Do you want to start a storage unit business and want to know the cost? If YES, here is a cost breakdown for opening a storage unit and the profit margin/ROI. A self storage unit business is basically a business where people come around to rent storage units where they can personally store their valuables.
This business stemmed out of a need in the society where people started seeing themselves acquiring more properties but still living in smaller apartments. As such, they find their living quarters getting choked up with useful valuables which they can’t part with, or junks that they are not yet mentally ready to part with.
Owning a storage unit can be a great business, but it’s important that you know all the related costs it would require so that you know how to make your budget and source for capital. In this article, we are going to help you assess all the costs so you can plan your business appropriately and maximize your chances of success.
How Much Does It Cost to Start a Storage Unit Business?
Table of Content
1. Cost of Land
One of the greatest variables and single most deciding factors for determining what you will get to spend in building your self storage unit is the actual cost of the land you need for development. The price for land have been generally pegged at $3.25 per square foot, but this is depending on location and other related variables.
If you have a site coverage of approximately 45.91 percent, the net cost of the land per net-leasable square foot is $6.82. A development’s net-leasable square footage is totally dependent upon the allowable coverage of the site.
Maximizing net-leasable coverage on the site is dependent on factors such as zoning setbacks, easements, utilities, building-code compliance requirements, and the topography and actual physical layout of the site. Normal site coverages range from 35 percent to 50 percent.
2. Construction costs
Apart from the cost of the landed property, another significant cost you have to worry about when constructing your self storage unit is the cost of construction itself, site work and utilities. Normal site-development costs range from $4.25 to $8, but this again depends totally on the actual topography and physical layout of the site.
Clearing/grubbing, excavation, storm drainage, utilities, etc., are all site specific and their costs will vary from one site to another. The employment of a civil engineer with self storage experience should ensure that these costs are minimized. Beware of land cost below market values. Most often, a low land price means there is a problem that will require great site-development expenditures.
In addition, the cost of self storage construction depends on the type of product one develops. However, the building costs vary only slightly compared to the variable costs of the land and site development. The average cost for construction, including site work/utilities, ranges from $23 to $28 per gross building square foot, or approximately 67 percent of the overall development budget.
Most high-end self storage facilities have somewhere between 60,000 and 80,000 rentable square feet, and costs $45 to $65 on construction per square foot. If you want a multi-story building, costs will be around $42 to $70 per square foot.
The cost of construction will also depend on the unit’s amenities, such as if the unit is climate controlled. Climate controlled units keep temperatures from dropping below 55 degrees or rising to more than 80 degrees, and while they cost more to build and operate, they can attract more customers. Many people need climate controlled units to preserve items mold or mildew can destroy.
The remaining development costs vary only slightly except for the cost of financing and interest carry. An investor’s financial health and his abilities to negotiate will determine these costs. The typical self storage development cost ranges from $34 to $42 per gross building square foot. Again, this variance is dependent on land, construction and cost of financing.
3. Marketing Costs
If you’re a new business (as you obviously are since you are still thinking of your startup costs), you’ll need to attract customers. You can do this through billboards, mailers, Internet ads, or another method. Whichever way you choose to market your business, you should plan to spend about 6 to 8 percent of your gross annual income on marketing. Your marketing is very essential to the success of your business so there is no room for scrimping on dollars.
4. Operating Costs
According to The Self-Storage Expense Guidebook, operating costs for storage units average $3.78 per square foot. Entrepreneurs have given the range for operating expenses as about $2.75 to $3.25 per square foot, with the numbers varying due to salary costs in different markets. Operating costs will also increase if the units are climate-controlled.
Estimated Development Cost Breakdown At a Glance
- Land – $353,925
- Construction – $1,349,400
- Architecture/Engineering – $37,500
- Permits/Fees – $15,000
- Testing/Surveys – $12,500
- Builder’s Risk Insurance – $2,250
- Advertising – $35,000
- Office Equipment – $10,000
- Legal Expenses – $10,000
- Closing Cost – $37,500
- Interest – $125,000
- Total – $1,988,075
A self storage facility with 40,000 net-leasable square feet, in a market with $9-per-square-foot annual rents, will hope to generate $450,000 in gross annual rents at 100 percent occupancy. Other income is derived from late fees, retail sales, administrative fees, truck-rental commissions, etc., and usually accounts for additional income of 5 percent.
A 10 percent adjustment to the total projected income is common because it represents normal projected vacancy and collection losses. Achieving and maintaining an average occupancy of at least 90 percent should be the goal for every development and should be used to evaluate the project’s investment potential.
Normal operating expenses generally range from $2.75 to $3.25 per gross square foot of the development. This variance in expenses is due to the variable cost in different markets, such as property taxes, manager salaries, and utility costs.
