Self Storage investments – where is the appeal?
In the last three weeks, we’ve had three separate sales calls from companies that enquired if we were interested in acting as agents for their self storage investments. In most cases, the conversation was brief as, to be absolutely honest, we’ve never sold any self storage investments and for the most part, very few of our clients have mentioned this type of investment in passing. We always had the impression that our clients were more interested in bricks-and-mortar type investments than these types of alternative investments. Now, before the smart alecs out there tell us that self storage investments are made from bricks and mortar, we mean in the residential types of bricks and mortar.
The general idea is that a client buys one of these storage pods on a leasehold basis and then rent them out to customers. This is all fully managed of course and for a lease of say 250 years, the client can buy these storage pods for anything between £3,500 to £25,000 and is given a 2,3,4 or 5 year rental guarantee of anything between 6% to 10%. Thereafter follows progressive increases in the rental income, but it isn’t guaranteed after the set period.
The key selling basis for these storage investments are the low entry amounts required to invest and the fact that SIPPs (Self Invested Personal Pension) can be used.
If you have already invested in such guaranteed rental income investments? Well, the first thing to not do is to buy another one of these investments until after the guarantee period has expired. This might be a source of frustration as the client can see supposed returns being generated, but it could be a false dawn. You really need to see what happens after the rental guarantee or if you can find a genuine testimonial not affiliated in any way with the company, then you can ask them what kind of returns they saw after any rental guarantee period expired.
Do we see any problems with self storage investments?
There are a few concerns that we have and again, it relates to the question of what genuinely happens when the rental guarantee comes up?
In some of the literature we have seen, the self storage investment company will reserve the right to not continue managing the storage pods after the guarantee period has expired, leaving them to self-manage a storage pod – something which is highly specialised and requires knowledge of the right channels to make sure the returns are maximised. In the same sentence, it should be stated that the leaseholders of these storage pods are expected to pay ground rents and administration fees that they signed up for at the sales stage.
History repeating itself or just coincidence?
With these storage pods, we see huge similarities with the student pod investment market and our biggest gripe is the lack of control and extremely limited exit strategies. Even more striking is the fact that behind one of the bigger self storage investment companies is an individual who operated a residential investment company in Greater Manchester which saw client investors out of pocket by over £6 million. The usual “credit crunch” excuse is again bandied about, but if you know the history of the individuals behind it, then it’s not a surprise. The point here is that it is very similar to the student pod market where there are a number of unscrupulous individuals who have operated in the failed student pod investments in Liverpool and Manchester with also a chequered history in a similar industry.
Our conclusion with self storage investments?
Buyer beware is our final conclusion. Yes, the returns may be ‘guaranteed’ and you may be able to use SIPPs in the investment, but the similarities to other failed investments are immediate and obvious. Recently, there was an article written by Tony Hetherington for thisismoney.co.uk which better explains the shady ongoings in the selling of storage pods. The comments section towards the bottom of the page show that the opinions on this type of UK alternative investment is varied, but it is intriguing the number of vocal comments that are vociferous in their support. Again, our final say on this is to take considerate independent legal advice before parting with any funds.