I just bet you have heard the following sometime in the last 24 months: “A recession is coming! Run for the hills!”
Well … that is absolutely true … at least eventually. (They’ve been predicting a recession for the last six years without it occurring, but eventually, it will!) And, while you don’t need to run for the hills anytime soon, you could run to invest in a real estate sector that is the best-performing sector in recessionary times. Oh, and it is tied for second-best in expansionary times, too.
As an aside, recessions are just part of the economy’s “circle of life.” We’ve had 14 since the end of World War II. While they are sometimes a bit scary, overall, they are not necessarily a bad thing. They just readjust the scales. Eventually, they happen, but they don’t last forever.
“If it’s the best-performing sector, it sounds like a great fit for almost every portfolio. What is it?”
It’s the “little” real estate sector called “self-storage,” and, yes … it is the top-performing real estate sector when the wheels are falling off the economy!
But the added benefit is that we’ve found a self-storage firm that lets individual investors invest their money alongside one of the largest investment behemoths in the nation … Imagine That!™
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Why Invest In Self-Storage?
Self-storage is a massive cure for a frequent “D word” in our economy … and that word is (drum roll) … “dislocation.”
What comes to mind when you hear the word “dislocation”?
Maybe you’re thinking of a skiing accident you had when you were young and reckless (or older and still reckless). No, I’m not talking about that kind of dislocation. I’m talking about the dislocation that occurs when …
- People die
- People become disabled
- People get divorced
- People downsize
- Kids move away from home
- Kids move back home
- Take a job on the other side of the country
- … and many other reasons for dislocation
So, dislocation is actually one of the primary reasons why more Americans use self-storage than ever.
For example, my wife and I unexpectedly had to rent a storage space when our house flooded, and we subsequently needed to remodel!
But there are more reasons, such as …
Home sizes are getting smaller. Since 2015, the size of new homes built each year has shrunk. We’re putting more stuff in less and less space. How often have you seen that navy blue delivery truck drive through your neighborhood? I would guess daily if not multiple times a day!
The baby boomers are retiring and downsizing. However, since Millennials and Gen Z haven’t established the purchasing power of previous generations yet, they aren’t able to buy the large homes of their parents, and the demand for smaller homes is through the roof. (Although, I don’t think anyone ever complained about vacuuming/mopping smaller spaces.)
Then, there is the frequency with which the younger generation switches jobs. According to a Fortune 2024 study, 21% of millennials say they’ve switched jobs in the past year. On average, younger generations stay at a single job for 2.75 years before finding a new position.
New jobs can require moving to a new state or even across the country. Sometimes people prefer to move closer to their offices to save commute time. These factors create a huge demand for space to put all of our stuff.
And last, we Americans do love holding onto our stuff. That is unlikely to change anytime soon. In fact, the trend of folks using self-storage has rapidly increased. In 1987, less than 3% of Americans used self-storage. In 2023, it was over 11.1%.
How Does One Invest In Self-Storage?
As every parent of three children knows, there is usually a favorite … at least at some point. (Not that we would ever admit it.) We do have a favorite in the self-storage space.
In this case, we now have the privilege of working with a brilliant entrepreneur from Alabama who owns a specialty firm that is also an industry leader in this space.
He has “cracked the code” to find the ideal spaces to build self-storage facilities. Better yet, his company has made this a win-win-win (our favorite kind) for investors, communities, and the city councils of some of the most desirable communities in the US. (That last one is a doozy for getting approval because city councils typically are uninterested in self-storage. It is not traditionally great for increasing the city’s tax revenue.)
“That nice,” you say. “But how does my money get invested?”
Here’s why we really, really like this firm.
They don’t start taking investor money until the space is identified and the land is purchased. They don’t want to hold onto our capital any longer than necessary. In fact, they pay back an astonishing 70% within less than 2.5 years.
Most commonly, the original investment stays with the sponsor until the liquidity event occurs. But, by having the invested capital returned so quickly, it can be reinvested into something else while waiting for the expected appreciation from the ultimate sale.
Then, they’re free to invest in the next fund queued up in the pipeline, do whatever else they wish with another sponsor, or just go spend some (after paying their taxes on the gains!)
A further advantage to this sponsor is investors are putting their hard-earned money alongside (and on equal terms with) one of the largest and most reputable insurance behemoths in the nation. A rare opportunity for retail investors!
Then, once the facility is built, the sponsor sells the property. In fact, 51% of the time, they are able to sell the certificate of occupancy before even leasing it up to buyers who are frequently coming to them rather than the other way around! Nice situation! s
OK, But What Do The Returns Look Like?
This is the part where my attorney reminds me to tell you, “Past performance is no guarantee of future results.” And, to throw a fly in the punchbowl … this is only for “accredited investors.”
A picture is worth 1,000 words, right? But the real question is, does adding one of the largest life insurance companies in the business to the mix increase or decrease the risk?
Surprise! It decreases the project risk. They have greater due diligence capability, lower leverage, and tremendous expertise.
Historically, the firm has produced >58% internal rate of return. 51% of their historical dispositions have been certificate of occupancy deals. (That’s where the big players in the self-storage space come in and buy the building before even a single unit has been rented out.)
Oh, and as said above, this sponsor historically returns invested capital as they go … typically in less than four years.
Give us a call at (858) 569-0633 for the current fund’s details and to consider whether this idea might make sense for you or whether an alternative option might be better for your situation. (Or, often, it makes the most sense to have several “buckets” in different sectors of the economy to diversify and derisk your investments.)
Hitching A Ride On The Self-Storage Train
This is only a brief overview. I did have the pleasure with speaking with one of the leading sponsors in this space. If you’re interested, you can watch the interview at the link below.
For those who need more bite-sized pieces, you can choose short sections from our playlist here.
Or, as an alternative option to watching the video, skip all that and simply call or email for a 20-minute complimentary consultation. Let’s see if this (or other) investment strategy is a good fit for your financial goals. Call today at (858) 569-0633 or email info@wealthlegacygroup.com.
You, too, may end up saying, “Hey, this is exactly what I/we’ve been looking for!” … Imagine That!™