How to Start a Self Storage Business

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Quick Reference

The self-storage industry has undergone substantial growth, and with the ongoing demand for storage, this industry can make for a great business investment. While starting a self-storage business can take some time, especially if you need to build your own facility, this type of business can produce significant profits when managed well. By hiring talented staff, a business owner can largely step back from the self-storage business, making for potential residual income that leaves you free to explore other activities and business opportunities.

Business Overview

Self-storage facilities allow customers to rent out spaces that they can access as needed. Spaces may range from as small as 5’x5’ or can be 10’x20’ or greater. These facilities provide secure storage for personal belongings, and customers may rent a space for just a few months or on a longer-term basis. Some facilities now offer perks, including climate-controlled storage and easily accessible storage spaces where customers can drive their cars right up to the doorways.

Customers use self-storage spaces for a variety of situations, but storing extra belongings during moves or life transitions is a common use. Some facilities offer special spaces for boats and RVs.

Industry Summary

According to SpareFoot, as of 2019, the self-storage industry brought in $39 billion in revenue. That income reflects between 45,000 and 60,000 storage facilities and 1.7 billion square feet of rentable self-storage space. Units average $87.89 per month in cost, and on average, 9.4% of households rent a self-storage unit.

Eighteen percent of self-storage facilities are owned by the six largest public companies: Public Storage, Extra Space Storage, CubeSmart, Life Storage, National Storage Affiliates Trust, and U-Haul. Small operators own 73% of the facilities.

Self-storage is in high demand in certain cities, with Houston, Texas; Los Angeles, California; New York, New York; Chicago, Illinois; and San Antonio, Texas having the greatest demand.

Industry Trends

Many trends will affect self-storage in 2020. According to Inside Self-Storage, storage business developers have recently focused on building on more visible locations to help drive community awareness to build a customer base. With this increased focus on building in visible locations, cities have begun to require that builders create more aesthetically pleasing storage properties. This requires attention to elements like landscaping, lighting control, and architectural detail. As a result, business owners may need to hire an architect and should be prepared for a rigorous approval process.

Because self-storage has earned a reputation as a financially rewarding business opportunity, the market has started to become saturated as more and more businesses are built. It’s important for anyone considering opening a self-storage business to research both current businesses in the area and permits that have been approved for new construction. By avoiding building within close proximity of an existing storage business, a business owner will have an easier time building up a customer base.

Climate-controlled storage has grown in popularity for many reasons. These buildings usually bring higher rental rates, but they’re not without their problems. Storage business owners have recently found that climate-controlled units that require hallway and elevator access have fallen out of demand. Drive-up climate-controlled units are far more popular and may be a wiser investment.

Technology is also shaping the storage industry, and many technological advancements allow self-storage units to be largely self-operated. Self-serve kiosks allow customers to sign rental agreements online or through their phones. Keypads and gates create enhanced security, which can help to build customer trust and encourage customers to rent space. Security cameras are more affordable yet offer great quality. Cameras are must-haves for self-storage businesses and should be incorporated into the planning process early.

Target Market

Most self-storage businesses market to the general public. Typically, self-storage customers are adults who have some disposable income. Customers may be in the middle of a move and may need temporary storage, or they can be families who need ongoing storage for items that they don’t have space for at home. Businesses are also sometimes part of that target market when they’re undergoing renovations, expanding, have seasonal storage needs, or moving and need extra space.

Skills, experience, and education useful in running a self-storage business

Starting a self-storage business doesn’t require a business degree, but certain skills and advantages can be beneficial in this industry.

Attention to detail. Running a self-storage business requires plenty of attention to detail, from managing rental agreements to monitoring the security of the property.

Organizational skills. Great organizational skills will help a business owner stay on top of rental agreements, bills, and more.

Technology knowledge. Some experience working with technology will help a business owner to successfully implement, use, and troubleshoot the business’ security systems.

Customer service skills. Experience providing great customer service is important in this industry. A business owner will need to engage with customers, and strong customer service skills can encourage customers to extend their rentals or return in the future.

 

Financial Overview

Starting a self-storage business can be quite an investment, especially if the business owner needs to construct the facility themselves. Mako Steel reports that building single-story self-storage facilities typically cost between $25 and $40 per square foot. Those expenses don’t include land purchase costs. Multi-story self-storage building construction ranges from $42 to $70 per square foot but allows a business to maximize the use of a smaller property. Most facilities range between 60,000 and 80,000 square feet, and they can cost between $45 and $65 per square foot to build.

A business owner may be able to save some money by buying an existing storage facility.

