“Money can’t buy happiness, but it can make you awfully comfortable while you’re being miserable.” – Clare Boothe Luce
PS was a multimillionaire. (He died November 24, 2004. I still miss him.) He made his first fortune flipping HUD (Housing and Urban Development) homes in Los Angeles in the early ’70s.
His flips were not as glamorous as the ones you see on HGTV or Flip This House. They did not require a lot of time, money, or resources. He wasn’t restoring the homes to their original luster or even remodeling them. He would purchase properties from HUD for 10 to 20 cents on the dollar. Then he would gut most of the walls down to the studs. Sometimes he would replace the plumbing and electrical systems (but not always). He gave the new owners the opportunity to oversee the remaining construction, drywall, roofing, painting, and so on.
PS made his second fortune in what would become a multibillion-dollar market: self-storage real estate. He didn’t invent it. But he was instrumental in developing a unique aspect of it – the self-storage real estate investment trust (REIT).
Today, self-storage REITs are commonplace. And they offer the perfect opportunity for you to make money.
A real estate investment trust is a company (public or private) that manages a portfolio of real estate investments for trust holders (the equivalent of shareholders). To be classified as an REIT in the U.S., a company is legally required to pay virtually all of its taxable income (95 percent) to its trust holders every year.
A self-storage REIT is a company dedicated to owning (and in some cases, operating) income-producing self-storage facilities. These facilities (also known as “mini warehouses”) lease space to individuals or businesses on a monthly basis.
PS always referred to the self-storage market – and the REIT aspect of it, in particular – as a veritable cash cow… an “On Golden Pond” investment.
On Golden Pond refers to the 1981 movie with Henry Fonda, Katharine Hepburn, and Jane Fonda – an old-fashioned story in an idyllic setting. The reason PS considered self-storage REITs to be an “On Golden Pond” investment is because he could picture an REIT entrepreneur relaxing on the porch of his cabin overlooking a beautiful little lake, enjoying the benefits of being in this business:
- Consistent cash flow in good times and bad.
- The advantages of both real estate and living trusts.
- Capital appreciation without unnecessary risks and excessive overhead expenses.
Another advantage of self-storage facilities is that they do not have the headaches associated with residential rental properties, such as property management, tenant turnover, excessive maintenance costs, and tenant complaints.
Not having tenants living on the premises eliminates most of the problems – like plumbing, electrical, heating and cooling repairs… excessive damage to the units… residential zoning… and the lack of tax breaks.
What’s more, the upkeep is relatively simple (and inexpensive).
Some self-storage facilities are nothing but steel garage-type buildings set in concrete. In addition, most of them can be run with a full-time resident manager and a part-time employee or two.
There’s one more advantage of self-storage real estate that might surprise you. It has to do with a formula that addresses the “actual revenue per square foot.” In some cases, properly run self-storage facilities can produce more actual revenue per square foot than Las Vegas hotel rooms, apartment buildings, shopping centers, and even medical office buildings.
This type of investment has the potential to generate a healthy cash flow. Plus, self-storage facilities have a decent net profit margin. When you add the REIT aspect to it, there are even more advantages and tax savings.
Almost any type of real estate can be assembled into an REIT structure, and you can reap the benefits. If the REIT is privately owned, you can purchase shares directly from the company. If the REIT is publicly traded, you can purchase shares through a brokerage or investment bank. You can research publicly traded self-storage REITs on the major stock exchanges and track their performance too.
There are a number of other ways to invest in and profit from the self-storage market. Perhaps you can drive to a professionally run self-storage facility in your area and have a look around. You’ll need to determine what strategy is the best fit for your objectives. But here are some possibilities:
- Develop or purchase one or more self-storage operations.
- Add self-storage facilities to your existing real estate portfolio.
- Invest in a private self-storage venture as an angel investor.
- Invest in a private or publicly traded self-storage venture by purchasing stock.
- Set up an REIT with an emphasis on self-storage acquisition and management.
- Invest in companies that serve the self-storage market.
For more wealth-building strategies – including investing advice, entrepreneurship opportunities, and real estate investing techniques – check out ETR’s “Profits in Paradise ” Wealth Building Summit this April.]