Americans own a lot of shit.
No, seriously. The average American home has over 300,000 items inside it. Almost 40% of Americans say they have a self-storage unit.
There’s certainly an argument to make about the accumulation of so much stuff, but that’s for another day.
No doubt having so much stuff inspires the surge in tiny homes or minimalism, but for now, most Americans need extra places to store their belongings.
Owning a self-storage facilities business appeals to many because it’s a simple operation with little overhead. On the other hand, it can be hard to find great staff, competition may be high in your region, and locker occupancy isn’t guaranteed.
Here’s everything you need to know about starting your own self-storage business and why buying an existing operation is a better option for you.
Understanding the Self-Storage Market
The self-storage industry is hugely profitable due to outsized demand. People all across the country need long-term storage options.
There are people who rent storage lockers for short-term needs, but plenty of other people have no other place to keep a vehicle, boxes, or even a treasured collection.
There are other factors driving the need for long-term use of units in self-storage facilities, including:
- Almost 60 million families live in multi-generational households
- The pandemic forced many people to convert portions of their homes to workspaces (not to mention anyone who had to create play spaces/school zones for kids, or repurposed part of their home for a gym)
- People want to declutter but may not be ready to part with their belongings
- Some businesses need extra space for inventory (especially those that let any out-of-home office space go during the pandemic)
- The rise of the digital nomad life, where some people still need a place to keep things they’re not taking on the road
And there are people who need storage for short-term needs, such as:
- Storing a loved one’s belongings during probate
- Looking for a new home after a divorce or before marriage
- For moving or downsizing purposes (close to 41% of people said they have used self-storage to prep for a move)
- To protect vehicles in the winter season
- Organizing for an upcoming home renovation or sale
- Keeping a college student’s belongings
- Geographical considerations and market analysis
Self-storage unit businesses can be successful anywhere but seek out areas with limited competition in the market. Good areas might include places like:
- Areas near college campuses
- Projected population growth in the area
- Spots near resort vacation spots like lakes where people store summer gear
- Rural areas with at least 20,000 and urban areas with at least 100,000 people
- Vehicle traffic (since this is a key way many facilities attract customers)
- Regions with a lot of apartments and small homes
- Suburbs just outside of cities
- Places where the demand for housing outstrips the supply (as people may be living in smaller houses due to this high demand)
While you will find competition in the storage locker rental business, plenty of these businesses are poorly run or offer only basic storage. With a few modern upgrades, like 24/7 access, climate-controlled units, and more security, you can attract more customers.
And if all of this isn’t enough for you, here’s a real-life example of how buying self-storage can bring in massive cash-on-cash return:
Follow these steps for a successful launch:
- Plan your self-storage business
- Finance your self-storage company
- Start construction
- Managing and operating the business
- Attracting tenants
Planning Your Self-Storage Business
You need a business plan for a self-storage company. It not only lays out your case for any potential business funding, but it clarifies the market need and opportunity.
You need to know:
- The area demand for self-storage
- How much land you need (many facilities are 2-5 acres)
- How many other companies provide similar solutions
- Expected financial expenses and income from the business
- Required permits
Pro tip: Cut through the competition by looking at small bay warehouses as a sub-niche in the self-storage world. Learn more here.
This process is very time-consuming, especially if you factor in also buying the land for your facility. You may be talking months of work before you even start building.
And that’s to say nothing of the challenges you might hit when construction starts. Shortcutting all of this is a big reason why you’re better off buying a current storage unit business and making improvements.
Financing Your Self-Storage Business
You have your plan, and you know how much you need to budget for. Now it’s time to get your funding together.
The most common financing options for starting your storage business include:
- Your own cash
- Raising cash from investors
- Bank loans
- SBA loans
You’ll need a lot of cash on hand if you want to take the first option.
Expect to pay $25 to $40 per square foot for a single-story facility. Multi-story businesses can cost anywhere from $42 to $70 per square foot. And that’s before factoring in costs after construction.
Raising money from others is another option.
You’ll take on less risk and get to close faster, but there are 2 big issues in the way. First, most people don’t know how to raise investment capital. Second, you will lose out on some of the profits you’d get as the sole owner.
Next on the list: business loans from banks.
Taking out a loan comes with less flexibility than using your own cash. It’s a long process to get one, and you’ll have to shop around until a bank approves you. You’ll need a rock-solid business plan and understand that you’ll end up taking on a lot of debt for your build.
Banks aren’t the only route to getting a loan for your business. You can also look into government loans from the Small Business Administration.
You get up to 90% of the purchase price of the business with an SBA loan. But, just like a loan from a bank, this is debt. Your ass is on the line if you default. On the plus side, plenty of people can help you through the SBA qualification process.
