How to Start a Self Storage Business
Having a self-storage business can be a top money-maker in the real estate industry.
In fact, it had the lowest default rate of any commercial property during the pandemic of 2020, making it not only a potentially lucrative investment, but also relatively stable.
This step-by-step guide will walk you through the process of launching your own self-storage facility, from planning and securing financing to construction and management.
By following these steps, you'll be well-equipped to start your journey in the self-storage business:
Conduct Market Research
Research the local market to assess the demand for self-storage facilities in your area and identify competitors. Analyze their offerings, pricing, and occupancy rates.
Determine the target demographic and identify any underserved segments in the market.
Whenever I’m looking at delivering a new product in an area, whether it’s self storage or retail, I always ask myself: “How can I make this property more unique than anything else already here so that I create a new type of consumer demand?”
That could be through the aesthetics of the building, the layout of the floor plans, additional offerings you may have onsite, or something as simple as a better location.
Resources for Conducting Self Storage Market Research
When conducting market research to determine if you should open a self-storage business, there are several resources you can utilize to gather valuable information. Here are some key resources to consider:
Local Chamber of Commerce: Contact your local Chamber of Commerce to obtain demographic data, economic trends, and business statistics for the area you are targeting. They can provide insights into population growth, employment rates, and other relevant factors.
Census Data: Access data from the U.S. Census Bureau, specifically the American Community Survey, to gain detailed information about the local population, income levels, household sizes, and housing trends. This data can help you assess the potential demand for self-storage services in the area.
Commercial Real Estate Listings: Explore commercial real estate listings and websites specializing in self-storage properties to gain insights into the current market. Analyze available properties, their occupancy rates, rental prices, and amenities offered to understand the competition in your target area.
Local Economic Development Offices: Reach out to local economic development offices for information on business growth, infrastructure developments, and any plans for future commercial or residential projects. These insights can indicate potential opportunities or challenges for your self-storage business.
Market Research Firms: Consider hiring market research firms specializing in the self storage business. These firms can conduct customized studies, surveys, and analysis tailored to your specific needs, providing in-depth market insights and forecasts that can also help make your case to lenders and investors if you plan to raise capital.
Industry Associations: Engage with industry associations like the Self Storage Association (SSA) or state-level self-storage associations. These organizations often publish market reports, industry trends, and research findings that can help you make informed decisions.
Online Tools and Databases: Utilize online resources such as demographic data providers, real estate platforms, and market analysis tools. Websites like City-Data.com, Crexi, and LoopNet offer access to valuable market data, property listings, and analytics that can assist in your research.
2. Choose a Suitable Location
Find a location with high visibility, convenient access, and sufficient space for your self-storage facility.
Self storage is almost always a “convenience” buy for your customers, meaning they’ll rent from you if it’s nearby their homes, on their way to work, etc. The more visible the location and the closer it is to your target customers, the better.
You’ll also want to dig into local zoning regulations and understand the permits required for self-storage businesses in your area since many are considered industrial real estate. If the site doesn’t allow self storage by right, you still have options to go through a re-zoning process, but it may not necessarily be worth the effort.
When Assessing a Site for Self Storage:
Conduct a thorough site analysis to assess the physical characteristics of the land, such as topography, soil conditions, and drainage. If the site has too much slope or the soil isn’t compact enough, you’ll want to know that as quickly as possible before you move forward and spend money on design.
Consider the location and accessibility of the land, including proximity to major roads, transportation hubs, amenities, and target markets.
Assess the availability of utilities and infrastructure, such as water, electricity, sewerage, and road access, and any costs to upgrade them. Ideally, these utilities are all to the site or nearby. If you need to bring utilities to the site from farther away, it can get very expensive very fast.
Evaluate the surrounding land uses and development trends to ensure compatibility and minimize potential conflicts. Would be great if you’re in the path of development because the property will be worth significantly more in the future.
Consult with professionals, such as architects, engineers, contractors, and land-use experts, to assess the feasibility and viability of the project on the specific piece of land. It always helps to have an estimate of your costs as early as possible to help when you’re running numbers on the investment.
Consider environmental factors, such as natural hazards, environmental regulations, and potential impact on ecosystems. If the site has any environmental issues (or even if there’s a dry cleaners nearby), you’ll have to pay for extensive environmental tests, which can get costly.
