You may have heard that storage unit owners are making a kill, and you also want a piece of the cake. Well, you heard right, the storage unit business is one of the best start-ups with a high success rate.
You can own one in two ways: buying an existing self-storage unit or developing one from scratch.
If you are buying, the storage unit cost is the purchase price plus some renovation or expansion expenditure.
However, if you take the development route, the cost of starting a storage unit can vary greatly depending on the number of units and the location.
If you are interested in exploring the benefits and drawbacks of starting a Storage Unit Business, I encourage you to read this article: Top 10 Pros And Cons of Owning Storage Units.
How Much Do I Need To Build a Self-Storage Unit Business?
Mako steel, a company specializing in making steel for self-storage facilities, estimates it will cost you between $25 and $70 per square foot to construct a self-storage facility. Building a storage unit can be a good investment as it is a profitable, recession-proof option with lower overhead and less hands-on management.
The construction cost can vary significantly depending on several things, including:
1- Prices Of Steel
Steel prices can increase depending on the demand and supply forces. If you find cheap steel because the supply exceeds the demand, your construction cost will be lower, and vice versa.
2- Availability Of Labor
If the area you are building the unit has a labor shortage, you may pay more than where there is no shortage. It is a free market where forces of demand and supply dictate the set prices.
You know that prime locations will cost more than places hard to reach. For instance, a space near the highway or a busy road will likely cost more than off-road locations.
Prime land owners near major metros know the value of their lands and will not sell them cheaply, only for you to make a fortune out of it. Prime land means more business and high profits.
4- Work On The Land
How much clearing, digging, and draining that the land needs? Of course, if there is so much work to be done to ready the ground, it will add to the total construction cost.
5- Levy Fees
Some states or municipalities charge permit fees before you can start any construction project, while others don’t. This means that if you operate in a state with many bureaucracies and high permit charges, your construction cost will go high.
How Much Should The Land Cost?
The general rule of land cost is that it should range from 25% to 30% of the total development cost. Assuming the gross square foot is $1.25 ate 40% coverage, the land cost should be $3.13 rent per square foot.
However, most often, entrepreneurs maximize land use through multi-story self-storage units. On the other hand, the Parham Group approximates that the land cost is around $3.25 per square foot. But since your storage unit will only occupy 45% of the space, the land cost can be $6.82 for every leasable square foot.
Note: the market rental rates determine the land price
The next thing to evaluate is the construction cost, but you may incur land development costs before you start constructing. This may include clearing, excavating, and draining costs.
Experts from the Pharm Group estimate land development could cost you between $4.25 and $8 for every square foot.
Do You Want Single Units Or Multi-Story Units?
If you plan to build single units, you could pay between $25 and $40 per square foot. On the other hand, a multi-story storage facility will cost between $42 and $70 for every square foot.
Mako Steel estimates that state-of-the-art storage facilities with rentable square feet ranging from 60,000 to 80,000 would cost between $45 and $65 per square foot.
Construction Costs Can Also Be Affected By Unit Amenities:
For example, building climate-controlled units that maintain temperatures between 55 and 80 degrees may cost more. Nevertheless, they will likely attract more customers to cover the investment costs.
The goal is to increase occupancy between 83-93% because a higher occupancy rate means higher profit margins. Some well-built storage units can still be profitable even with 70% occupancy if competition is relatively low.
Note: It will take you between 18 and 24 months before you start realizing net income from a self-storage facility, so be patient and make improvements.
Start-ups should set up a marketing budget to attract customers. You can market your self-storage facility through social media, mailers, billboards, internet ads, or sales reps.
Regardless of the methods you want to use to market your new business, set aside approximately 6-8% of your gross annual income to cover the cost.
Therefore, you need to estimate your annual revenue to help you calculate possible marketing costs. Data from the Self-Storage Association provide the following net average monthly revenue approximations:
- Non-controlled unit- $1.25 per square foot
- Climate-controlled unit- $1.6 per square foot
- 90% occupancy rate.