Common startup costs for a self-storage business include:

  • Land cost if purchasing
  • Development costs
  • Security system purchases and upgrades
  • Office equipment like computers and printers
  • Signage
  • Working capital to cover the first few months of operating expenses like the lease, debt service, insurance, utilities, etc.

Steps to Starting a Self Storage Business

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a self-storage business plan. While the plan is used to get financing, it forces you to look at important aspects of the business like competitors, construction costs, occupancy rate to break even, etc. Banks and investors are typically going to re you to have a business plan.

Related:
How to write a business plan
Free sample business plans

Step 2: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

Related: Comparison of Business Entities

Step 3: Name the Business

Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a self-storage business

Step 4: Select your Location

Rent or mortgage costs will depend on the business’ location, size, and the amount of money put down at its purchase. Locating close to a visible location close to apartment complexes, smaller homes, and commercial businesses are generally preferred.

Related: Choosing a business location

Step 5: Register for Business Licenses and Permits

Self storage businesses don’t require specific licensing other than zoning, however there are some general local, state and federal business registrations that may be needed such as an Employer Identification Number and Occupancy Permit among others.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a self storage business is another. In order to get a small business loan, the borrower(s) will need to have good credit and be able invest 15-25% of their money towards the total start-up costs.

Depending on the cost of the project, equity, and collateral, the lender may require a Small Business Administration (SBA) guarantee to make a loan.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.

Step 8: Get your Marketing Plan in Place

Marketing will help to develop an initial customer base, but it can also be important to ensure that the facility can rent out most of its spaces on a continuous basis. Common marketing techniques include radio advertising, print advertising, social media marketing, and online advertising. A self-storage business owner might also network with local moving companies and other businesses to get customer referrals. Marketing costs will vary depending on the type and volume of the activities performed.

Related: Low-cost ideas to market a new business

Step 9: Get Business Insurance

A self-storage business needs several types of insurance for full coverage:

  • General liability insurance protects the business in case a customer is ever hurt while on the property. This insurance often covers medical bills and legal fees.
  • Customer property legal liability insurance offers additional coverage for damages to a customer’s property that occurs while the property is in storage.
  • Commercial property insurance helps to protect a business if its facility or equipment is ever damaged in an event like a story.
  • Crime insurance helps to cover the business against losses or damages that can occur if the business is ever robbed.
  • Worker’s compensation insurance is necessary if the business employs staff. It helps to cover expenses like medical bills or legal fees that can occur if an employee is ever hurt while on the job.

Insurance policy cost depends on factors like the business’ size, location, and the number of employees on staff. To best understand how much to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider how the premiums, coverage limits, exclusions, and deductibles stack up to decide which policy is best for the business.

Related: Common types of insurance a business may need

Step 10: Hire Employees

One of the appealing factors of a self-storage business is the limited need for employees. A business owner may be able to run the business themselves initially, but most self-storage facilities have at least a few employees. Indeed reports that storage managers earn an average of $12.55 per hour, while assistant managers earn approximately $12.19 per hour.

When hiring staff, a business’ budget will need to include salaries and other employee-related expenses like worker’s comp, paid time off, and vacation time.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your business as a good system will keep you on track with billing customers and taxes.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

 

How much can you potentially make owning a self-storage business?

Self-storage business income will vary depending on the size and location of the business, as well as the number of years it’s been in operation and its profit margins. According to Move.org, standard storage units rent for an average of $60 to $180 per month. Climate-controlled units rent for between $75 and $225 per month. Units range in size from 5×5 feet to 10×20 feet, with the larger units commanding the higher prices. If units are in high demand, a business can increase its prices, particularly during popular times like at the end of the summer.

 

Things to consider before starting a self-storage business

Starting a self-storage business requires significant startup costs, whether you’re purchasing an existing property or building your own. Be prepared to go through detailed planning and a long-term business startup process if you’re building. It’s best to equip yourself with a talented, knowledgeable team including professionals in the legal, design, real estate, finance, and construction fields.

There are different motivations for investing in self-storage units. Some people will invest in self-storage units as a way to generate a return on land until there is a better opportunity for that location. Others view it as a longer-term investment.

Many self-storage facilities sell add-on products such as locks for the units, boxes and moving supplies, and services such as renter’s insurance to generate additional revenue.

Be sure to do thorough market research before investing in a self-storage business. Consider factors like whether you should have space for boat and RV storage, how valuable climate-controlled storage may be in your location, and whether you want to offer drive-up or indoor-access storage units. Unit size is also an important factor, as is the facility’s size and overall layout. Security is also an ongoing concern in this industry, so consider consulting with some security advisors who can help you to identify the best layout and technology for the property.

 

Resources:
Self Storage Association

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