The Financial & Tax Benefits of Investing in Self-Storage Real Estate

Behind Spartan Investment Group (SIG)’s operations is an abundance of financial savvy and strategy. As an investor, it’s essential to understand what happens when subscribing to an investment.

For this post, we sat down with Ben Lapidus, Chief Financial Officer of Spartan Investment Group, to unpack high-level financial terminology, monetary aspects of the industry and the perks of investing in self-storage.

Subscribing to an Investment

 At SIG, we syndicate capital into real estate assets. When you subscribe to investment with SIG, you take ownership in an LLC (Limited Liability Company), whose only purpose is to own either real estate or a grouping of other special purpose entities, each owning a single asset. Taking ownership of this gives you (the investor) tax documents to represent ownership, alongside that ownership’s respective rights, responsibilities and economic benefits.

Keep in mind—an LLC is the best entity structure for investors. Investors are passive and have no scope of operation, directing all liability onto SIG.

Owning an LLC also comes with special tax benefits because you are benefitting from all the profit and loss of that operation. Additionally, with real estate and other hard asset investments, you have depreciation—which gets passed through like other tax implications; you’re able to allocate depreciation, with your ownership representing your percentage of depreciation allocation.

Preferred Return and Matching the Market

 Investors with SIG receive a preferred return, often 7%, meaning they get special treatment on their investment.

SIG recognizes investors are trading their money, while SIG is trading time, sweat equity and overhead operations—and that money means more to investors than our equity means to us.

We also meet the market in terms of risk adjusted return, ensuring our returns match the deal in various locations and measuring success by either cash-on-cash return or internal rate of return (different ROI metrics). Passive investors benefit from cash flow, so SIG makes sure we’re looking at how much cash is distributed along the way.

Reasons to Invest in Self-Storage

Now let’s talk self-storage: an evergreen, increasingly perceptive asset class to invest in with a skyrocketing demand.

To put it simply, self-storage flexes three E’s, including ease of management, ease of maintenance and ease of monetization.

For context—people only visit once in a while to store boxes, then they’re gone. Self-storage is a metal box on concrete, creating a simple maintenance situation, and it’s easy to operate and monetize. If a customer doesn’t pay or collect their belongings, we can quickly monetize that unit, which doesn’t happen in multifamily investments (apartments, condos, etc.).

Monetization becomes more instrumental considering storage units monetize on troubling times and life transitions. Self-storage is recession resistant: people need storage.

A rising demand—around 10.3% of households using self-storage, up from ~9.7% five years ago—paired with lower supply expectations creates a desirable asset, and SIG has the ability, expertise and drive to support our investors in the space.

Spartan 1 Storage Fund

 What’s more is SIG brings specialized self-storage resources to the table.

The $150M Spartan 1 Storage Fund is geared toward acquiring self-storage assets and investing in key U.S. markets. Investors receive preferred return, projected cash flow and upside from the sale.