You may decide to open a franchise of your established storage unit company to avoid marketing costs because you are popular in your community. Nevertheless, you will have to deal with franchise fees and royalties.
Operating a franchise could cost you up to $45,000 in fees, raising your investment costs to more than half a million dollars. Big Box Storage also charges $45,000 for its franchises.
Note: Remember that royalty and franchise fees vary from company to company, so directly contact them to establish what you need to open their business in your area.
The guidebook Self-Storage Expense highlights that a storage unit’s operating costs average $3.78 per square foot.
On the other hand, the Parham Group put the figure as a range from $2.75 to $3.25 per square foot. This figure varies because of variations in labor costs for different markets.
Moreover, operating costs can be increased if the units are climate-controlled.
What do you think is a rough estimate of the total cost of starting a self-storage unit for an entrepreneur buying land?
Consider the example below.
|Cost Per Square Foot||Total Cost in US Dollars|
|Permits and Other Fees||$0.29||$15,000|
|Architecture and Engineering||$0.72||$37,500|
|Owner’s Risk Insurance||$0.04||$2,250|
|Estimated Cost of Building Storage Unit Business||$38.31||$1,988,075|
What Can You Do To Ensure The Profitability Of An Storage Unit Business?
Storage unit business is a great way to invest your money. The market storage unit business is expected to grow from $87.65 billion USD in 2019 to $115.62 billion by 2025 (Source: Forbes). Self-storage is a straightforward business that does not need many employees. The business also does not have inventory overhead or lots of operational equipment, thus providing a low entry barrier to entrepreneurs.
Nevertheless, you should evaluate this business as you would any other.
The following steps can help you to plan your self-storage business and set it up for success.
- Research the business: You probably know about the storage unit business from your friend or neighbors. But before you start on this journey of building yours, take time and learn about it from successful professionals or blogs.
- Choose the right location: Location determines your occupancy rate and profitability.
- Conduct a thorough market analysis: Market analysis will help you know occupancy potential, level of competition, and any other special requirements you should install. Know your competition and the services they offer.
- Know your ROI: With all demographic and competitive information, you can calculate associated costs and compare them with projected revenue to determine if you will make a profit or not.
- Employ the skills of an architect: If the place you plan to construct your self-storage unit has specific requirements like architectural details, it is essential that you include them in your design.
- Have a workable construction budget: Operating without estimates is like running blind; you don’t want that for any construction endeavor. Therefore, hire a professional to help you create a site plan and write down a budget.
- Source for financing: Unless you have cash somewhere to start building, you will need a loan to help you build your storage unit. Conduct your due diligence to know where you can get favorable loans.
- Look for permits: Most states and municipalities require that contractors or construction project owners have a permit to build. So, ensure you have acquired one to avoid rubbing authorities the wrong way.
- Build: It is time to jump into action and start executing your design into a real structure. I recommend contracting a professional constructor with experience in the self-storage business.
- Market: Marketing lets you tell your community and neighborhood about your business. So how do you go about it?
- You can create a website, post ads online, use flyers, or raise a billboard to get the word out.
- Start making money: Treat every customer with respect and work closely with professionals to succeed. Money is in the pockets of your neighbors, and it is up to you to transfer it into yours.
You might also enjoy reading: Is Owning a Storage Unit Business Profitable? (Everything you must know!)
When calculating the cost of starting a storage unit business, consider the following:
- Cost of land
- Cost of land development (excavation, clearing, draining)
- Operational cost and
- Marketing cost
A self-storage unit is a safe real estate investment with a 92% success rate and an estimated compound annual growth rate (CAGR) of 134.79% between 2020 to 2025 (Source: Forbes)
However, you need an occupancy rate of between 83 and 93% to realize this level of success. So, choose a suitable location and properly market your business to attract more customers.
It is worth remembering that this business requires patience because it will take between 18 and 24 months to realize a stable business.