Frequently Asked Questions
How Can You Start A Storage Unit Business?
In order start a storage unit business, you should;
- Conduct your feasibility studies
- Choose a name and register the business
- Draft a detailed Business Plan
- Secure the needed licenses and permits
- Apply for an EIN (Employer Identification Number) / Federal Tax ID Number.
- Open a corporate bank account
- Lease, construct and equip a storage facility
- Hire employees
- Market your services
Do Storage Units Have Outlets?
No, most storage units do not have outlets.
Can You Transform Existing Buildings Into Storage Facilities?
Sure, you can. As a matter of fact, converting an old building into a storage facility can be faster, easier to go through the zoning process, and the building might already meet zoning codes or grandfathered into more lenient standards. Converting a large building or warehouse into a storage facility can save you time and money.
What Is The Growth Potential For A Self Storage Business?
The growth potential for a self-storage business is looking good going forward. As a matter of fact, according to Mordor Intelligence Research, the valuation of the self-storage market reached $87.65 billion USD in 2019. By 2025, that valuation is expected to grow to $115.62 billion. This puts the compound annual growth rate (CAGR) at 134.79 percent over the forecast period of 2020-2025.
Can You Live In A Storage Unit?
No, you can’t even though some people do. Please note that living in a storage unit is prohibited by various local and federal housing laws.
What Are The Costs Involved In Opening A Self Storage Business?
- The cost of leasing a facility
- The cost of reconstructing and installing different units of storage facilities and locks
- The cost of paying utility bills
- The cost of payment of salaries
- The cost of acquiring permits and licenses
How Will You Facilitate The Construction?
You should have a design in mind, supervise the construction work or you contract the construction of your storage facility.
How Much Land Do You Need To Build Storage Units?
It depends on the size and storage units that you want to build. But basically, a typical self-storage site is about four acres or more. This gives the owner a good-sized facility through which to generate revenue.
What Are The Ongoing Expenses For A Self Storage Business?
- Salaries and utility bills
- Logistics and miscellaneous spending (changing of electric bulbs, changing locks et al)
What Happens During A Typical Day At A Self Storage Business?
- Inspect the facility and each storage units
- Take notes of your observation
- Find Storage Unit Auctions in Your Area
- Explore Your Sales Avenues
- Welcome clients
- Allocate a storage unit to them once payment is made
- Sort Through Your Items
- Take stock for the day
What Is The Profit Margin Of A Storage Facility?
A self-storage facility can make profit at 60 percent to 70 percent of full occupancy. Currently, the industry average occupancy stands near 90 percent, according to Statista. Nevertheless, experts say it takes one to two years to reach 90 percent capacity.
Are Storage Unit Businesses Worth It?
Storage unit business is worth your investment. This is because the average self-storage facility sells for just under $40 per square foot according to the Self Storage Almanac.
How Much Money Can You Make Renting Storage Units?
Renting storage facilities can earn you an average of $361,000 to $798,800 gross per year, with the states of Maryland, Arkansas and New York earning the highest number of sales.
How Much Space Is Enough For Your Self Storage Building Project?
It depends on what you have in mind. But basically, it depends on the site, between 40 percent to 50 percent coverage, which is 20,000 to 23,000 square feet per acre. This assumes each parking stall is 350 square feet, resulting in 60 to 70 parking stalls per acre.
What Are Some Of The Most Important Things You Need To Know About A Self Storage Business?
- Climate control
- Degree of accessibility. For instance, do they offer 24-hour access to the storage units? Are they open on Sundays?
- Number of locks
- Video monitoring
- In-person surveillance
- Pricing and contracts offered
- Sizes offered
- Overall safety and security of the facility
How Much Money Can You Make Owning Storage Units?
The amount a storage unit owner can make is dependent on many factors. Generally, storage units owner can earn an average of $361,000 to $798,800 gross per year with the states of Maryland, Arkansas and New York earning the highest number of sales.
Do You Need To Take Out An Acquisition Or Construction Loan For Your Self Storage Business?
To a large extent, this depends on what you want and other factors. But it is important to note that acquisition loans are needed when you’re looking to acquire an existing self-storage facility. If you are buying a self-storage business for the first time, chances are you’ll need to use the SBA or have more of a down payment. These loans can be fixed from 5 to 15 years and be amortized over 25 to 30 years.
Should You Limit The Facility To One Building?
It depends on your capacity to manage the business and the facility.
How Much Does It Cost To Build A Mini Storage?
The average cost for a steel mini storage building ranges between $25 and $40 per square foot. That price includes the complete assembly kit and materials, foundation, delivery, and installation/construction of the building.
What Is The Square Foot Cost To Build Self Storage Units?
