In the United States, there are over 50,000 self-storage facilities generating over $38 BILLION dollars in revenue in 2019. With a profit margin over 10%, it’s easy to see why so many investors are interested in the self-storage market. But as with any business, a little due diligence and research on the front end will go a long ways toward generating a generous future cash flow for yourself.
Five Steps to Starting a Self-Storage Business:
- Identify your market and competition.
Building a self-storage unit in Chicago will serve a very different clientele than in central Illinois. Do some research on the demographics of where you are looking to build a self-storage facility. One of the industry trends we have seen lately is the explosion of RV sales throughout the United States. Sales of RVs have doubled in the past 10 years. The same can be said for the boating industry which is also reporting record highs. As most homeowners are not able to store this equipment on their own property, they will be looking for a self-storage facility to rent. Many older self-storage units were not designed to accommodate newer RVs and boats. Opportunity knocks.
- Select the right location.
The single most important decision you make in your self-storage business is the location of your facilities. Your location should not be selected to suit your needs, but rather the needs of your prospective customers. If you are serving an urban area and most of the storage is going to be excess furniture and other incidentals, you will want to be near the population density. If you are going to be storing RVs and boats, you are going to want to be outside of the urban area on the way to the final destination. The most successful units are usually highly visible along a major freeway on a popular vacation or weekend route.
- Find a builder you can trust.
Call around to several builders and find an experienced builder you can trust. If this is your first project, you will want to ensure that the builder can deliver the entire project. This usually means they are the general contractor and will have subcontracts for the site work, concrete, electric and any other work you need for the final project. Work with your builder to get a budget price so that you can calculate a potential Return on Investment.
- Calculate your cost.
You’ve identified your market and competition. This should give you a good idea of the mix of unit sizes you want to build and the potential monthly rental price. You’ve scouted out locations and gotten a price. And you’ve talked to several builders and gotten a budget price for the building construction. Now is the time to calculate your potential monthly revenue from rentals against your development costs. If you are financing the project, you will also need to work with your lender on the debt service payments to ensure that the monthly rental revenue covers those costs. A profit and loss analysis is good – but at this point be sure you are focused on cash flow and project out at least 3 years. That positive cash flow is what you are putting in your pocket every year!
- Plan your operational costs.
While running a self-storage business is a passive business, do not forget the annual operating costs. You will have insurance, property taxes, electricity/security, lawn care, marketing, repairs & maintenance and depending on your location – snow removal services. You are also going to have to work with your customers and collect monthly rental payments. However, thanks to technology that task has become easier every year with firms like Unit Trac that help manage your units and automatically process credit card payments for you.
- Identify your market and competition.
A self-storage business can be a great investment. But it is important to remember this is not a “get rich quick scheme”. The occupancy rates on self-storage units can range from 75% to 95% and that will greatly impact your monthly revenue. While you may generate cost efficiencies from building lots of storage units at once, most self-storage business plan a staged approach where they build one building and wait until it is 50% rented before they begin construction on the next.
When you’ve decided to join the self-storage market, Walters Buildings is here to help. We have built hundreds of self-storage facilities in our 50+ years in the business. Take a look at our self-storage page and then contact one of our industry leading experts to discuss your next project.