How to Start a Self-Storage Business in 8 Steps
Self storage has proved to be a resilient industry that fares well during challenging times, and it has continued to assist people in their times of need. Based on the predicted self storage construction in 2021, and also on the industry’s track record over the past few years, self-storage is simply thriving. If you’re considering starting a business in the field, you are likely to be counting on the industry’s “good bones.” Whether you’ve had a business before or not, starting out in a new field can feel challenging. Here are some of the issues you need to consider if you’re looking into becoming a self-storage business owner:
When starting out in self-storage, one of the major questions you need to ask yourself is whether you should start from scratch or buy an existing self-storage business. Here are some things you need to consider for each of the two options:
Buying an existing business
When you buy an existing business, you could either acquire another self-storage operation or perhaps a building that’s home to a different type of business. Many times, supermarkets and other commercial buildings are converted into self-storage facilities.
Before deciding to acquire a storage facility, assess the condition of the building to help you determine whether additional construction or remodeling is necessary to get your facility up and running.
When buying a storage facility, consider the timing of your purchase – pick a time when you won’t shell out the highest price. Regardless of when you make your move, keep in mind that the industry requires long-term investment, and that should also be a key part of your return on investment (ROI) calculation.
Starting from scratch
Starting your self-storage business from scratch means you will need to acquire the land first. This step alone is the most expensive part of your new venture. To cover the cost of the land, applying for a loan is the common route taken by business owners.
As you need to build everything, it is indeed a little riskier to follow this route than buying an existing building. You need to make sure that construction work is done on time for you to be able to start counting on a profit based on your business plan.
For each business owner, the decision to buy an existing facility or start anew is completely dependent on personal circumstances. You need to decide which decision makes more sense from a financial point of view, taking into consideration both current investment potential and the risk-reward potential.
The local market
When picking the location of your new self-storage business, investigate the local market essentials to gauge demand. As self-storage users tend to look for self-storage within a 3-5-mile radius of their home, keep that in mind to help you “map out” your market. Typically, you’ll find that urban areas attract more customers and, therefore, are more profitable than rural locations.
When picking your location, consider whether the local demographic overlaps with the typical range of self-storage customers. Think homeowners, renters, students and military personnel. Consider population growth when assessing whether you can increase your customer base or not. For this reason, popular cities that have attracted newcomers in large numbers are likely to continue to do so, which will help support your business if you choose your location in one of the country’s expanding cities. Keep in mind that competition might also be more vigorous in these locations.
Factor in how much car traffic your area gets as this is a good predictor of business success. The more people who drive by your facility, the more likely you can convert them into customers.
Once you have decided on the location of your business, you should consider how to finance it. There are two kinds of loans for your business, as follows:
Short-term bridge financing (3-5 years)
Go for this type of financing when buying out another facility that needs to be renovated or when you wish to build additional units. Consider your facility’s occupancy – your odds of being approved for a loan with a local bank are higher if your facility functions below stabilized occupancy (80%). Additionally, the down payment typically covers 20-25% of the purchase price.
Long-term/permanent financing (5-10 years)
This is a refinancing plan for a short-term loan or for those cases when you’re buying a property with less than 80% occupancy. If you went for long-term loans larger than $1 million, a conduit lender is a much better way to finance them. With this type of financing, similar groups of real estate assets are grouped together and sold to outside investors. Lenders benefit from lower rates, non-recourse loans (the borrower isn’t personally liable) and longer amortization periods.
Whether you’re adding new units to an existing facility or building a new one, you will need to consult the local zoning regulations first. Find out whether you’re allowed to carry out construction at the site of your choice. Unfortunately, there isn’t a national standard for self-storage construction, as each city has its own specific zoning regulations. However, there are some commonly encountered requirements when it comes to self-storage construction. For instance, a self storage facility sometimes can’t be built closer than three miles from another storage facility. Additionally, it may be required that a parking space must be provided per 1,000 square feet of storage facility building.
Consider what your facility should offer its customers to help them have the best self-storage experience. Here are some common amenities that are typically offered:
Specific items such as electronics, furniture, appliances, books, and clothes benefit from a climate-controlled environment to avert potential damage caused by extreme temperatures and high humidity. This feature is particularly useful in very hot, cold, and humid climates.
To make sure you give your customers peace of mind while they keep their items at your units, add security surveillance to the premises. Increase the security by adding a keypad entry-based access to the facility building and its gates – the latter will be a feature where there are drive-up outdoor units.
Decide which schedule is best for your facility and its customers. You could either offer a limited-hour schedule or 24/7 access to the facility. Many customers base their choice of facility on how accessible it is. Adding the 24/7 feature is preferred by many people who have busy schedules and would benefit from stopping by when it’s more convenient to them.
Some facilities offer truck rental services for people who move and need transportation for their belongings. Another popular add-on consists of packing supplies – if your customers use self-storage when moving, why not cater to all their needs, packing included.
Valet self-storage is an extra service offered by some facilities. It caters to customers who prefer to have their belongings picked up and stored in a unit because they don’t have the time to do this themselves. It’s a service that’s growing in popularity and can considerably boost your business if you’re located in an area with high self-storage demand.
Storage unit price
There are many factors that influence self-storage price. Here are some of the common ones that shape the cost of a storage unit.
Storage unit size
There are several self-storage unit sizes including 5×5 units, 5×10 units, 10×10 units, 10×15, 10×20 and 10×30. The most popular size is 10×10. Obviously, the larger the unit, the more you can generally charge for renting it.
Location is another factor that strongly influences how much you can charge for your self-storage units. Large urban areas sometimes charge a hefty price for self-storage. For instance, renting a 10×10 non-climate-controlled unit in San Francisco could bring you an average of $211/month right now. Similarly, renting the same type of unit in Los Angeles ($205/month) could also generate a good income.
Naturally, the more amenities you’re offering, the more you can charge. For instance, climate control is one of the most in-demand features that can boost profits. Nationwide, while a standard 10×10 non-climate-controlled unit costs on average $128/month, a climate-controlled one can go for about $146/month. Additionally, offering 24/7 access, video surveillance and other state-of-the-art security measures can also allow you to charge more.
Facilities can be classified into two types based on the access to their units: indoor and outdoor. Facilities with indoor units typically have climate control, which adds to the self-storage street rates. Decide which type is the most in-demand in your area and base what you will offer on that information.
To streamline your business, you can turn to property management software. This greatly simplifies your work as a manager. You can manage all your properties from various devices, from tracking occupancy to checking payments and managing discounts. Additionally, you can keep track of communication with your customers. Find software that best answers your needs, whether you need to keep track of property inventory or corporate ledgers.
Remember to keep track of your self storage marketing – whether you choose to do it yourself or to hire another person to fill this role. Keeping an active social media presence is vital to help promote your services. Decide which platform and medium is best suited for your business – blog posts are becoming ubiquitous marketing tools, alongside posting on social media channels such as Facebook, Instagram, Twitter and YouTube.
Besides your online presence, think of ways to attract customers offline. Invest in billboard advertising near areas with high traffic, and finally, count on word-of-mouth recommendations. Happy customers are likely to mention your service to others in a positive way.