The costs for Single Story Self Storage Construction typically ranges between $25-$40 per square foot – not including land or site improvement costs. Multi-Story Self Storage Building Costs have more variables and can range from $42 per square foot to as much as $70 per square foot.
How Do You Find Money To Start Your Business?
- Personal savings and sale of personal stocks and properties
- Investors and business partners
- Sell shares to interested investors
- Apply for loan from your bank
- Source for soft loans from your family members and your friends.
How Does A Self Storage Business Make Money?
- Renting out of storage units
- Renting out of trucks or Vans
Please note that self-storage business owners can also make money by confiscating all the stuff stored in the units of non-paying renters. The goods can be auctioned off for profit.
Do Storage Units Get Robbed?
Storage units can be robbed, but it is rare due to the security measures put in place in storage units.
What Steps Do You Take To Ensure Profitability?
In order to ensure that your storage business is profitable, you must make sure that;
- Your facility is easily accessible
- Your facility boasts of top security
- Your fee is affordable or at most a little below the average fee for the industry
- Your marketing is highly effective so your storage your unit enjoys full occupancy always
- You cut down on your running cost
What Size Storage Unit Do You Need For A 1 Bedroom Apartment?
On the average, you will need a 5’x10′ or 10’x10′ unit for a 1-bedroom apartment or studio.
Is Owning Storage Units Profitable?
Yes, owning storage units is profitable. As a matter of fact, you can make an average of $361,000 to $798,800 gross per year owning storage units business
What Can Fit In A 5×5 Storage Unit?
A 5×5 self storage unit is 5 feet wide and 5 feet long, totaling 25 square feet — comparable to a large closet. 5×5 storage units have 8-foot ceilings, providing roughly a total of 200 cubic feet of packing space.
How Many Storage Units Can You Put On An Acre?
The number of storage units you can put on an acre depends on the site, between 40 percent to 50 percent coverage, which is 20,000 to 23,000 square feet per acre. This assumes each parking stall is 350 square feet, resulting in 60 to 70 parking stalls per acre.
What Are Some Skills And Experiences That Will Help You Build A Successful Self Storage Business?
- Strong organizational, administrative, and planning skills.
- Ability to work under pressure and react effectively to urgent situations.
- Excellent communication skills.
- Ability to work unsupervised with emphasis on eyes on details.
- Accounting and Record keeping skills
- Excellent customer services skills
- Good interpersonal skills
- Good marketing and sales skills
- Good bargaining skills
How Will Tenants Access Your Units?
Your tenants will access your unit with the keys to the locks you assigned to them.
What Are Some Insider Tips For Jump Starting A Self Storage Business?
- Make sure your storage facility is easily accessible
- Make sure your fee is a little bit below the industry’s average at least for the first six months of running the business
- Work with independent sales people
- Cut operational cost to the barest minimum
- Promote your storage facility with safety as your watchword
How Do You Start A Storage Unit Business With No Money?
The truth is that you can hardly start a storage unit business with no money except you already have a facility that you can easily convert into storage units. Even at that, you will need money to fix some stuffs. But it is important to state that you can actually rent out a space in your apartment as a storage facility.
How Much Profit Can A Self Storage Business Make?
A self storage facility with 40,000 net-leasable square feet, in a market with $9-per-square-foot annual rents, will generate $450,000 in gross annual rents at 100 percent occupancy.
Should Space Be Set Aside For Storage Of Boats, RVs And Other Vehicles?
Yes, Self Storage owners set aside open space on their lots for Boat & RV Storage
Are Storage Units A Waste Of Money?
No, storage units are not waste of money
Can A King Size Bed Fit In A 5×5 Storage Unit?
Technically, yes. A King Size Bed is 60 in width and so is a 5×5 unit. You could place the bed into the unit angled corner to corner.
How Much Does A 10 By 10 Storage Unit Cost?
10×10 self storage units are about the size of a large shed or half the size of a one-stall garage. This is ideal for storing items from one family room or a two-bedroom apartment. 10×10 storage units offer convenient storage during a home renovation project or for a student moving apartments.
How Many Other Storage Businesses Are There In The United States?
The number of storage facilities in the US ranges from 45,547 to 60,024 according to Union Realtime and IBISWorld. Texas has the most storage facilities with 4,904. Rhode Island has the least amount of storage facilities at 84. IBISWorld estimates there are 39,249 storage operators in the U.S.9. How Many Other Storage Businesses Are There In The United States?
Do You Need Liability Insurance On A Vacant Lot?
Ideally, you are not legally required to have liability insurance for a vacant land, but anything that protects you and your investment from litigation or medical expenses is a good idea. A liability insurance policy protects owners of vacant land against civil lawsuits that could potentially be brought against them.
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