This article takes the view of the consumer, "Why do so many people pay to store items they almost never use?". But in actuality, the interesting part of this is why is there so much supply of self-storage businesses?
The answer is: cash flow. Self-storage businesses are the almost perfect solution for someone with a good size (but not enormous) bucket of money that they want to put to work generating cashflow:
1. Cheap build out (cheap land, cheap facilities)
2. Almost entirely hands-off (no employees, automated entry)
3. Low liability (low risk of customers suing you)
4. Low overhead (just pay for taxes, electricity, minimal maintenance)
5. Reliable monthly cash flow
The abundant supply of these businesses, I suspect, tends to generate demand: it's easier to pay $80/month to store your junk than spend the time and emotional labor of picking through what you want to keep and what you want to get rid of. That ends up being captive long-term revenue.
You are missing the biggest benefit of a self storage business - the appreciation of the underlying real estate. When you dig into the financials of the major self storage businesses you'll see they are essentially REITs that have better cashflow. They can pick an up-and-coming area, do a minimal build-out with low annual overhead, and then down the road when the facility would be needing overhauls and maintenance the underlying property has typically appreciated so much that it dwarfs all other associated revenue streams and makes sense to sell and raze the existing structure. Great business model if you have a long enough timeline.
This is also why some startups trying to revolutionize the self storage model had extreme headwinds - if you are renting the underlying properties and trying to make the storage business profitable you are at an extreme disadvantage to the larger players who can subsidize operating costs with portfolio appreciation.
This same concept is also true of McDonalds historically - they own the land, lease it to franchisees, and realize the appreciation themselves. McDonalds are fairly economically valuable, so the capital gains by the time they're cleared and resold as development often dwarfs the value of the franchise fees.
Same is also true of DJT's various casino gambits. Pilloried in the media but rather sound (though high risk) from a land speculation perspective.
Did I say that? Since they failed, they were obviously bad business. But they were a rational thing to attempt to do - taking on a massive loan to speculate on land and using a (potentially) high cashflow, quick to setup, easy to market business to offset the high initial interest rates. i.e. the same thing being discussed in this thread
A rational thing for a competent person to attempt. Given the theoretical structural advantages of the idea, the 6 failures are even more embarrassing than failing at something that was actually a bad idea.
FWIW “Gambit” without elaboration strongly invokes the “the bankrupcies were on purpose” to me, so, did you say it? Strictly no, but it was very suggestive.
Eh. I wanted to be provocative because I've heard a lot of educated but economically naive people assume 'highly leveraged hotel-casino project' is dumb a priori, even though it's (an example of a) a sensible and common business strategy available to the wealthy. I didn't mean to imply bankruptcy was intentional though.
As to whether Trump did this better or worse than others, I have no idea as I haven't studied it but would assume the latter given the outcome.
A certainty though - plenty of undeserving people you would consider contemptible have successfully played this hand many a time. Yet more reasons to tax land
AFAIK, Trump used investor money and rented his brand - he would have upside if the business succeeded, but had no downside for him - he was paid anyway.
As for the suckˆHˆHˆHˆHinvestors, they had a bad day.
epochbtc · · focus · HN ↗
The answer is: cash flow. Self-storage businesses are the almost perfect solution for someone with a good size (but not enormous) bucket of money that they want to put to work generating cashflow:
1. Cheap build out (cheap land, cheap facilities) 2. Almost entirely hands-off (no employees, automated entry) 3. Low liability (low risk of customers suing you) 4. Low overhead (just pay for taxes, electricity, minimal maintenance) 5. Reliable monthly cash flow
The abundant supply of these businesses, I suspect, tends to generate demand: it's easier to pay $80/month to store your junk than spend the time and emotional labor of picking through what you want to keep and what you want to get rid of. That ends up being captive long-term revenue.
jboggan · · focus · HN ↗
This is also why some startups trying to revolutionize the self storage model had extreme headwinds - if you are renting the underlying properties and trying to make the storage business profitable you are at an extreme disadvantage to the larger players who can subsidize operating costs with portfolio appreciation.
jaggederest · · focus · HN ↗
skew-aberration · · focus · HN ↗
tenuousemphasis · · focus · HN ↗
skew-aberration · · focus · HN ↗
edmundsauto · · focus · HN ↗
cwillu · · focus · HN ↗
skew-aberration · · focus · HN ↗
As to whether Trump did this better or worse than others, I have no idea as I haven't studied it but would assume the latter given the outcome.
A certainty though - plenty of undeserving people you would consider contemptible have successfully played this hand many a time. Yet more reasons to tax land
rbanffy · · focus · HN ↗
As for the suckˆHˆHˆHˆHinvestors, they had a bad day.