Multifamily Niche Alternative: Investing in the Self Storage Sector

There is a growing need to find a multifamily niche alternative these days. While investing in multifamily real estate is still very popular among investors, it mainly has to do with the fact that they are basing it on its reputation a decade or so ago – the middle of the recession saw apartments booming, and many real estate investors made millions in record time by taking a piece out of the lucrative multifamily pie.
But these days, many of these investors are making money and not looking for a multifamily niche alternative, but only because they had a headstart. They have sliced a big enough piece of the pie that the amount of money they have made tend to cover the amount they lost. Newer investors will not be so lucky, though that hasn’t stopped them from trying to slice an ever shrinking piece for themselves.

Why Aren’t Investors Looking for a Multifamily Niche Alternative?

There are many reasons why investors are still flocking to the multifamily sector, despite the overheated market. Some are unaware, but some are just plain trapped:

• They are willing to overpay because the alternative is for everything to go towards taxes, since they are relying on tax-deferred 1031 exchange funds..
• They are banking on appreciation to fix everything.
• The ones with access to funds lack experience.
• Some operators are purposely offering bad deals because they make more on acquisition fees.

Of course, many investors who are buying apartments are doing so even though the above examples don’t apply. That’s because they had the luck of the draw and have access to good off-market deals. In their case, there’s no need for a multifamily niche alternative. However, they are mostly exceptions to the rule and should not be seen as ideal goals.

What is a Good Multifamily Niche Alternative?

These days, investing in a Self-Storage Operator is a smart move. There are a number of reasons why:

There Are Thousands of Self-Storage Facilities in the Country

The last estimate of the amount of self-storage facilities in the US alone is 53,000. That’s more than the number of Starbucks, Subways, and McDonalds combined! But it gets better: majority of these self-storage facilities are run by independent operators. These independent operators cannot maximize their income and value. It is much easier for a savvy investors to land a mutually-beneficial, profitable deal.

This Mutifamily Niche Alternative is Price Resistant

It’s a little bit harder for renters of a storage unit to leave just because you raised the prices. Tenants of an apartment are a lot more willing to leave just because of a small increase in rent. Owners of a storage unit, on the other hand, are usually amenable to a similar percentage increase in rent. This is because the amount they have to spend just to move everything to another storage unit is significantly more.

This Multifamily Niche Alternative Performed Well During the Recession

Finally, self storage operators have a track record for being robust. They did surprisingly well during the recession, as many families who lost their homes had to rent self-storage units. It also helps that self-storage units cost a lot less than a new apartment, so they are a much easier sell compared to costly apartment units. The small monthly charge does not even make a noticeable dent on their finances, they would happily leave their belongings on a storage unit for a long time. Self-storage might not provide big payouts like the multifamily market, but they provide sustainability and long term returns.
So if you are looking for a multifamily niche alternative, and have been storing some cash for a new investment, self-storage is a good (and most likely ideal) starting point.