You have found the perfect property, you have run the numbers, evaluated the neighborhood and it still looks like a great investment. Now you need to check the supply index.
The supply index tells you if the market is oversaturated or if the market is undersaturated. This tells you if there is more demand for rental space in your area. You don’t want to buy a property that has a high vacancy rate because there is no more demand out there. However, if you have a property with a high vacancy rate because of mismanagement, then you have a great opportunity to increase the number of renters and bring up the gross rents on the property.
To determine whether a market has reached equilibrium you need to take the net rentable square footage in that market and then divide that by the population. That number equals the square footage per person. (Self-storage Sq. Ft/# of people = space used per person) This is easy to find out. Start by going to your cities website and find out how many people live in your city. That tells you the person portion of the formula. You can use google maps to determine how many self-storage units are in the city and then you can figure out how much self-storage square footage that equals. We teach you how to do this in our home study course. Your feasibility study will also do this for you.
Once you have this number then you need to determine if your market is over saturated or not. According to Spare Foot Storage Beat on March 7, 2020 the current saturation number or the number of square feet the average person uses is 5.4 ft.1 This means that if your market is at 8 ft per person, you are oversaturated. You don’t want to buy a property with a lot of vacancies in an oversaturated market, you will not be able to fill those vacancies. If your market is at 3 ft per person, you are undersaturated. This means that there is more demand than there is supply. You don’t want to build in an oversaturated market. You won’t be able to fill all your units, there just won’t be enough demand. The supply index is very important in determining if you want to work in an area. You cannot change the demand for self-storage
The next thing you need to look at is the market itself. Is the market population increasing or declining? If people are moving out of the area, then the number of people who need storage is going to decrease. However, if the population is increasing, then the number of people who need self-storage is increasing.
Now you want to evaluate the income of the area. You can easily find out the income of an area by going to bestplaces.net or going to your city website. If you are working in an area where the average income is lower, you don’t want to build climate controlled units, the area will not be able to afford them. To find out what income levels you need to be able to support each type of self-storage property, check out one of our training courses.
Once you have determined that the neighborhood is right, the supply index will support your property and the income level of the area is right for your model, then it is time to order the feasibility study. This report is crucial to your due diligence.