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Warehouses can be one of the most profitable real estate investments.
November 01, 2007 -- When Syndicates, partnerships, investment companies and their individual participants look at investments in commercial properties, many tend to look at properties that have that bewitching charm of glamour in brochures. A beautiful office building or an enclosed shopping center seem to have a more acceptable "status" as an investment property. These buildings can be nice to drive by and point out as "our" investment.
There is not nearly as much allure in a squat bulky warehouse building. The physical attractiveness is not there in color flyers and photographs. However, as money-makers, these bulky buildings can be one of the most profitable real estate investments.
A recent check in one area showed a vacancy rate in distribution warehouses of 4% to 6%, while office buildings had a 13.7% vacancy level. The rate for warehouses will probably improve since there has been little recent new construction of warehouse space throughout the country. The demand for space should skyrocket as the country pulls out of the recession and inventories increase.
Self Service Storage Facilities
The picture of the warehouse as an investment can be of the large bulky building that we have described. In addition to these very successful properties, there is a newer idea. The modern warehouse facilities of the 1980s and 1990s have been the very successful self-service storage units or mini-warehouses. A few years ago these were of a low-construction-cost, windowless, cinderblock building located on the fringe of the smokestack section of town. Now we see bright, clean units in new modern buildings located in the better parts of town.
Self-service storage facilities provide separate storage spaces with varying sizes located in a single building or in a cluster of buildings. Users of this space are homeowners, renters and business people, all who need more storage space than they have at home, apartment or business. Often the space is rented for short periods of time - for a month or two. The demand for individual units remains constant throughout the country and in some places there is a waiting list. Because of this demand, the rents per square foot are much higher than conventional warehouses.
Site For a New Unit
When choosing a site for a new self service storage facility installation, think first of the renters who will be your customers. These clients will want direct, easy access to their units during regular business hours and off hours.
Here are the major groups of tenants:
Single Family Homes
Many homes today are built without basements or attics. In addition, many owners have mobile homes or modular homes. These owners may have pool accessories, snowblowers and other equipment that might need seasonal storage.
Apartment Dwellers
Few apartments have any substantial storage areas for the occupant of today who may have extensive hobby and recreational equipment. More apartment dwellers are families who cannot yet afford a home. Some retired couples have sold a home and have a surplus of furniture that will not fit into the apartment or condo.
Local Business Operators
This group may represent the largest user of the self service storage facility in many areas. With typical square footage rents in retail business locations and office space today, the business owners and professionals are reluctant to store supplies and files in the business location. The rent for the space in the self service storage facility is much less, but is still very accessible. Doctors, lawyers, insurance and real estate agents are required to keep old files for years. Schools and hospitals often need extra storage space.
The Better Locations
With this type of potential customer as a target, try for a site within a few miles from where they live or work. Additionally, a location on a main road or highway can add to the potential renters from those passing each day.
Flexibility In Design
An advantage to the design of the self service storage facility is the flexibility of the units. An odd shaped parcel of land may be as usable as a warehouse site as any other. Since it consists of a number of very small units, it can be adapted to nearly any shape of property. This ability to utilize a possible "problem" property could be a saving in the value of the land.
Originally, any property designated as a "warehouse" would always be located in areas zoned for industrial use. Since self-service storage facilities are more common, most cities and other political subdivisions recognized that traffic at this kind of property is light and consists mostly of automobiles and light trucks. In most areas, a self service storage facility can be located in many commercial or light industrial zones. Ordinances would limit the use of the facility to store dangerous products such as flammable liquids, gaseous substances, etc.
Access and parking are as important as the size of units. There should be direct access to each unit by a vehicle the size of passenger cars, station wagons, pick-ups and light trucks. There should be room for these vehicles to turn around or be passed by another car or truck. Loading docks are usually not provided, except in a few commercial-oriented warehouses.
Security: The latest state-of-the-art equipment makes the convenience of round-the-clock access available with no loss of security. There can be computer-controlled entry gates and individual alarms in each storage unit. The entire facility is monitored by electronic-eye devices that feed back images of what anyone is doing anywhere inside the facility. Any suspicious activity is immediately investigated by security officers, who can automatically shut the gates with the push of a button. If the building is a conversion of an existing property, windows should be sealed. All entrances and exit doors should be barred and locked. Building a new facility is easier, with fences, electronic gates and alarms built in originally.
The Bottom Line
Your target group of tenants will have some bearing on the income from the property. If you will have mostly commercial tenants, your income can be higher than just residential. Tenants who own single family homes might pay higher than retired couples or college students.
Units with mechanical overhead doors would rent at a higher amount than manually operated horizontally opening doors. The facility with fenced high-security, electronically operated gates and a resident manager will get a higher rental than a property without those things.
Expenses and Income
The normal costs of operating any rental property are the utilities, insurance, property taxes, management and maintenance. In a self service storage facility, these would be expected to run 15% to 30% of the gross income.
Depending on the tenants and the part of the country, the rents will vary. You might receive $80 to $100 a month for a 5 by 5 foot unit. The 10 by 10 foot might be $175 to $200 a month and a 10 by 30 foot unit from $300 to $500 a month. |
