If you want to dip your toes in the commercial real estate market but don't want to invest a lot of capital, self-storage, and warehousing facilities are worth a closer look. Double-digit growth in e-commerce and rising inventories are driving the demand for more industrial space. 

By investing in storage properties through a 1031 DST exchange, you can maximize your returns.  Under a 1031 DST exchange, capital gains are deferred, freeing up more funds to invest in commercial properties.

Why Invest in Storage Facilities?

If you want to diversify your commercial property portfolio risk, self-storage facilities operate in two high growth, non-cyclical markets: 

  • Mini-warehousing - In the era of flex space, e-commerce and SMB businesses like renting self-storage warehouse space as needed to meet changing demand. 
  • Self-storage units - Households and businesses need storage space during times of economic growth and downturns.

Some investors are taking advantage of lower valuations in the commercial property market to buy on the dip. The wide profit margins of storage facilities are hard to overlook. Of the $120 billion self-storage market, only 13 percent of properties are in the public markets. The rest are controlled by private investors. 

While other investors are sitting on the sidelines while rents and occupancy rates of commercial properties are lower. Investors in storage facilities benefit from:

  • Rising rents and occupancy rates delivering stronger cash flows.
  • Low Capex requirements making it easier to maintain profitability in a downturn. 

Diversifying Storage Investment Risk 

If you want to diversify your investment risk in storage facilities by pooling your assets with other investors, two popular options are DST 1031 exchanges and REITs.

Both DST 1031 exchanges and REITs pool investments in commercial property portfolios. In exchange, investors have the potential to benefit from appreciation and regular cashflow distributions from building rental and leasing activity. 

A 1031 DST exchange offers several advantages:

- You know what property or properties (in the case of a DST 1031 properties portfolio) you're investing in. REITs, in contrast, can buy and dispose of real estate without your knowledge or consent.

  • The capital gains tax from the proceeds of commercial real estate sales is deferred if the proceeds are invested in a 1031 DST property. 
  • When a DST property is sold, you can roll the proceeds into other DST 1031 properties and maintain the capital gains tax deferral.

Among commercial real estate investments, DST exchange investors are enjoying the highest rates of return from public storage facilities.  

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