Investing in the self-storage real estate industry? Understanding the law of supply and demand and the role it plays in the market can help you make the best possible investment decisions. In this article, we’ll cover how supply and demand works, what it means for passive investors, and some of the most important factors when it comes to the self-storage industry.
The law of supply and demand plays a key role in the market economy – in fact, these are the two factors that are essential in determining the price of any given commodity. Here’s how it works:
The demand of a commodity refers to how willing an individual is to buy that commodity. The more expensive a commodity is, the less demand there will be for it; i.e., fewer people will be willing to purchase it for that price.
The supply of a commodity refers to the quantity of a commodity that is being sold by producers. Supply and price have an opposite relationship to demand and price: producers will increase supply when prices are higher, as it’s more profitable for them to do so.
When these two factors work together, the law of supply and demand demonstrates that if all other factors are equal, the price of a commodity will increase when its supply decreases (because it will be more rare) and when the demand increases (because more people are willing to pay more for it). Likewise, the price of a commodity will decrease as it becomes less rare.
What does this mean for investors? Understanding these relationships can help investors make smarter decisions by predicting market conditions. We’ll get into how this specifically affects real estate investors below.
Just like with any other commodity, real estate prices are dependent on supply and demand. That means if a particular area has a high supply of real estate, the prices will be lower. If demand is greater due to a shortage of housing, real estate prices may skyrocket. Understanding this is essential to making smart real estate investment decisions.
Much of what determines supply and demand in the real estate market has to do with local conditions. These are the most important factors to pay attention to if you’re investing in any type of real estate, including self-storage.
To make the best investment decisions, pay attention to trends such as upsizing and downsizing. An increase in downsizing is great for the self-storage real estate market; when people move into smaller homes, they need space (such as a self-storage facility) to store their excess belongings.
Relocation trends are also important to note. If many people are moving to or away from an area, this may be a good sign for the self-storage market, as people often need space to store their belongings between homes.
Local demographics are also essential to the supply and demand of the self-storage market. Both baby boomers, who have frequently been downsizing, and younger generations like millennials and gen z, who are likely to remain renters for much later into their lives, are likely to need self-storage facilities. On top of these factors, you’ll likely want to invest in an area with middle- and upper-middle-class populations, as people with more disposable income will be more likely to spend money on a self-storage facility.
Keep an eye on other factors like divorce rates, death rates, any trend that may impact income, and even local weather trends. All of these can play a role in the supply and demand of real estate.
Of course, there are some factors across the country that can play a role in the real estate market. The 2007 recession, for example, took a toll on markets regardless of the local factors. However, one great thing about self-storage is that it’s a recession-resistant industry. That means that even in a bad market, people will always need self-storage as they adjust and downsize.
The COVID-19 pandemic has also played a significant role in the self-storage market. While many other industries took a hit, self-storage actually flourished! The industry is still seeing the benefits.
Essentially, self-storage is a safe investment even when other real estate facets are facing hardships. However, it’s still a good idea to keep an eye on everything and stay one step ahead by predicting market trends so you can make the best decisions.
Investing in self-storage is one of the best ways to make passive income, especially when you’re making smart decisions by keeping up with supply and demand trends. Want to ensure you’re getting the best investment opportunities possible? TyMac can help!
We scope out the best self-storage real estate acquisitions on the market so that our partners see incredible returns. Thanks to our winning formula, you’re sure to get the cash flow you’re looking for. Get started today by filling out an investor profile. We’re happy to be part of your self-storage investment journey!