The truth is that there will always be a demand for self-storage units all over the world. The big question is whether or not you can launch a business that can successfully compete with existing self-storage enterprises or find an existing gap within the market and maximize on it to build a successful self-storage business. For instance, if your area is rife with new development projects, you may have an incredible opportunity to establish a self-storage business and attract a significant part of the new market.
So, how can you start a self-storage business? Before you start your self-storage business, you need to take time and conduct thorough research to understand the current market needs. After that, learn the laws governing the operation of self-storage businesses in your area, choose a location, develop a comprehensive business plan, obtain financing, create your business name and logo, open your business bank account, develop a comprehensive marketing strategy, set up your business, and start reaching out to potential customers.
This guide discusses everything you need to know about setting up a self-storage business that will succeed. Read on to find out everything you need to know.
How Much Does It Cost to Open a Self-storage Business?
The truth is that opening a self-storage business can be quite expensive. If you are constructing the units from the ground up, a standard single-story building can cost anything between $25 and $50 per square foot, depending on where you live.
This doesn’t include the cost of purchasing land, and multi-story buildings will generally have a relatively higher cost per square foot price. You will spend between $45 and $75 per square foot on multi-story buildings depending on where you live.
If your primary objective is to construct a state-of-the-art facility, you are looking at at least $70,000 rentable square feet with a cost of between $50 and $70 per square foot, excluding the cost of land. It means that you need approximately $3 million for a state-of-the-art facility.
So, with such amounts of money spend, how do you break-even? Typically, you should be able to break even at around 50%-70% occupancy.
A state-of-the-art self-storage facility in a good location can easily operate at between 85% and 95% occupancy throughout the year. It means that you should have a relatively good profit margin on your self-storage business.
How Much Profit Can a Self-storage Business Generate?
As mentioned above, you should expect to break-even once your facility’s occupancy reaches about 50% to 70%. However, a good facility in a good location will easily operate with 85% to 95% occupancy producing a net income of about 27% of rental income after paying all the business expenses and loan debt service.
For instance, renting out units at the rate of $1.42 per square foot per month will translate to about $17.04 per square foot per year. So, if you have an 80,000 square feet facility, you should expect to generate approximately $1.4 million in annual rental income and up to $354,432 in gross cash flow per year.
To make your business more profitable, consider adding moving truck rental services, supplies, and moving equipment to your self-storage business. The addition of such services can increase your income by up to 5%.
Many self-storage businesses usually extend their business operations to include managing a fleet of vans, moving trailers, and rental trucks. The good thing is that these businesses can operate together seamlessly as one big business.
Besides offering moving vehicles as an extra service, you can offer moving equipment such as furniture pads, hand trucks, and furniture dollies. You can also start selling moving materials such as packing supplies, moving boxes, and packing tape.
How Do You Start a Self-storage Business?
Now that you have a rough idea of how much it will cost you to start a self-storage business and how much profit it may generate, let us discuss the crucial steps you need to accomplish to set up your business.
1. Conduct Thorough Research
Committing your valuable time and money to start a business that you don’t fully understand can be one costly mistake. You need to take time to gain a deep understanding of the self-storage industry and analyze your local market before you make the final decision.
Research your future competitors and find out as much as you can about the business and how they charge their current customers. There might be a high demand for self-storage facilities in your area, but the demand may have already been met.
Take note of the size of self-storage facilities in your area, capacity, whether they are climate controlled, operating hours, prices, logistics, how the storage units are sized, and any other additional services being offered.
You can even go a step further and try to find local residents who lack enough storage space in their homes and would be willing to pay for a self-storage unit. The data you gather will provide you with a clear overview of whether the business is viable or not.
For trade-specific information, don’t be afraid to consult trade journals and specialist sites. The more information you dig up before you start the setup, the better.
2. Create a Comprehensive Business Plan
A business plan is simply a roadmap for your self-storage business. It is a crucial business tool because it organizes all your thoughts relating to the business into an actionable plan.
Some of the critical things to include in your business plan are competitor analysis, marketing plan, pricing model, market analysis, expenses, and projected revenue.
Make sure you conduct a thorough feasibility study as part of your market analysis. The feasibility study should include evaluating occupancy potential based on your market analysis, assessing competition, identifying loopholes in the current market that you can exploit, and conducting a thorough demographic analysis.
If you cannot do this analysis on your own, consider hiring an industry expert to help you. One of the most significant benefits of having a business plan is to help you raise the money you need to run the business from investors and financial institutions.
These people will only be willing to finance a professional-looking business plan as part of their investing or lending process.
3. Choose an Ideal Location
One of the factors that will determine the success or failure of your self-storage business is the location where you set up the business. Take time to scout out potential locations with easy access to residential apartments, condominiums, or military camps.
You should also ensure the location has sufficient land space that can permit you to construct your facility. However, you need to be mindful of the property taxes while choosing the location.
Pay attention to the up-and-coming residential areas such as the outskirts of the main city with apartment and condo complexes. You can also consider empty lots and warehouses.
Ensure you obtain zoning approval and hire a licensed contractor who is 100% familiar with the self-storage industry to help you design your facility and submit building plans.
The other things you need to pay close attention to include where to situate the office, parking, security, drainage, maneuverability, accessibility of the area, and a wide range of other factors that will ensure your facility remains functional, dry, and clean to keep your clients’ stuff in excellent condition.
4. Obtain Necessary Permits and Licenses
You should never start operating any type of business without acquiring necessary permits and licenses since it can result in hefty fines or even closure of your business.
So, take time to find out all the permits and licenses you need to start operating a self-storage business in your area.
Visit the local authority’s office or your municipality’s website to find out what you need in terms of permits and licenses to start running your business.
Some of the crucial documents you will need to start running your business include a certificate of occupancy, service contracts, small business permits, and much more.
5. Obtain Financing
Fortunately, many investors and financial institutions are willing to finance your self-storage start-up. Some of the most popular financing options include the SBA loans and traditional bank loans.
Although the qualification requirements for these loans may vary greatly depending on where you live, you will typically require a good credit score and some down payment to qualify for financing.
If you are in the United States, SBA loans offer you the best option for constructing your self-storage facility because you can finance the entire construction process and enjoy up to two years of loan payments. In most cases, the SBA will only require you to raise a 10% down payment.
If you prefer working online, then feel free to find reputable online lenders and approach them for financing. There are many online lenders willing to finance your self-storage business. All you have to do is complete the online application and wait for feedback.
6. Get a Business Insurance Policy
Lastly, you should find a good business insurance policy that will ensure you operate safely and lawfully. The primary purpose of business insurance is to protect your business’s financial wellbeing in case of any covered loss.
There are different types of business insurance policies designed for different types of businesses with different risks. However, if you are still unsure of the different risks that your business faces, consider purchasing general liability insurance.
This is the most common form of insurance that many small businesses require to operate safely. Another notable insurance that you may need is workers’ compensation insurance if you will have employees.
So, there you have it. The critical steps you need to accomplish to set up a successful self-storage business.
While they may sound simple and straightforward, they are not easy to execute. You will be required to spend a lot of time planning everything before you launch your business.
It is also good to be mindful of the risks involved and find possible solutions before diving straight in. Take time to learn, and everything else will fall into place.