In the world of real estate investment, self-storage has emerged as a profitable venture, with some of the largest facilities in the U.S. bringing in up to $4 million per year. If you’re considering to learn how much to start a storage unit business,, you’re stepping into a market with vast potential. With the right location, ideal storage units, and a solid business strategy, self-storage can offer lucrative returns. In this article, we’ll guide you on how to set up a self-storage facility with 100 units, exploring costs, considerations, and strategies that can help you build a successful business.
How Much Does It Cost to Build a Self Storage Facility:
When it comes to building a self-storage facility, there are several factors that will affect your startup costs. The largest expenses you will face are land acquisition and construction. To give you a rough idea, let’s assume you’re starting with 100 single-story units, each with an average size of 10’ x 10’. This setup will require about 10,000 square feet for the units, but with driveways, common areas, and parking, you’ll need around 14,000 square feet of land.
Land Costs:
The cost of land varies greatly depending on the location. In some areas, it can cost between $8 and $25 per square foot, which means you could pay anywhere from $112,000 to $350,000 for land. If purchasing land seems too expensive, leasing land might be a more cost-effective option in the short term.
Site Development Costs:
Site development costs also play a major role in the overall cost of your self-storage business. According to ProEst, preparing your site for construction can cost between $4.25 and $8 per square foot, translating to an estimated cost of between $59,500 and $112,000 for 14,000 square feet of land. This includes clearing the land, grading, and any necessary infrastructure.
Construction Costs:
The cost of constructing a self-storage facility varies based on whether you’re opting for single-story or multi-story buildings:
Single-Story Facilities:
Construction for a single-story facility costs approximately $50 to $65 per square foot. This will cover the entire building structure excluding land and site improvements.
Multi-Story Facilities:
If you’re looking to maximize your land’s potential, a multi-story facility might be the better option. Construction for multi-story buildings can cost $85 to $110 per square foot for a two-story structure. Though pricier, it allows you to use your space more efficiently, especially if you have limited land available.
Types of Storage Units:
Choosing the right type of storage units for your self-storage facility is crucial to ensuring profitability. There are several options, each with their own advantages and disadvantages.
1. Purpose-Built Storage Units:
Purpose-built storage facilities are specifically designed for this purpose. You can either build or rent these types of units from an operator or developer. While they come with higher upfront costs, these facilities are typically more secure and provide a professional atmosphere that attracts customers.
2. Containers or Garages:
Shipping container storage is a less expensive option, where you can purchase and arrange containers in a secure location. A 20-foot container will cost around $1,500 to $3,500, while individual garages or lockups typically range from $7,500 to $15,000 each.
However, container storage has limitations in terms of temperature control and dampness, which could be problematic for certain items like clothing or sensitive documents.
3. Converted Premises:
You can consider purchasing an existing residential or commercial building, such as a warehouse, and converting it into a self-storage facility. This option tends to be more affordable than building a new facility from scratch but requires a bit more work in terms of renovations and ensuring the structure is suitable for storage use.
4. Self-Built Facilities:
Building your own self-storage units from scratch is often the most expensive option, but it gives you full control over the layout and design of the space. This option allows for greater returns, as you own the property outright and can increase its value over time.
Must Read: How to Start an Electrical Consulting Business
Securing Funding for Your Self Storage Units:
Building a self-storage facility involves substantial costs, and securing the right funding is essential. Here are some methods you can explore:
Bootstrapping:
Bootstrapping means using your own funds, like personal savings or profits from another business, to finance the project. While this method avoids taking on debt, it might not be feasible if you’re looking to build a large facility.
Loans:
Securing a loan from a financial institution is a common way to finance a self-storage business. You will need to develop a solid business plan that demonstrates how your facility will generate profits and cover loan repayments.
Venture Capital:
For those looking to scale quickly, venture capital can be a viable option. Private equity investors provide funding in exchange for equity in the company, allowing you to build a larger storage business. This method requires a well-thought-out plan and a clear path to profitability.
Finding the Right Location:
Location is key when setting up a self-storage business. You need a place that is easily accessible to customers but also not overly saturated with competing storage facilities. Here’s a quick guide to selecting a prime location for your self-storage facility:
Mapping It Out:
Start by mapping out all the existing storage facilities in your target area. Identify towns that are underserved, ideally within a three-mile radius of potential customers.
Analyzing Data:
Use census data to assess the population size of potential locations. Areas with fewer than 15,000 residents may not provide enough customers for a profitable business.
Choosing a Busy Area:
It’s also important to choose a location with plenty of passing traffic, making it easy for customers to find your facility. Ideally, your site should be located near major roads or close to town centers.
Must Read: How to Start a Box Truck Business: A Complete Guide
Choosing Your Systems:
Once you’ve decided on the basics of your facility, you need to consider systems for managing and securing the site.
Building Features:
Your facility’s infrastructure plays an important role in ensuring customer satisfaction and security. Consider adding features like:
- Lighting: Installing LED lights in storage units usually costs between $2 and $24 per square foot.
- Insulation: Insulating the units will help protect belongings from temperature extremes. Basic insulation can cost $1.50 per square foot, with higher-grade options running up to $3.50 per square foot.
- Climate Control: If you plan to offer climate-controlled units, expect to spend $1,000 per unit for HVAC systems.
Access Systems:
Access control systems allow customers to securely enter their units. Here are a few options:
- Physical Keys/Locks: The simplest and cheapest system but less secure.
- Keypad Entry: Keypad systems typically cost $500 to $1,500 per door.
- Smartphone Access: Modern systems that allow customers to access their units via mobile apps can cost upwards of $500 per door.
- Intercom Systems: Intercom systems can range from $750 to $10,000, depending on quality.
Security Systems:
Security is a top priority in self-storage. Here’s what you’ll need:
- Video Surveillance: Each camera costs between $100 to $300.
- Motion Sensors: A typical storage facility requires between 4 to 8 motion sensors, costing between $30 to $100 each.
- Alarm Systems: Alarm installation can cost between $500 to $1,500.
- Fencing: Installing perimeter fencing can range from $10 to $30 per linear foot.
Online Administration:
Managing customer payments, bookings, and other administrative tasks online can save you a lot of time. Platforms like Stora offer solutions for managing invoicing, recurring payments, and bookings for about $159 to $249 per month.
Calculating Your Returns:
Before diving into construction, you need to estimate your returns on investment (ROI). Here’s how you can do it:
1: Gross Income:
Let’s assume you have 100 units and a 90% occupancy rate, meaning 90 units are rented out at $150 per month.
Your monthly gross income would be: 90 units x $150/unit = $13,500
2: Operating Expenses:
Now, deduct your operating expenses to get your net income. Some common expenses include:
- Mortgage payments: Assuming you’ve financed $800,000 over 20 years at 5% interest, your monthly payment would be approximately $5,280.
- Property taxes: At a rate of 1.5%, the taxes on a $1,000,000 property would be $15,000 annually, or $1,250 per month.
- Maintenance and Repairs: This varies depending on the size and condition of your facility.
3: ROI Calculation:
After deducting expenses from your gross income, you can calculate your ROI based on occupancy rates, pricing, and fixed costs. Make sure to adjust your pricing and operating expenses as your business scales.
Must Read: How to Start a Catering Business
Conclusion:
Starting a self-storage business can be a highly profitable venture if approached strategically. By choosing the right location, types of units, and securing funding, you’ll set yourself up for success. The initial costs can be substantial, but with the right planning