5 Misconceptions that Keep Investors from Making Money on Luxury Storage
Uncovering the truth about luxury storage investing
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What luxury storage isn’t:
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Luxury storage is the best asset class no one understands.
Every week, my team is on calls with potential LP investors about passively investing in our luxury storage projects. As we broke down those calls every week, we started to realize the same misconceptions from LPs were popping up over and over again.
So today, we’re tackling those misconceptions.
1. “Luxury storage is all about Porsches, speedboats, and art collections.”
This is far and away the biggest misconception. And I get it. The term “luxury” makes people think of… well… luxury.
But luxury storage is less about the items being stored and more about the quality of the property itself.
Physically speaking, our luxury storage units are generally 700-1,000 square feet of workspace used by small business owners and individuals who want an affordable, flexible, functional space to operate.
Our luxury storage units are climate-controlled and provide a more professional storage area for equipment and inventory. Compared to a dank, dark, dusty self-storage unit, they’re huge upgrades.
We thought about calling them “Poor Man’s Contractor Shops,” but it didn’t quite have the same ring to it — so “luxury storage” it is.
2. “Luxury storage is only for the ultra-wealthy.”
The main person we attract with luxury storage is the small business owner who’s moving from his garage and wants to get into a bay that’s more than a non-heated unit without power.
Sure, the ultra-wealthy could lease a luxury storage unit, but that’s not as common.
3. “Luxury storage is the same as ‘garage condos’.”
Garage condos and luxury storage are two distinct types of storage.
Garage condos typically allow buyers to own the space outright. They can include huge build-outs like bathrooms, mezzanines… Even full office spaces. Garage condos are often purchased or set up on longer-term leases.
Luxury storage, on the other hand, doesn’t focus on high-end build-outs or ownership models. We tend to operate with 30-day leases with dynamic rents that fluctuate every 30 days based on occupancy, just like self-storage.
4. “Luxury storage is only for high-end residential areas or big cities.”
A lot of investors think it’s weird that we started our luxury storage operations in eastern North Dakota, but the reality is that success in luxury storage has little to do with being in “luxury” areas.
The biggest opportunity with luxury storage is in suburban areas with thriving small businesses — not just areas with wealthy homeowners.
These markets have a gap and a demand. Luxury storage fills that gap and meets that demand. For luxury storage facilities to thrive, they should be accessible to growing businesses, which are often concentrated in overlooked suburban areas.
5. “Luxury storage doesn’t perform well during recessions.”
Image: Mainstay Global
Self-storage was the best asset class during the Great Recession. While office, industrial, real estate, and apartments fell off a cliff, self-storage didn’t just hold its own — it actually made investors money.
During the 2020 crash, it was the same story:
Image Credit: Relyks Holdings
Self-storage has developed a reputation for being a great asset class in recessions. Luxury storage shares a lot of those same traits.
For instance, a big reason why self-storage tends to perform well in economic downturns is that people and businesses try to save money when the economy is struggling. As people move into smaller homes/apartments and businesses downsize offices, they don’t tend to sell their stuff. But they still need a place to put it.
The same principle applies to luxury storage.
Small businesses and entrepreneurs look to save money when the economic crunch hits. Sure, sometimes luxury storage is used by business owners using it to upgrade their space from their garage at home. But the reverse is also true — luxury storage provides an option for business owners who want to downsize from unsustainably expensive commercial leases.
The 30-day leasing model of luxury storage also helps. Business owners don’t love committing to long-term leases in the midst of recessions. Being able to go month-to-month with luxury storage facilities is a major plus in their eyes.
Questions about luxury storage?
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See you next week!
P.S. To learn more about how I lease land, develop luxury storage, and turn it into a cash-flowing asset — check out my luxury storage video here.