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 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.
Estimated Cost to Open a Storage Unit Business?
1. Cost of Land
One of the greatest variables 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 has 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 costs 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 cost $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 ability 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 other methods.
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 an 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.