How to Start a Self Storage Business
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.
Related Industries
Industry Trends
Many trends will affect self-storage in 2020. According to Inside Self-Storage, storage business developers have recently focused on locating 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 investment 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.
Checklist for Starting a Self Storage Business
If you’re thinking about starting your own self storage business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1:Â Write a 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
Step 2:Â Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures 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.
When deciding on which business entity is best for a self storage business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
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The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
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Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 3:Â 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.
Step 4:Â Select your Location
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.
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 size of the self storage facility 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.
Property 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:Â 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 a business license, Employer Identification Number, and Occupancy Permit among others.
Related:Â Common business licenses, permits, and registrations by state
Step 6:Â 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:Â Finding the money to start a business
Step 7:Â Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
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Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8:Â 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:Â Low-cost ideas to market a new business
One important task while working on the marketing is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting a self-storage business. A few of these include:
– 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.
The cost to insure a self-storage business 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: What types of insurance does a self-storage facility 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:Â Hiring your first employee
Step 11:Â 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:Â Setting up the accounting for your business
Fortunately, understanding the numbers doesn’t mean getting a finance degree. Tracking a business’s financials can be done in a number of different ways:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like
800Accountant.
How much does it cost to start a self storage business?
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.
Some 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.
How much can a self storage business owner make?
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.
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.
What skills are needed to run 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.
Are there grants to start a self storage business?
It’s extremely rare to find a grant to start a self storage business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a self storage business?
The NAICS code for a self storage business is 531130.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
Resources:
Self Storage Association
