Getting Started in the Self Storage Business
People don’t just wake up one morning and say, “Hey, let’s go start a self storage business today.” Getting started in self storage, or any business for that matter, is a major life decision. It takes market research, a business plan, and money. You have to find a marketing company that has the experience to tackle the challenges of a self storage business and achieve your desired outcome, and you need experts in various elements of self storage operations. It takes a village.
Why Self Storage?
There are approximately 60,000 self storage facilities in the U.S. (IBISworld, 2020). People need space for more reasons than you can imagine. They stash their extra furniture, appliances, art, documents, wine and holiday decorations. Some tenants convert their spaces into high-end “man caves” and “she sheds.” They need parking for their vehicles, boats, and RVs. Some businesses require warehouse storage.
Self storage has shown that people are reluctant to dispose of their belongings. When the economy is healthy and they’re spending money on things for their home as well as inventory and supplies for their businesses, they need a safe, secure self storage facility for the overflow. When the economy tanks and they are forced to downsize, they again need storage for the overflow while they rebuild their lives.
Getting Started in Self Storage
Self storage is a lucrative business with estimated profit margins of around 11%, well above those of other small businesses. A typical restaurant, for example, has profit margins of 3 – 5%. Starting a self storage facility sounds appealing; but, as will all businesses, it is a huge undertaking. Before you do anything, think about the following questions.
- What is the cost to start a self storage business?
- What kind of research and planning is involved in starting a self-storage business?
- What are the operations costs of starting a self storage business?
- How will I market my self storage facility?
Cost of Starting a Self Storage Business
According to Mako Steel, If you’re planning to build a ground-up facility, single-story self-storage facilities typically cost between $25 and $40 per square foot. This does not include land purchase. 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 piece of property. Most facilities range between 60,000 and 80,000 square feet.
You can save money by purchasing an existing storage facility. Prices vary widely depending on local market, facility condition, and profitability projections.
Common startup costs for a self-storage business include:
- Land cost if building
- Development costs
- Upgrades and renovations if purchasing an existing property
Research and Planning
In most cases, you’re going to need money from both investors and financial institutions. A business plan is typically required by lending institutions. It’s a document that should include details of your market research, an explanation of your goods and services, a focused management structure, and a detailed financial plan for the first several years in business.
The research that you do should be part of your feasibility study. A feasibility study will tell you whether starting a self storage facility is truly workable.
Your feasibility study should include:
- Current population and projected population growth
- Daily vehicle traffic
- Competitive landscape (are there currently operating facilities, what is their occupancy rate, and are there any planned facilities within your market)
- An overview of the self storage industry
- Long-range projections for rental rates, income, expenses and property value
- Zoning details
Operating costs are the day-to-day costs of running your business. You need to understand what they are and how to control these types of expenses.
- Office equipment
- Working capital to cover the first few months of operating expenses (salaries, utilities, maintenance, credit card fees, technology updates, insurance, etc.)
Find the Right Marketing Partner
According to Investopedia, 14% of small businesses fail because of poor marketing. That’s because small businesses and new businesses don’t always have the time, the resources, or the experience needed to create a dynamic marketing strategy. They make the mistake of going for a tactic that worked for a different type of business or they simply depend on their instincts. Taking the cheap or easy way out when you’re getting started in your self storage business will typically result in a series of programs that don’t work.
Don’t underestimate the importance of marketing. Your marketing strategy is key to your industry presence. Marketing is a major factor in boosting your bottom line by engaging your customers, keeping your business relevant, building your brand, and maintaining your reputation. If possible, find a company with both operations and marketing experience. FineView Marketing and their team of experts supports a pragmatic approach with cohesive marketing and operational strategies that ensure successful campaigns.
Another option is a self storage franchise. Franchise storage has not existed in the industry until recently. In a nutshell, a franchise company provides training to the franchisee to carry out the business in a contract set forth by the franchise. A franchisee owns the business but typically pays an initial fee and a proportion of profits in exchange for use of the franchisor’s business model and intellectual property.
According to radiusplus.com, the benefits of franchising are:
- Brand name and brand power.
- Not having to start a business from scratch.
- A proven system for operation and training.
- Market and competition research
- Strength in numbers. You’ll gain from economies of scale in buying materials, supplies and services, such as advertising, as well as in negotiating for locations.
There are countless reasons to start a self storage business. It can be your key to building wealth; but, as with any business you have to be committed to hard work, patience, and tenacity. You have to understand your strengths and find the right people to support your weak areas. Whether you acquire an existing facility or build from the ground up, know that self storage requires little capital outlay, modest upkeep, and is historically recession resistant.