You’ve probably heard about how hard it is to assemble and manage a fully profitable operation, until you’ve crossed paths with the self-storage business that promises a good return on investment, now you’re wondering just how much you can make owning a storage facility.
In comparison to other businesses, a self-storage facility doesn’t require much maintenance and typically has low operating costs. Depending on the location you choose, the average net profit margins can range anywhere between 11% and 30%.
How does this profit margin stack up against other industries? Let’s have a look at pre-pandemic numbers.
|Hotels & Hospitality||8%|
|Auto Repair & Maintenance||12%|
Even though the numbers look good in comparison to other industries, there are many variables that can swing the net profit up or down such as maintenance costs, average occupancy, unit price, unit size number of units, amenities.
When it comes to businesses there is no “one size fits all” solution for management, each of these variables will play different roles even in similar businesses due to different circumstances e.g., different managers, different business locations, different weather conditions, different customers, and so forth.
The good news is that a storage facility allows even inexperienced business owners to run it without much hassle, all it takes is a smart approach when it comes to balancing costs x expenses and a simple business plan offering the customers some benefits, often in the form of amenities.
What Kind of Amenities Can You Find in a Storage Unit?
⦁ Security surveillance
⦁ Premium security
⦁ Climate control
⦁ WIFI and other electronics
⦁ Vehicle storage
⦁ Meeting rooms
Is Owning a Storage Facility a Good Investment?
In order to find out if this business is a good investment you need to calculate how much you’re able to initially invest, the expenses to keep it running, and how much return you need to break even.
These steps will determine how much rent you need to charge to meet the desired profit margin.
If the area of your choice is averaging on the low rent prices, there are several steps you can take to be able to raise the rent, such as:
⦁ Increasing storage quality to justify the raise
⦁ Heavily investing in storage amenities
⦁ Shaping units according to customers’ needs
⦁ Reinforce security
⦁ Offering premium services
When you manage to find the right balance between expenses and revenue, a storage facility becomes very profitable due to its low operating costs.
Who Uses Self-Storage Units?
There are several reasons for someone to use storage units and this is why the business is a good choice, you probably won’t run out of customers any time soon.
Here are the top reasons why storage units have clients:
Home renovations – It’s mandatory to put away or at least protect the furniture before performing big home renovations. Self-storage units are the perfect place to temporarily keep the furniture free from dust and debris, away from the fragile environment.
Vehicle Storage – Not everyone has a garage or a big enough space to accommodate a vehicle. When vehicles are allowed, self-storage units are great for daily, seasonal, or undetermined vehicle storage, not only for commodity reasons but also for environmental protection most self-storage businesses offer.
Running out of space – Whether someone takes part in a big sale and buys some clothes or just brings home some cigars and a bottle of wine from the sister’s wedding, these small things will eventually start to pile up and more space will likely be needed to store the lifetime ongoing accumulations.
Spending long periods abroad – Self-storage units are almost tailor-made for tenants who spend long periods away from home or people who move very often.
Moving to a new home – Selling a home and moving to a new location can be a bureaucratic process and take quite some time. Belongings can be stored in a self-storage unit while the process is ongoing and the arrangements are not ready yet.
How do Storage Facility Owners Make Money?
The well-known income streams come from rental collections and unit auctions from past-due accounts.
On top of these, there are less obvious and optional income streams such as administrative fees, lost key fees (if the facility doesn’t have digital locks), late fees, insurance for stored belongings, amenity fees, and several other options.
How Profitable is a Self-Storage Business?
Since running costs are typically lower than other businesses, self-storage owners can expect a lower break-even point and a high-profit margin.
Nick Huber, both a self-storage owner and entrepreneur explains the numbers in this article.
Here are the fully disclosed numbers of his business:
Property price – $482.000 + $10.000 of closing costs.
Monthly revenue – $7.500.
Yearly property taxes – $10.000.
Utilities – $200/month.
Software – $100/month.
Accounting – $200/month.
Outsourced maintenance – $250/month.
Marketing – $250/month.
These numbers translate into $90.000 yearly revenue and $22.000 of yearly expenses, leaving $68.000 a year in operating income.
Keeping the same revenue record, the business will pay for itself in a 7 to 8 years time frame.
What Are The Main Risks Customers Are Exposed to When Using Storage Units?
No service is perfect and a self-storage business is no exception to this rule. Storage units are often used for out-of-ordinary purposes, oftentimes hosting illegal activities.
These scenarios tend to make regular customers feel unsafe and as a consequence, start considering canceling their contract and moving their belongings somewhere safer e.g., competitors, or somewhere else other than self-storage units.
The main risks of storage units are:
Thieves: They’re experts at finding sources of value, since most storage units lack when it comes to security, thieves have an easy time breaking in and stealing customers’ belongings.
Illegal activities: There may be people selling drugs out of a nearby unit which attracts criminal activity, increasing the chances of lurking thieves.
Potentially bad sanitary conditions: Some people actually live in storage units due to a variety of reasons. This could potentially lead to extreme unsanitary conditions with repercussions on nearby units (bad smell, rodents, unwanted insects).
Exposure to Elements: Units without climate control are at increased risk of damaged belongings due to external weather conditions (humidity, mold, and risk of fire).
How to Start a Self-Storage Business?
Although starting a business is not rocket science, there are several aspects to go through before getting to work.
Picking the business location
The goal is to find the perfect location or as close to perfect as it can get, mortgage costs are dependent on location and size.
The best locations tend to be in busy areas, close to commercial surfaces, pedestrian spaces, and apartment complexes. But most importantly, pick a location within your budget and not saturated by competition, this will solve possible problems right off the bat.
Writing a business plan
A solid business plan is crucial to obtaining financing, its revenue-generating capabilities and return on investment should be as clear as water. This is the blueprint for your success and it’s important to treat it accordingly.
Your plan should include everything, construction costs, executive summary, revenue forecasts, marketing strategy, management, the expected number of employees and their functions in the operation, etc.
The better the likelihood of success shown in your business plan the more lenders will be eager to loan the requested amount.
Your credit score will also play an important role, the better it is, the less you’ll pay in borrowing fees.
Depending on the business dimension, lenders may require a Small Business Administration (SBA) guarantee to move forward with the loan.
If the borrower is not able to repay the loan, the lender can recover between 50 to 85% of the outstanding loan balance from the SBA.
Even though a storage facility presents a good business opportunity for entrepreneurs who don’t have enough time it doesn’t mean it’s an effortless business to run.
On the contrary, since competition is fierce in any sector nowadays, it’s important to innovate to stand out from the crowd to be successful.
Businesses are no longer straightforward when everything is exposed online nowadays.
Ultimately, the initial capital and the way you run your business will dictate how much you can make owning a self-storage facility.
Have a self-storage business? Let us know about your struggles and successes.