Self-Storage vs. Multifamily: Which Investment Has Better ROI in 2026

In 2026, real estate investors are increasingly weighing self-storage and multifamily housing as top contenders for long-term ROI. Both asset classes offer passive income, tax advantages, and appreciation potential, but the market conditions in Waco, Texas and beyond are shifting. Rising construction costs, population growth, and lifestyle trends are all influencing which option makes the most financial sense.

Initial Costs and Barriers to Entry

Multifamily developments, especially apartment complexes, tend to require a higher initial investment than self-storage projects. From land acquisition and architectural design to city permitting and labor costs, building a multifamily property can cost millions before a single unit is leased. Self-storage, on the other hand, offers a lower barrier to entry. With a simpler layout, fewer materials, and lower infrastructure needs, developers can build Class B or C storage facilities at a much lower cost per square foot—especially in suburban or rural parts of Texas.

Rental Income and Occupancy Trends

Multifamily properties generate steady monthly income, especially in growing areas like Waco, which has strong demand driven by Baylor University, medical centers, and remote workers. However, this sector is currently working through a wave of new supply, leading to flatter rent growth and increased concessions in some markets.

Self-storage units typically see lower turnover and minimal maintenance. While the post-pandemic demand surge has plateaued, national data shows occupancy stabilizing and rental rates recovering in 2025, signaling renewed confidence heading into 2026. Self-storage offers more predictable cash flow with less risk of delinquency compared to multifamily.

Operating Costs and Overhead

Multifamily buildings require ongoing, intensive expenses: property management, landscaping, plumbing, HVAC, pest control, and frequent tenant maintenance requests, which eat into the typical 40–50% average REIT operating margin. Self-storage units are far less demanding. With no plumbing in most units and limited climate control needs, storage facilities are often managed by one person or remotely with automated systems. This lean model gives self-storage a notable advantage in profitability, often achieving 50–65% average REIT operating margins.

Market Demand in Waco and Beyond

Waco is experiencing growth in both sectors. Multifamily demand is robust, but the market is becoming selective; smaller, well-located projects are favored. Self-storage demand is consistently supported by life events, population growth (Austin, for example, is projected to increase by over 10% by 2026), and transitional living. Trends also show an increase in RV and boat storage, along with the growing adoption of business-friendly storage (units offering amenities like conference rooms), which presents a strong income layer.

Appreciation and Exit Strategy

Multifamily buildings can appreciate quickly, but selling can be difficult if pricing expectations are misaligned with market realities. Self-storage facilities, while perhaps slower to appreciate, often attract commercial buyers or real estate funds seeking cash-flow assets. Historically, self-storage has proven highly recession-resistant, delivering positive returns during the 2008 financial crisis when other sectors saw declines, making it attractive for long-term hold or sale to REITs.

Risk and Recession Resilience

Self-storage is generally more recession-proof than multifamily. When people downsize or relocate during economic shifts, demand for storage increases. The ability to implement flexible, month-to-month pricing strategies and a streamlined lien process (compared to lengthy tenant eviction laws) gives storage operators quicker tools to maintain profitability. Meanwhile, the multifamily sector faces risks from tenant job loss and increased pressure on rent payments during downturns.

Financing and Lending Conditions in 2026

Lending institutions are tightening criteria for many commercial real estate loans. However, self-storage projects often receive favorable financing due to lower risk profiles and strong cash flow projections. For first-time investors or developers, the SBA 7(a) and 504 loan programs can be excellent options, offering:

• Up to 90% financing for acquisitions and new construction.

• Longer amortization and repayment terms (up to 25 years).

• Lower down payment requirements (often 10%).

• Use of proceeds for construction, equipment, and even working capital (7(a)).

Which Option Is Best for Your Investment Strategy?

Ultimately, choosing between self-storage and multifamily housing comes down to your financial goals, risk tolerance, and operational preferences. If you want high returns with minimal management and faster scalability, self-storage might be the way to go, especially with the industry's shift toward automation and technology. If you’re aiming for long-term appreciation in a dense, high-growth area and are comfortable with more hands-on oversight, multifamily could offer significant upside. Whichever you choose, working with a trusted builder is key to maximizing ROI and avoiding costly delays.

Partner with Merck General Contracting for Your Next Investment Build

Whether you’re investing in self-storage or multifamily housing, Merck General Contracting is your trusted partner for ground-up construction in Waco, Texas. We deliver quality, efficiency, and industry insight to help you make the most of your real estate investment. Contact us today to start planning your next project.