Day 24: Small Town vs Suburban vs Urban Self Storage: Where Should You Invest First?

And welcome back to the Storage 100 and to day 24. I'm Joe Downs with the Storage Mastermind, and today we're going to talk about the single biggest decision you'll make after deciding to invest in self-storage, where you're going to want to put your flag in the ground. Most people start with the asset, but you need to start with the market. The market dictates your competition, your growth ceiling, and your exit strategy. If you choose wrong, you're fighting a losing battle. Before you even close the deal. We're going to break down the 3 primary battlegrounds: small town, suburban, and urban, and defining exactly which one is right for you. First, second, or 10th deal. You need to know where you fit on this spectrum. You got to align your capital and your risk tolerance with the market you choose. So we're going to start with the smallest, most overlooked markets and the ones you can truly dominate. Small town markets, so where you can become the undisputed king. We're talking about the populations under 30,000 people here. The biggest pro here is low competition. You can acquire a facility instantly, become the dominant player. Land costs, excuse me, are pretty inexpensive, and your acquisition prices are lower, which means your barriers to entry are almost nonexistent. Word of mouth is your best marketing tool in these tight-knit communities as well. But you have to understand the risk. Growth is going to be limited, and the lease-up period is probably going to be slower. More importantly, your entire local economy might be tied to one factory or one industry. So if that company leaves, your entire market collapses. This is for the operator who wants a cash-flowing asset and doesn't mind slow, steady growth. It's a great place to learn the ropes, but don't expect to scale fast. All right, let's talk about a place where most independent operators actually win though, the suburban sweet spot. Suburban markets are the Goldilocks for self-storage investors. This is where the magic happens for the independent operator. We're talking about populations of between 30,000 and 100,000. There's enough demand here to support multiple facilities, but not so much as to attract the attention of the massive REITs. You get steady population growth and manageable competition. Banks typically love these markets because they understand the demographics and the risk profile. And it makes financing easier and less expensive for you. You still need better marketing and operations than a small town, but you don't need an institutional-grade machine necessarily. And actually, with today's technology, we're pretty much operating at an institutional-grade machine anywhere. But this is ideal, an ideal entry point for first-time investors looking for the best balance between risk and return. And it's where you can build an empire. But what happens when you move into the big leagues where the stakes and the costs are dramatically higher? Urban markets are the institutional playground. If you're playing here, you need to be a seasoned pro with deep pockets. The demand is massive and lease-up is fast. Rental rates are the highest you'll see anywhere, and the asset quality is institutional grade. When you exit, you're going to have a huge pool of buyers, including every major fund and REIT. But the barriers to entry are brutal. Land costs are astronomical and you face intense competition from the biggest players in the industry. Your cap rates are lower because you're paying a premium for that high income. Operating costs are also slightly higher, actually slightly to significantly higher. Unless you have a partner who's done this before, I don't think this is the place you want to start to find and operate your first deal. You very well could be crushed. All right, so we've defined the 3 markets. Now let's put them on a spectrum so you can clearly see where they need— where you need to be. So your market choice is the single biggest determinant of your success. So stop chasing shiny objects. We just talked about the urban markets, and now we need to put that into context. So the spectrum is the reality check every investor needs to see. You have to understand the trade-off. Small towns are low competition and low entry cost. But they're also slow to scale and offer a difficult exit. Urban markets, you know, the other end of the spectrum, offer the highest returns and are a very liquid exit, but the capital risk is high and the competition is fierce. So in those markets, you're fighting with REITs and there's institutional money everywhere. The sweet spot is the— and the winner's circle is really the suburban market. This is where most independent operators are going to win because they get a balanced risk and steady growth. Without having to fight the giants on every deal. You get growth potential without crushing the capital requirements. This is the market that allows you to build wealth consistently. All right, we've laid out the landscape. Now we need to figure out where you fit on the spectrum. So now that you understand the spectrum, unless you apply it to your own life, it's useless. So this framework is the honest conversation you must have with yourself before you spend another minute looking at deals. You need to align your market choice with your resources and your ultimate goal. If your goal is pure cash flow and you have less than, I don't know, $500,000 or even $300,000, you belong in a small town. That's your lane. If you're chasing a massive appreciation and you have millions of capital, then you can play in the urban game, but you better be ready for the fight. For the rest of us, the suburban market is the sweet spot. It offers the growth and scale we want with a manageable capital requirement. So stop trying to force a square peg in a round hole. The market you choose must give you the advantage. All right. Now that you know where you fit though, let's lock in the exact action steps you need to take right now. So you've seen the spectrum and presumably you have an idea in your head where you fit on it now. So let's execute. This is where the The rubber's going to meet the road. First action step, simple. Pick your target market based on your capital and your risk tolerance. Don't pick the market you wish you could be in. Pick the market you should be in right now. That is the honest assessment that separates the winners from the dreamers. Next, run the demographics check we covered on day 23 on the 3 markets in that chosen category. You need to validate your choice with data, not just gut feeling. Do the work to prove the market is viable. And then finally, join us tomorrow, day 25, where we cover the drive-by test. This is the final piece of the puzzle that turns market research into actionable deal flow. All right. We just covered the decision framework and the action steps you need to take to find your winning market. So let's close this day out. If you are relieved that you don't need $10 million to start investing in this space, hit that like button for me now. Let us— Know this content is hitting home for you. Also, make sure you subscribe so you don't miss the next episode. And of course, our live Q&A sessions, and they're coming up, where we are bringing you the best in the business every single day. And then finally, share this with a friend who thinks real estate is too risky so they can see the power of self-storage. They will thank you later.