From Boxes to Bucks: The Art of Buying a Storage Unit Business

How would you feel if I told you that owning the right kind of business gives you a 92% chance of success?

There are tons of stats out there about how many businesses fail in their first few years or even 10 years.

And then there’s the shining beacon of self-storage businesses. Their owners experience low failure rates even in the face of a shifting economy.

People need places to store their stuff for many reasons no matter where they are. You can find storage units at one of over 50,000 locations all over the country.

Whether they don’t have space in their current home or office or just need a short-term place to store some items, the storage industry is about as foolproof a business idea as they come (provided it’s an area with enough people living there and not much other competition).

The most common things for people to store outside their homes include: 

• Furniture
• Clothing
• Home appliances
• Sporting items/hobby materials
• Business items

For entrepreneurs, buying a storage unit business is a dead-simple way to put in a little effort and reap the revenue rewards for years to come.

Here are 9 reasons why storage unit businesses are a hot commodity:

1. Very little turnaround time between customers (empty the unit, sweep it, and relist it).
2. Can reduce your taxes with a high depreciation cost (especially if you move or modify interior partitions to reshape unit sizes.).
3. Most units rent on 30-day renewals, giving you flexibility with pricing.
4. It’s easier to “evict” storage unit renters than with other real estate investments like apartments or houses.
5. You don’t need much staff to run the entire operation.
6. Self-storage is always in demand.
7. It doesn’t take a lot of cash to make improvements to existing storage businesses (but those enhancements can definitely bring in more $$$).
8. Automated bill pay, security systems, and keyless entry cut staff costs and time.
9. Let’s be honest: it’s a pain in the ass to come back out and clean up/empty their units, so most people just renew every month.

Don’t believe you can get started for little or no cash? Check out Nick’s story on how he made $39k his first year!

Are Self-Storage Businesses Really Worth It?

The idea of self-storage is not a new one. The ancient Chinese stored things in clay pots in underground pits. Centuries later, British banks used underground vaults to protect client valuables during long periods of travel.

Over time, space ran out in bank vaults as too many people needed space to store special items. That led to the first warehouse established for the sole purpose of storing treasures or trash.

The modern idea of self-storage didn’t pick up traction in the U.S. until the 1960s. Today, the self-storage market is worth over $58 billion, and it’s expected to grow to $72 billion in the next five years.

Pretty cool for providing empty space for other people to store things, right?

The primary revenue model for storage companies is simple: carve out units where people can store and access whatever they put inside.

Most companies charge a monthly or annual rate with automatic renewals, which keeps things simple.

Many existing storage unit companies have revenue but may not book all their units because they are behind the times.

These existing companies have potential but fall short because they:

• Are hard to reach
• Don’t offer flexible payment options (it’s 2023, you need to take credit cards or online payments!)
• Have limited access hours
• Have no online reviews or presence whatsoever
• Don’t offer amenities like climate-controlled areas or video security

Self-storage can be one of the most lucrative businesses when you spot these gaps and close them. If you can modernize an existing storage business, you’re more likely to fill vacant units fast.

Plus, most of the upgrades storage facilities need are inexpensive and easy to do, making this a cash cow for a savvy business owner.

All self-storage buys boil down to 5 basic steps:

1. Finding the right locations
2. Completing due diligence to confirm it’s a solid choice
3. Financing the purchase
4. Closing the deal
5. Growing the business

1. Identify Potential Self-Storage Businesses for Sale

Start with online research to determine how many facilities exist in a given area. You can also find current for-sale properties online. Some owners may have an active business with revenue coming in but may not have a listed company online.

You can find facilities for sale on websites like BizBuySell, LoopNet, and Crexi. You can also check the “commercial properties for sale” section on local newspaper sites.

You can also find awesome off-market deals on BizScout!

Full disclosure: We own and built BizScout. We created it as a tool for people to find and buy a wide range of businesses, including storage facilities.

Here are some good geographic guidelines to keep in mind as you shop:

1. Car traffic is vital for storage facilities, so locations near highways and well-traveled roads are solid.
2. You need enough people in the nearby region to cash in. Look for at least 100,000 living in semi-urban to urban areas within a few miles around the facility. You can still find success in rural regions, but ask current owners about occupancy rates.
3. If there are 3+ other storage facilities in the immediate vicinity, you may find it hard to stand out from the competition.

2. Conduct Due Diligence on Your Potential Investment

Get as many details as you can from the current owner.

Combined with the hard numbers, asking for this information can help you make a smart decision about the potential to grow the business.

Ask honest questions like:

• What is working?
• What isn’t working?
• What have you tried to fix what isn’t working?
• Why do you want out of the business?

Conduct a thorough analysis of the financial health of the business, looking at data for:

• Existing revenue
• Percentage of empty units vs. booked units
• Average length of time someone keeps/pays for a unit (turnover rate)
• Current expenses (utilities, but also things like bookkeeping and marketing costs
• Cost of estimated repairs/upgrades
• Potential to expand with more units on current land

3. Finance Your Purchase

The most common ways to purchase an existing storage business include:

1. Using cash/funds from private lending
2. Taking out a bank or business loan
3. Seller financing

If you’ve got the cash, it’s tempting to make an outright offer for a desirable storage unit business. You may score a better deal, but it’s also risky to tie up all your cash in one business, especially if this is your first acquisition.

