Self Storage Investing: How It Works and What Returns to Expect
By Chris Burns · Series 7, 63, 65 · Quema Capital
Self storage is one of the few commercial real estate asset classes that has performed well through every major economic downturn since the 1980s — including the 2008 financial crisis and the COVID-19 pandemic. When people downsize, relocate, go through a divorce, or simply accumulate more than their home can hold, they rent storage units. Demand stays relatively steady regardless of what the broader economy is doing.
For accredited investors, self storage offers a way to own a share of this asset class without buying or operating a facility directly — through private funds and syndications that pool capital across multiple properties.
Why Self Storage Has Held Up Through Recessions
Most real estate asset classes are sensitive to economic conditions. Office space empties when companies cut headcount. Retail suffers when consumers pull back. Multifamily can face pressure when unemployment rises and tenants can't pay rent.
Self storage behaves differently. The four primary demand drivers — the four Ds — tend to increase during economic stress:
- Death — estates are liquidated, contents need somewhere to go
- Divorce — one household becomes two, both with storage needs
- Downsizing — people moving to smaller homes or apartments need to store what doesn't fit
- Displacement — job loss, relocation, or foreclosure all generate storage demand
This counter-cyclical demand profile is a core reason institutional capital has been moving into self storage for the past two decades. What was once considered a niche asset class is now one of the most actively traded sectors in commercial real estate.
Self Storage Investment Returns: What the Data Shows
Self storage has historically delivered strong risk-adjusted returns relative to other commercial real estate sectors. The combination of low operating costs, minimal tenant improvement requirements, and strong demand fundamentals drives this.
Operating margins
Self storage facilities typically run operating margins of 60–70%, significantly higher than most commercial real estate property types. There are no tenant improvement allowances, minimal maintenance requirements between tenants, and month-to-month leases allow operators to adjust rents quickly.
Income + appreciation
Investors in self storage funds and syndications typically receive a combination of current income (distributions from operating cash flow) and appreciation (share of the gain when properties are sold). Target returns vary by fund structure, but well-operated self storage investments have historically produced total returns in the 10–18% annualized range, though past performance is not a guarantee of future results.
Self storage investment returns vs. other asset classes
According to NAREIT data, self storage REITs have outperformed the broader REIT index over 10- and 20-year periods. Private self storage funds, which operate with greater flexibility than public REITs, have in many cases delivered even stronger performance — though with less liquidity.
How Accredited Investors Access Self Storage
Individual investors can access self storage in several ways. Each has different capital requirements, liquidity profiles, and return expectations.
Public REITs
Companies like Public Storage, Extra Space Storage, and CubeSmart are publicly traded and accessible through any brokerage account. They offer liquidity but trade with the volatility of the stock market — which partially negates the counter-cyclical stability of the underlying asset class.
Private funds
Private self storage funds pool capital from accredited investors and deploy it across a portfolio of facilities — acquiring, operating, and eventually selling them. These funds are illiquid (typically 3–7 year hold periods) but offer better alignment with the underlying real estate performance and often deliver higher returns than public REITs.
Syndications
A real estate syndication pools capital from multiple investors to acquire a specific property or small portfolio. The sponsor (operator) manages the investment; investors receive a share of income and appreciation. Syndications are project-specific, so performance is tied to the execution of that particular deal and operator.
For most accredited investors looking for portfolio exposure to self storage, a well-managed private fund offers the best combination of diversification, professional management, and return potential.
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What to Look for in a Self Storage Investment
Not all self storage investments are created equal. These are the factors that separate strong opportunities from weak ones.
- Operator track record — how many facilities has the sponsor acquired, operated, and sold? What were the realized returns?
- Market selection — self storage performance varies by geography. Markets with population growth, limited new supply, and high barriers to development (zoning, land costs) are more favorable
- Occupancy and street rates — target occupancy of 85–90%+ at acquisition is a good sign; below 80% requires a clear value-add thesis
- Debt structure — conservative leverage (under 65% LTV) reduces risk; floating-rate debt without rate caps is a red flag in a rising rate environment
- Fee structure — acquisition fees, asset management fees, and promote structures should be transparent and aligned with investor returns
Self Storage Inside a Self-Directed IRA
One of the less commonly known strategies for accredited investors is holding self storage fund investments inside a self-directed IRA. This allows the income and appreciation from the investment to compound tax-deferred (traditional IRA) or tax-free (Roth IRA), rather than being taxed as ordinary income each year.
This structure works particularly well for investments with strong current income — like self storage — because the distributions that would otherwise be taxable each year remain inside the account and compound. Over a 10–20 year horizon, the tax drag on annual distributions can represent a meaningful cost, which the IRA structure eliminates.
For a full breakdown of how self-directed IRAs work, see: What Is a Self-Directed IRA?
Frequently Asked Questions
This guide is for informational purposes only and does not constitute investment advice. All investments involve risk, including the potential loss of principal. Private real estate investments are illiquid and suitable only for accredited investors who can bear the loss of their entire investment. Past performance is not indicative of future results. Consult a qualified financial advisor before making any investment decision.