Conduct due diligence, including property surveys, title searches, and legal analysis, to ensure clear ownership and resolve any potential issues or constraints. You’d be amazed at how often property lines aren’t where sellers think they are and you don’t want that to negatively impact your building plans.
Consider long-term factors, such as the potential for future growth and appreciation, and the potential for future development or expansion opportunities. Self storage makes for a great covered land play - an opportunity to cash flow a property while it appreciates to a point where you could eventually build apartments or a higher and better use.
3. Develop Your Building Layout and Design
Design the layout of your self-storage facility, including the number and size of storage units, onsite office space (if needed), and common areas.
Work with an experience self storage designer to optimize the use of available space to maximize the number of rentable units. Groups like Trachte Building Systems and Janus International Group will not only provide the materials for the buildings and install them, but they can also help you with the design and layouts.
Pay attention to security measures, too, such as surveillance systems, access control, and proper lighting. Your customers will want to know that their personal items are in a secured facility and will be there when they want them back.
What is the Ideal Self Storage Layout?
Unit mix (the different size of units you’ll have in the project) can vary depending on where you’re located geographically and how close you are to urban centers or rural areas. Here are some general guidelines for laying out your self storage facility:
Small units (5'x5', 5'x10', or 5'x15') are suitable for individuals or businesses needing to store personal items, documents, or small furniture. Medium units (10'x10' or 10'x15') are intended to accommodate larger furniture items, appliances, or the contents of a small apartment. Large units (10'x20' or 10'x30') are ideal for storing the contents of a larger home, including furniture, appliances, and vehicles.
Climate-controlled units provide temperature and humidity control, making them suitable for storing sensitive items like electronics, artwork, or documents and will often fetch a pricing premium.
Vehicle storage offers dedicated spaces for storing vehicles, such as cars, boats, or RVs. This use is ideal if you have additional land or can’t quite fit all of the self storage buildings into your initial budget, leaving you room for expansion later on.
4. Create a Business Plan
Develop a comprehensive business plan that outlines your goals, target market, marketing strategies, financial projections, and operational plan.
Include information on the facility's size, layout, security features, and services you plan to offer.
As I mentioned earlier, be sure to highlight anything that will set you apart from competition in the area. Just because there are other self storage businesses in the vicinity doesn’t mean that your project won’t be successful - you’ve simply got to find your differentiators.
This business plan should be thorough and well-designed. Keep in mind that this document will be selling you and your project even when you’re not present, so it’s worth putting time into it.
While the following isn’t exactly a self storage business plan, it is a similar style as to what we would do when putting this plan together - it has all the data and information any prospective investors or lenders would need to understand what we’re aiming to do.
Download Our Sample Offering Memorandum Here:
5. Secure Capital for Your Project
Explore different financing options, such as traditional bank loans, Small Business Administration (SBA) loans, or private investors.
Your business plan, which includes detailed financial projections, startup costs, ongoing expenses, and revenue forecasts should suffice here for raising capital and finalizing a loan for the project.
Lenders will typically want to see 3 years of tax returns, a personal financial statement, and your credit score / bank statements to ensure that you have the necessary funds to pull this deal together.
If you don’t have previous experience successfully operating a self storage facility, it would make sense for you to find a mentor or partner to help guide you through the process. Your project has a much higher chance for success if they have a strong track record and skills they can bring to the table and it will make raising capital much easier.
Raising Capital for Self Storage Investments
Define your real estate investment project and its key details.
Build a network of potential investors and cultivate relationships.
Craft a persuasive pitch deck highlighting the project's value proposition.
Approach potential investors and present your investment opportunity.
Conduct due diligence and provide comprehensive documentation.
Negotiate investment terms and secure commitments from investors.
Maintain ongoing communication and transparency with investors.
Execute the investment project and deliver returns to investors.
Follow legal regulations and seek professional advice throughout the process.
If you’re not familiar with raising private money, we’ve created a guide for you to learn more about raising capital from private investors in this article:
6. Operating a Self-Storage Facility
Operating a self-storage facility on a day-to-day basis can be fairly simple, which is why it’s so attractive for new commercial real estate investors. However, it's crucial that you manage these operations efficiently to ensure that the property stays leased up and cash flowing.
Here are the day-to-day operations of a self-storage facility:
Tenant Management
Tenant Inquiries: Respond promptly to tenant inquiries, whether they are looking to rent a unit or have questions about their existing rental agreements.
