PART 2: How the Best Investors Are Analyzing Self-Storage Deals

In part-one of this series, we discussed how to define your buy-box, how to analyze demographics, and how to understand your competition and potential incoming supply. In part-two, we will uncover how the best investors understand demand drivers, environmental factors and facility characteristics. 

Demand Drivers

Understanding the factors that drive customers to your site is vital for a successful investment and capturing the upside potential in a deal. It’s difficult to track where true demand comes from, as customers use self-storage for different reasons and at different times, but TractIQ arms investors with several data sets to help uncover demand.

As you can see from the graphic above from TractIQ, this is an area outside of Austin, TX with 3 existing self-storage facilities and some beige circles. The beige circles represent housing construction projects. The size of the circles represent the $ amount being invested into these construction projects.

According to the SSA 2023 Self Storage Demand Study, 35% of renters use self-storage because they are changing residences based on short-term needs. Situating yourself within an area of high residential construction will only benefit your self-storage investment as customers will likely have storage needs due to moving or lack of space.

The above graphic from TractIQ is the same as previously, but shows commercial construction projects. These data points are future hotels, restaurants, grocery stores, offices, and medical facilities that are under construction. Also, the  graphic includes major signal brands within the area like Taco Bell, Subway, and Dollar General. TractIQ tracks additional signal brands like Starbucks, Walmart, Target, and many others.

The best self-storage investors love highly visible, easily accessible locations. Positioning yourself in high traffic areas will generate more organic leads. Next time someone visits the grocery store and sees your facility, they will hopefully think of you next time they need self-storage.

Speaking of high-traffic locations, successful investors understand the traffic patterns surrounding their site. See below a graphic that shows daily traffic counts. The best investors have facilities situated on or visible from major highways and roads with high daily traffic. Again, this generates organic leads which saves on marketing spend. The old adage “location, location, location” still rings true for self-storage real estate!

Environmental Factors

Perhaps one of the most frustrating parts of analyzing a deal can be trying to predict the unpredictable. Environmental hazards like earthquakes, wildfires, and flooding fall into this category. No one can predict the future, but understanding what could happen based on data is one way TractIQ is helping the best investors understand environmental risk. When looking at a deal, you should be asking questions like:

 

• Is the property in a flood zone?
• Is the area prone to earthquakes?
• Could this property be affected by hurricanes?
• Could this property be affected by tornadoes?
• Is this property in an area with high wildfire risk?

 

If the answer is YES to any of the above, more due diligence is required.

 

• How much damage to the property was done during an environmental event?
• When was the property last affected by an environmental event?
• Have I considered how much insurance will cost to cover unforeseen natural disasters?

 

The good news is there are plenty of free resources available to investors that provide environmental risk maps and data. The FEMA Flood Map can inform you on whether or not your property is in a flood zone. Other FEMA maps show high risk areas in regard to earthquakes, hurricanes, tornadoes, wildfires, wind, hail, and others. Alongside other important data sets, investors can overlay flood maps in TractIQ to further their analysis. See below snapshot.

Another item to consider in your analysis is the topographical barriers surrounding your property. Let’s look at the below example.

The red pinpoint represents our facility of interest. The supply per capita is only 3.3 within 3 miles of the site. This must be a great deal, right? You will notice there is a river that cuts through roughly half of the 3 mile radius, meaning roughly half of your target customer base is located across the river from you. The closest bridge is about 10 miles away. It is unlikely that people on the north side of the river will drive east 10 minutes, cross the bridge, and then 10 minutes west to your facility when they have other options along the way.

This is a perfect example of when to use a drive-time analysis in TractIQ as opposed to a radius analysis. See below that shows the same area from a 5-minute, 10-minute, and 20-minute drive-time perspective. As you can see, no one on the north side of the river is within a 20-minute drive of your property. Therefore, those people are likely not part of your potential customer base. Supply per capita within a 10-minute drive-time of the site is actually 19.8, much higher than 3.3 when doing a 3-mile radius analysis. The best investors understand the topographical barriers affecting their property, and use a drive-time or radius analysis accordingly.

Does this analysis mean the deal is bad? Not necessarily. The point of this exercise is to be aware of the topography and factor the results into your overall analysis. Next up let’s look at some important factors specific to the facility itself.

Facility Characteristics

Up until this point, we’ve looked at many outside factors that could impact the performance of an investment. Now let’s look at the facility itself. Here are some questions you should be asking yourself:

 

• What year was the facility built?
• How good is the quality of the facility compared to other properties?
• Will I need to front any money to fix things like the roof, doors, signage, landscaping, etc.?

 

Buying a property and then having to invest money into an unknown issue like a roof leak makes for a bad day. The best investors understand what needs to be fixed before buying the property. Also, if your competitor’s property looks nicer than yours, they are likely able to charge higher rates.

 

• What do the Google reviews look like for the property?
• Can management of the property be improved?
• Are there additional services offered at the property like propane sales or mailboxes?

 

 

Looking at the Google reviews for a property could uncover some inefficiencies in what current management is doing. Perhaps there are several negative reviews about pests at the property. This could be an opportunity for a new owner to implement pest control and upcharge current tenants for pest mitigation. It’s also important to think through how to manage any additional services offered at the property, if any.

 

• Is the property within the path of growth?
• Are there negative adjacencies to the property?

 

People typically don’t want to live or travel near places like landfills or prisons. Keeping your distance from these negative areas will benefit your investment in the long-term. On the flip side, investing in the path of growth will only generate more demand and awareness over time for your property.

 

• What are the property taxes currently for the facility?
• How much will taxes increase after a change of ownership, renovation, or expansion?
• How much will it cost to insure the property?
• Does the zoning allow for self-storage?

 

Understanding property taxes can make or break a deal, and as any investor knows, some markets are more favorable than others for understanding and predicting property taxes. Make sure to call the city and county to discuss how property taxes will change after you buy, renovate, or expand the property. It may be beneficial to hire a property tax consultant to assist as well.

In addition, insurance can end up being a costly mistake if not underwritten properly. Facilities that are more prone to natural disasters will have higher insurance premiums and should be factored into the analysis. Work with a reputable insurance broker to help you through this process.

Finally, zoning is a vital piece to understand before buying a property, especially if you are planning to expand. Will the current zoning allow you to build more self-storage on your property? Or are there restrictions that will require a zoning change and city council approval? Cities typically provide zoning maps, and consultants can also assist in determining the zoning restrictions for a property.

 

Conclusion

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.

From an outside perspective, self-storage investing may seem simple. It’s just metal walls and a roof, how hard can it be? The best investors understand the difficulty of buying right and executing on the business plan to make a profitable investment.

If you haven’t noticed, TractIQ provides a lot of the data mentioned throughout this article. Our goal is to provide the best data to investors so they can make the best decisions.

If you are interested in learning more about TractIQ, click here to schedule a demo.