For all of these methods, you need to estimate the startup cost of a new facility properly. Include land costs, permit fees, construction costs, and materials in your estimate.
You can open up a completely different (and better) financing option if you choose to buy a facility instead of building one.
2 words: seller financing.
You place a down payment, then pay the seller through future profits of the business, allowing you to buy it. This method funds 60% of all small business sales! You need less cash for the initial costs, the seller gets tax benefits, and you can score a good deal.
P.S. Twitter users love to hate on seller financing, but it’s the real deal. And the fact it’s confusing/scary to some people is perhaps why it’s such a flex when people buy small businesses with it and bust those myths!
Finding the Right Location and Starting Construction
The right location is one that’s easily accessible and located near a community of people.
You can spot successful storage unit businesses in all kinds of locations. When you’re building, you’ll need to find and hire contractors who know how to comply with building regulations in your region.
Some of the challenges faced by people building a self-storage business include:
- Delays in construction due to issues with labor/supplies
- Getting the right local permits to allow construction
- Running other things to your business, such as water, electric, and internet access
Some experts with years of experience in starting or buying storage unit businesses recommend the following:
- Median household income of $50,000
- A minimum of 400 units with rental rates of $1/per square foot
- Over 20,000 cars driving by per day
- Unit sizes based on no more than 6 square feet of space for every person in the market
You can get around the headache of location scouting and construction if you choose to buy a storage business instead of building one.
Finding the perfect spot is less of a hassle (as long as the existing business is in a good location).
And you won’t have to worry about the time and effort involved in a new build. You can use the income from existing renters to fund any renovations, expansions, and upgrades.
Operating and Managing Your New Storage Facility
Building your storage facility is just the beginning. Now it’s time to think about what you need to handle day-to-day operations.
You’ll need to put plans in place for:
- Hiring and training staff
- Setting your rates
- Managing your finances and accounting
- Creating facility policies and procedures (like how long after a missed payment you’ll host unit auctions)
- Setting up security processes and tech
- Planning to reach your target customers
And you have to do all of that with a low or non-existent occupancy rate.
Operations is where buying an existing storage unit business stands out against starting from scratch.
Trying to build an operational storage business from the ground up is a huge burden. You can skip over the hurdles and steps by buying an existing business.
You won’t have to worry about renting out your first units, hiring new staff members, or developing policies. All of that is in place with a business that’s already making money.
If you can, keep the current manager in their role for a few months. The previous owner may even stay on in a consultant role for a short period to clarify any day-to-day operations questions.
Attracting Tenants to Your Self-Storage Business
Attract new customers and raise occupancy rates by:
- Looking at your facility through a customer’s eyes and implement eye-catching design
- Ensuring your website targets the local market and that you have an online presence locally
- Offering specials to get people in the door, such as one month free
- Beefing up your presence on social media
- Consider short-term use of Google Ads or Facebook/Instagram ads to grow awareness
Once again, buying a business has the edge over starting a new one.
An existing business already has tenants. You just have to grow it from where it’s already at.
It’s much easier to build on the success of an existing self-storage business. If you make any upgrades, include them in your marketing plan. Consider referral rewards for current tenants, too.
Why It’s Better to Buy and Improve an Existing Self-Storage Business
Buying an existing self-storage business brings some big benefits, like:
- An existing customer base (AKA immediate cash flow!)
- Avoiding extensive construction issues
- Needing to find or raise less capital
- Staff on hand already familiar with the business
- Explanation of the benefits of buying an existing business
Looking for a property in distress positions you to get a great deal. But make sure the numbers work!
There’s a difference between an overwhelmed owner who just wants out so they can retire and someone with a business they ran into the ground because they built it or ran it the wrong way. An overbuilt facility, significant infrastructure problems, and a bad location can’t be easily fixed. Don’t take on someone else’s bad decisions.
As you search, seek options to improve profitability.
Too much staff?
Outdated features?
Lack of security?
Not enough marketing?
You can fix them all.
When you fix them, it’s a win-win: more storage meeting the needs of the local community and more revenue for you.
Plus, it lets you focus on creating alternate revenue streams. You’re free to look for other low-effort opportunities like buying an RV park or buying a laundromat.
Unlock Success with a Storage Unit Business
In the right market, a storage unit business has the potential to pay off in spades for you. You can build one yourself or find an existing storage rental business to improve and come out a winner either way.
We like the fast-track version of buying someone else’s business.
Less risk and faster potential to generate cash? Count us in for that deal.
Scope out storage unit facilities with a need for some renovations/upgrades and better marketing. Work your magic and then step into a hands-off role with your new business in the booming storage industry.