Lease Agreements: Handle lease agreements, including new rentals, renewals, and terminations. Ensure all necessary paperwork is completed accurately.
Rent Collection: Collect rent payments from tenants on time. Set up a reliable system for tracking payments and sending reminders for overdue accounts.
Facility Maintenance
Security: Regularly inspect security measures, such as surveillance cameras, access control systems, and gates, to ensure they are functioning correctly.
Property Maintenance: Perform routine inspections of the property to identify and address maintenance issues promptly. This includes maintaining clean and well-lit common areas.
Unit Cleanliness: Ensure that vacant units are clean and ready for new tenants. Implement a cleaning schedule for common areas.
Security Measures
Monitoring: Continuously monitor security systems and alarms to detect and respond to any potential breaches or issues.
Access Control: Manage access control systems to grant tenants access to their units while maintaining security protocols.
Emergency Response: Have a plan in place for responding to emergencies, such as fires, break-ins, or natural disasters, to ensure the safety of tenants and their belongings.
Customer Service
Tenant Assistance: Provide excellent customer service by assisting tenants with their needs, inquiries, and concerns promptly and professionally.
Complaint Resolution: Address tenant complaints or issues with urgency and a focus on finding satisfactory resolutions.
Communication: Maintain open and clear communication with tenants through various channels, such as phone, email, and in-person interactions.
Marketing and Promotion
Online Presence: Monitor and update your facility's online presence, including your website and social media profiles, to attract new tenants.
Online Marketing: Engage in online marketing efforts to reach potential customers through advertising, promotions, and online visibility.
Feedback Collection: Collect feedback from tenants and use it to improve your services and address any concerns.
Administrative Tasks
Record Keeping: Maintain accurate records of tenant information, leases, payments, and expenses. This includes using management software to streamline administrative tasks.
Financial Management: Keep track of revenue, expenses, and profit margins. Prepare financial reports to assess the financial health of your self-storage facility.
Insurance: Ensure that you have appropriate insurance coverage to protect your business and tenants' belongings.
Legal Compliance
Regulatory Compliance: Stay up-to-date with local, state, and federal regulations related to self-storage facilities. Ensure your facility complies with all legal requirements.
Contractual Agreements: Enforce lease agreements and other contractual obligations with tenants.
Market Research and Competitor Analysis
Stay Informed: Continuously monitor the local market and your competitors to adapt to changing conditions and identify opportunities for improvement.
Pricing Strategy: Adjust your pricing strategy as needed to remain competitive while maintaining profitability.
While it would be a good idea for you to understand how these operations are handled on a day to day basis, that doesn’t mean that acquiring one of these facilities will give you another full-time job.
There are plenty of self storage management companies out there that you could hire to run the facilities for you and will provide you with monthly updates so that you can be confident that your property is being managed professionally while you earn passive income.
Self Storage Investments FAQ
How Much Does It Cost to Build a Self Storage Facility?
The cost to build a self-storage facility can vary widely depending on factors like location, size, and design. On average, you can expect to invest anywhere from $25 to $75 per square foot, with climate-controlled units being more expensive to construct.
How Much Does It Cost to Start a Self Storage Business?
The startup costs for a self-storage business include land acquisition, construction, permits, marketing, and initial operating expenses (unless, of course, you simply buy an existing facility). These costs typically range from $1 million to $5 million or more, depending on the facility's size and location.
How Much Does Self Storage Cost?
The cost of renting a self-storage unit for tenants varies based on factors like unit size, location, and amenities. On average, monthly rental rates can range from $50 to $200 or more.
How to Invest in Self Storage?
To invest in self-storage, you can purchase existing facilities, develop new ones, or invest in real estate investment trusts (REITs) specializing in self-storage properties. Conduct thorough market research, secure financing, and consider partnering with experienced professionals in the industry.
How Does Self Storage Work?
Self-storage works by providing individuals and businesses with rented storage units to store their belongings. Tenants have access to their units and can store items securely, with various security measures in place. They typically pay monthly rent for the space they use.
Why Self Storage?
Self storage is a popular investment due to its potential for stable income, low tenant turnover, and the industry's resistance to economic downturns. It offers investors a relatively passive and recession-resistant income stream.
How Much Do Self Storage Owners Make?
Self-storage owners' income can vary significantly depending on factors such as location, facility size, occupancy rates, and operating expenses. Successful owners can generate substantial profits, with some facilities achieving annual returns on investment of 8% to 12% or more.
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