Question
I have a friend who has invested, through a broker, in storage pods. The guaranteed return in the first two years is 8% each year. Do you recommend such an investment for income investors?Answer
Investing in storage pods, or self-storage, isn't on the surface a bad idea. Demand for self-storage in the UK is high and managed well it can be quite a profitable venture.
The gist of these investments seems to be you buy a long lease on a storage unit or pod and the self-storage company handles renting it out and maintenance, in return for a fee.
However, as an investor there are a few potential drawbacks.
Firstly, the investment is unregulated, which means if someone runs off with your money then tough. You won't be able to fall back on the FCA or a compensation scheme and will instead have to take matters into your own hands which could prove expensive and ultimately fruitless.
Secondly, assuming the investment is bona fide, you will be reliant on the operations of the self storage operator concerned. If they are inefficient then occupancy could be low, hitting your rental income. And if they go bust your investment could prove worthless unless another operator takes over the management of the premises and your pod/unit, in which case they would probably negotiate different management fees. Things could get very messy.
And thirdly you may struggle to find a buyer in future if you want to get out.
Having looked around the web most of the adverts for storage pod investments lead back to a company called Store First Ltd, which operates several storage depots in the Yorkshire and Cheshire regions. While I have no reason to believe the business is anything other than proper, the potential issues I mention above could apply in a bad case scenario.
In simple terms it seems you buy a 250 year lease on a pod from £3,750 depending on size. Store First puts in place a 6 year agreement to rent and manage your pod, promising an 8% yield (after fees) in each of the first two years, with the option to extend the guaranteed return at the end of two years. When your pod is let you'll pay 15% of your rental income to Store First, as well as service and ground rent charges, basic details here.
Even if we assume occupancy is good, what happens if Store First goes bust or walks away after six years? You could be left with no rental income and an asset that's very difficult to sell on.
All in all, I think there are just too many potential downsides to make these types of investment appealing, but obviously you’ll need to investigate more closely and form your own conclusion.
I have a friend who has invested, through a broker, in storage pods. The guaranteed return in the first two years is 8% each year. Do you recommend such an investment for income investors?Answer
Investing in storage pods, or self-storage, isn't on the surface a bad idea. Demand for self-storage in the UK is high and managed well it can be quite a profitable venture.
The gist of these investments seems to be you buy a long lease on a storage unit or pod and the self-storage company handles renting it out and maintenance, in return for a fee.
However, as an investor there are a few potential drawbacks.
Firstly, the investment is unregulated, which means if someone runs off with your money then tough. You won't be able to fall back on the FCA or a compensation scheme and will instead have to take matters into your own hands which could prove expensive and ultimately fruitless.
Secondly, assuming the investment is bona fide, you will be reliant on the operations of the self storage operator concerned. If they are inefficient then occupancy could be low, hitting your rental income. And if they go bust your investment could prove worthless unless another operator takes over the management of the premises and your pod/unit, in which case they would probably negotiate different management fees. Things could get very messy.
And thirdly you may struggle to find a buyer in future if you want to get out.
Having looked around the web most of the adverts for storage pod investments lead back to a company called Store First Ltd, which operates several storage depots in the Yorkshire and Cheshire regions. While I have no reason to believe the business is anything other than proper, the potential issues I mention above could apply in a bad case scenario.
In simple terms it seems you buy a 250 year lease on a pod from £3,750 depending on size. Store First puts in place a 6 year agreement to rent and manage your pod, promising an 8% yield (after fees) in each of the first two years, with the option to extend the guaranteed return at the end of two years. When your pod is let you'll pay 15% of your rental income to Store First, as well as service and ground rent charges, basic details here.
Even if we assume occupancy is good, what happens if Store First goes bust or walks away after six years? You could be left with no rental income and an asset that's very difficult to sell on.
All in all, I think there are just too many potential downsides to make these types of investment appealing, but obviously you’ll need to investigate more closely and form your own conclusion.
Read this Q and A at http://www.candidmoney.com/askjustin/913/storage-pod-investment-a-good-idea
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