Should you invest in multifamily or storage?
Breaking down the pros and cons as a real estate investor, developer, capital raiser, and operator.
Hey Friends!
The world of commercial real estate is as diverse as it is rewarding.
Today I’m breaking down two popular asset classes: multifamily and self-storage real estate.
While both can offer impressive returns, they come with unique characteristics, risks, and benefits.
Let’s break down the key differences.
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1. Property & Tenant Profile
Multifamily: This involves residential properties, where the primary objective is providing housing to individuals or families. Your tenants are residents who may stay for months or years.
Self Storage: These are storage units rented to individuals or businesses, typically on a month-to-month basis. Tenants use these for extra space, during transitions, or for business needs.
2. Initial Capital Requirement
Multifamily: Generally demands a higher initial investment, especially in prime locations. Costs encompass the building, land, and often come with higher closing costs due to the residential nature of the investment.
Self Storage: Often a lower entry point in terms of capital. The construction or conversion cost of self-storage facilities can be lower than multifamily properties, making it accessible to a wider range of investors.
3. Cash Flow & Stability
Multifamily: Often offers stable cash flows, especially in areas with high residential demand. Vacancies can impact returns, but long-term leases can mitigate this risk.
Self Storage: Revenue can be more volatile due to the month-to-month nature of many agreements. However, self storage tends to perform well during economic downturns, as people downsize or businesses contract.
4. Operations & Management
Multifamily: Requires regular maintenance, addressing tenant issues, and potential challenges with turnover. Property managers are often employed to handle these tasks.
Self Storage: Generally has lower maintenance needs and fewer tenant-related issues. Modern facilities with automated systems can further reduce management intensity.
5. Market Dynamics
Multifamily: Demand is driven by factors like urbanization, job growth, and population shifts. However, in some areas, there may be a risk of oversupply if too many developments come online simultaneously.
Self Storage: The market can get saturated quickly, especially if multiple facilities open in close proximity. Demand is influenced by societal trends like downsizing, urban living, and a growing transient population.
6. Value-Add & Appreciation Potential
Multifamily: Investors can increase value through renovations, adding amenities, or improving management practices. Appreciation potential can be significant in growing markets.
Self Storage: Value-add opportunities might include adding climate control, improving security, or offering ancillary services like truck rentals. Appreciation might be less compared to multifamily but can still be substantial in underserved markets.
7. Regulations & Legal Aspects
Multifamily: Typically has more stringent regulations related to tenant rights, evictions, and building standards. Investors need to be well-versed in local residential laws.
Self Storage: Less regulated than multifamily. However, investors must be familiar with lien laws and the process for dealing with delinquent tenants.
Final Thoughts:
Choosing between multifamily and self-storage real estate is all about aligning with your investment goals, risk tolerance, and management preference.
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See you next week!
Unfollow the Herd,
Marc Kuhn — President at MAK Capital
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