properties may attract different types of customers and performance could be minimally affected at either facility. 

The best investors make calls to cities, counties, and competing developers to understand the stage of construction and timing of delivery. If you know when a competitor is opening their store, you will be better prepared for the softer pricing market as that developer looks to lease up their facility faster by dropping rates. 

TractIQ offers investors data on new supply, stage of construction, and developer contact information to make the best decisions when evaluating the competition. Now that we’ve considered competition and new supply, let’s move on to something more fun: demand.

Are you overwhelmed yet? This may seem like a lot, but when you are making multi-million dollar decisions, you should leave no stone unturned while analyzing properties. This article should not be used as a full due diligence checklist either, but hopefully gives you a glimpse into how the best investors are underwriting self-storage deals.