For those who are invested in traditional stocks or mutual funds in their 401k or IRA retirement accounts, volatility can be one of the most detrimental aspects to growth and stability. We are in a new frontier of political turmoil, uncertain effects of global monetary policies, historically low interest rates and markets that can swing on dime. We saw this effect in the winter of 2018 when the DOW lost about 10% of its value which was the worst month of trading since the Great Depression in 1931. Market volatility is widely considered the new norm and navigating it will be increasingly difficult even for the most sophisticated investor. Every market has its winner and losers. But unfortunately, the consistent loser is average investor who is forced to rides these waves of volatility.
Owning physical real estate has historically been a hedge against volatility and inflation due to its value or rents increasing along with the rate of inflation. Thinking about the possibilities of where inflation currently sits (very low) it makes you wonder what direction it could go in the future if the underlying dynamics of the economy change. Owning real estate offers a solution for the investor during good times and bad times and there is one asset class that has consistently performed greater than any other and was seemingly immune to the great recession of 2008 that brought all other asset classes to their knees. Self Storage.
Self storage loans financed by CMBS have some of the lowest defaults of all property types at less than .5 percent, when compared against all other property types at around 4.5 percent, you can see why storage is a winner. Recent S&P’s analysis of these loans secured by self-storage have shown roughly five out of 1,100 loans are behind, with a delinquency rate of less than a ¼ point.
Self Storage As An Investment
Self storage has a handful of unique characteristics that enable it to thrive in a volatile market place. Its demand is typically driven by forces outside of traditional market cycles such as moving, death, divorce, upsizing, downsizing, etc. Where will you put all of life’s memories and keepsakes when you downsize your four bedroom home? I can tell you…your nearest climate controlled self storage facility! Simply put, demand for storage is there no matter what is happening in the economy which cannot be said for many other investment types.
Self storage is also unique in the fact that the facility can change its rent month to month which keeps it able to increase the rent as necessary or decrease it to help bring in more tenants. Self Storage also has a very low break-even point, which means even in a worst case scenario, the investor is protected and is not at risk of losing their money if something goes wrong. This is a stark contrast to a single tenant office or industrial complex that can run into major problems if they lose their one tenant. To summarize, self storage provides:
· High margins
· Proven resilience against recession
· Strong cash flow
· Low volatility
· Low maintenance
In the investment world the list above is what we call a gold mine. And let me remind you, I am not talking about owning a self storage REIT’s stock. I am talking about owning actual property and participating in its monthly cash flow, value appreciation and tax benefits. This is where The Monolith Investments can help. We are dedicated to self storage and owning and developing them is all we do. We have unique partners and have opened up our investing business to the public to invest along with us in owning and developing these real assets. You can review current investment opportunities through our investment offerings page or establish an account through our secure investment portal to give you access to the deals. If you still have questions or want to know more about commercial real estate investing, feel free to take a look at our home page, or contact us directly.