Discover How Self-Storage REITs Turn Rented Units into Income, Dividends, and Long-Term Real Estate Growth.
Self-storage REITs not the sexiest investment story. Yet, it has become one of the best ways to generate income. This is because demand continues to increase regardless of the economy. The total number of U.S. households currently using storage units is 10.3%. In the next ten years, these figures are expected to grow to 16% of all households.
Real estate investment trusts (REITs) provide a straightforward way to enter this growing market. You can leave the property management, rent collection, and tenant issues to the professionals. Instead, you can focus on growing your passive income and benefiting from the industry’s upward trajectory.
In this article, we’ll explore the benefits and potential drawbacks of self-storage REITs. By understanding these elements, you can see how this burgeoning industry can significantly boost your returns and passive income.
What is a Self-Storage REIT?
A storage REIT finances and operates mini storage units. It must distribute 90% of its taxable income to shareholders as dividends. Individuals and businesses rent these units for numerous reasons.
- Storing inventory
- Downsizing
- Protecting & storing valuables
- Storing vehicles
- Relocating
The Advantages of Self-Storage REITs
These REITs offer numerous benefits, including.
Lower Costs: The costs of operating mini storage units are much lower compared with other real estate. Maintenance and the cost to build these units are low. This means that it is easy for these companies to set up new units across different areas.
High Demand: The demand for storage units is expected to grow at 5.0% a year by 2030. Lower rental costs and high demand in many urban areas are fuelling this increase. These investments let you take advantage of these increases without physically owning and operating the property.
Favorable Leases: Storage units are rented every month. This means that if tenants do not pay, it is easier to get them out of these units. Landlords do not have to worry about going to court to evict tenants. Instead, they can tell renters they need to move out with 30 days notice. It is also easier to increase the rent to keep up with the higher costs and inflation.
Several different companies in this space are Global Self Storage (NASDAQ: SELF), CubeSmart (NASDAQ: CUBE), and Public Storage (NYSE: PSA).
The Drawbacks of Self-Storage REITs
Investing in these REITs has some potential drawbacks.
Changes in Interest Rates: When interest rates increase, this could cause property values to fall and increase financing costs. These changes create volatility in share prices from this uncertainty.
Shifts in Demand: In some areas, a new supply of mini storage units could enter the markets, reducing occupancy rates and demand. If fewer people relocate, demand could also be impacted.
Weather: Storage units could be damaged by flooding, tornadoes, blizzards, snow, ice storms, and hurricanes. Non-climate and climate-controlled units in certain areas may require additional repairs to come back online.
Privately Owned Units: Privately owned storage units could increase the pressure on publicly traded ones. Many of these units could cut their pricing and use technology to expand their reach to new renters. This could eat away at the profits of publicly traded mini-storage operators.
The Bottom Line
Self-storage REITs offer a hassle-free way to invest in this sector. You can bypass the complexities of property management, maintenance, taxes, rent collection, and tenant issues. Instead, you can focus on the potential to generate passive income and capitalize on the industry’s growth.
However, these investments do have their share of risks. To make the best decisions, we recommend evaluating whether these risks are manageable. Understanding how self-storage REITs work is the key to making the right moves.
We also strongly recommend speaking with a financial advisor. These investment professionals can help you better understand your options and assess the risks.