While Storage Wars and the different spin-off reality shows are extremely well-produced and have made many people aware of the storage auction niche, it does not change the fact that it is extremely difficult to make money buying storage lockers. If you look at the cast of characters on the California edition of Storage Wars, most of them own thrift stores (Jarrod Schultz & Brandi Passante, Dave Hester, Renee & Casey Nezhoda, Ivy Calvin), which is not only a full-time, management-intensive job, it also gives them a way to re-sell items that the general public does not have access to. There is no doubt that each of them probably has an eBay account with hundreds or thousands of reviews and spends a lot of time selling on Craigslist. The fact that they are all basically in the thrift store business should be the first red flag that this is probably not a passive type of investing that the ordinary person can step in and do. The other thing that stands out is the resale value they place on ordinary items. It always seems high. Again, they may have the benefit of a retail store, loyal customers, a large booth at a swap meet, etc., but I just don’t see where Joe Sixpack that tries to sell these items will necessarily get anything close to the values they say they are worth.
The Toilet Paper was a Red Flag
Now for some anecdotal evidence…wanting to see storage auctions myself, I attended a handful of auctions in lower income areas of Mesa and Phoenix, Arizona. The first thing I noticed was the sheer number of participants. There were at least 50 people there for one auction which only featured 2 storage lockers. Looking into both of the lockers, it looked like garbage. Having purchased abandoned homes at trustee sale before, it looked like the random personal effects, water-stained mattresses, broken toys, and just random worthless items you would find there. There was even a half-opened pack of toilet paper. Why anyone would open a package of toilet paper, then pay to store half the rolls is beyond me. Everything was thrown in there and it did not look well-organized at all. To me, the lockers had negative value because you would have to pay someone to haul this junk off. I think about 47-48 of those people there agreed with me. However, there were 2-3 people that looked like they had been there many times before. They ferociously bid the price up of both of the lockers. Both lockers sold for over $1000 each. Maybe they found a priceless baseball card collection or gold jewelry in there, I just don’t see it. In talking to some other people familiar with the auctions, they said that the winning bidders sell quite a few items on Craigslist, $10 here and $20 there. Seems like a lot of work to me.
Could the Delinquent Tenant be the Real Winner?
I would not begin to advocate deciding how to invest your money based on one guy’s negative experience or some random story you hear. However, the sheer volume of bidders and the low apparent quality of the lockers relative to the price people were blindly paying should be a concern to seriously consider. Before getting into this niche, I would attend several auctions to make sure my storage locker experience was an outlier and not the norm. Maybe the ones doing best in the storage auctions are the delinquent tenants themselves. Since storage auctions are governed by state statute, the auctioneers and storage facility have rules they must follow. They generally can only use the money to pay off the back rent owed plus any sales fees (such as the cost to advertise the sale, auctioneer fees, lock removal, etc.) While it may vary by state, in many places the excess proceeds are supposed to go to the delinquent tenant. In the case of a locker with nothing but worthless or nearly worthless items, even after deducting those fees, it is quite possible that the tenant is getting a check for more than the items are worth, and as an added bonus, someone to haul their stuff to the dump for free!