A bank loan may come with a lot of paperwork and red tape. Still, explore them as an option if you don’t have cash or are not willing to consider seller financing.

SBA loans come with long payback periods but also some of the same red tape as bank loans.

Seller financing is the gold standard for purchasing an existing business. But it’s one that scares off a lot of people simply because they don’t want to ask about it.

In a seller-financed deal, you make payments to the previous business owner in installments. You can usually get more flexible terms in these deals and even $0 down. (P.S.If you want to learn more about how to use seller financing, you should check out Codie’s Business Buying course.)

4. Closing the Deal

You can value commercial real estate in one of three popular ways:

• The income approach,
• The replacement value approach
• The cost approach.

Value your potential self-storage unit business by the income approach to reduce your risk.

Look at a year’s worth of actual expenses and revenue to identify fluctuations and other trends.

Pay attention to missed opportunities for other revenue, such as truck rentals, fees, retail sales, or moving labor assistance.

To determine potential annual income, find the business value (AKA revenue minus expenses) and divide it by the cap rate. Using this formula:

Here’s an example:

Assume that a property has 40,000 rentable square feet at 65% occupancy at $1/square foot. The monthly revenue here is $26,000 (65% of $30K). The annual revenue is $312,000.

At $100,000 in annual operating expenses with a market cap rate of 9% (the cap rate depends on the deal and the market), that breaks down to:

An even simpler method to back up your offer is to multiply the current net operating income per square foot by ten.

Of course, you can generate more income if you fix issues to grow occupancy rate and/or cut expenses, but this is just your starting point.

FYI: the average occupancy rate for self-storage facilities is 92% right now.

Include any costs of repairs or upgrades in your purchase price, which will likely bring down your per square foot offer.

Follow these expert negotiation tips from Codie when making an offer:

1. Ask for what you want, and assume you might get it.
2. Understand the other party’s motivation and use it to your advantage (a seller anxious to just get out of the business might take a lower price in exchange for faster time to close, for example).
3. Practice what you want to say beforehand.
4. Know the reasons you think it’s a fair offer in case you need to share this during negotiations.
5. Know your walk-away dealbreakers. When is it just not worth the risk or headache?

5. Grow Your Self-Storage Business

Increasing the profits of your new self-storage business doesn’t end with buying the company. Now you need to put in the work to improve it and make it a more desirable location for people seeking storage solutions in the area.

You likely found some areas for renovation during your due diligence investigation, but see if you can also speak to a few current renters about any desired features, too.

Perhaps you know that the company just needs more and better marketing.

Or that current customers jump ship because they want 24/7 access and can’t get it currently.

Use that data to your advantage to make changes.

Hiring an Operator

One of the best ways to generate revenue out of a newly-bought storage facility as soon as possible is to hire an operator immediately.

You can also take on the role of operator yourself, but this is not necessary if you hire someone qualified.

Hire someone who knows the self-storage industry.

They probably already work at the business you want to buy! The best operators are former owners or long-time employees.

An operator who already knows the business will cut down the time it takes to solve problems and will look for ways to improve efficiency across the board. This is one of the fastest ways to improve profitability.

Putting someone you trust in this boots-on-the-ground role gives you an open line of communication to identify and solve issues quickly, too. Train them in your new offerings, upgrades, or changed policies.

Marketing and Advertising

Don’t overlook the obvious: a lot of your customer base may spot your sign from the road, so choose clear, modern signage that catches the eye.

Know your customer base.

While it’s true that plenty of people use self-storage because they live in an apartment or small home, research shows that the largest group of self-storage users reside in homes between 1500 and 3500 square feet.

Most of these families have kids or may have multiple generations in the home, increasing their need for additional space.

Don’t neglect reviews, either. More of a digital footprint on Google with reviews from happy customers increases the chances that someone new signs on with a unit.

Improving Your New Business

A few simple steps go a long way toward improving your facility.

Focus on providing customers a better experience, such as:

• Making it easier for them to reach out to you to rent a unit
• Making it easier for them to pay on an existing unit
• Offering new types of storage options like climate-controlled areas

Look for ways to repurpose or upgrade quickly and without adding a lot of expense.

The most popular size for a storage unit is the 10 x 10. Simply adding a few more or converting less popular but bigger rooms into multiple 10 x 10s could boost revenue.

Open Up Profitability with Your Own Storage Unit Business

Compared with the complexity of other businesses you might buy, the self-storage model is pretty simple.

Once you find a facility near enough people, make the location desirable, safe, and easy to access for people to store their belongings.

There’s very little customer interaction needed to run a self-storage business, which sets you up for hands-off ownership after a brief transition period.

The costs and delays associated with building your own storage unit business might lead you to buy and improve an existing one instead. With the right awareness of the market, the ability to make changes, and an operator in place, you can build consistent cash flow right away with a storage unit business.