The Primary Costs in Starting a Self Storage Business

Finding a good business to invest in can seem like an impossible task. Over 10,000 businesses are bought and sold in the U.S. every year. Restaurants, gyms, retail stores, and service-based companies are all in the mix.

If you’re wondering how you’d manage these businesses, you aren’t alone. Many have the legitimate concern that they lack the expertise. Maybe you should consider investing in a self-storage business. Self-storage costs are more fixed costs than variable, have lower payroll, and can return a profit even at 60 percent capacity.

And, you can run them from your home office. Sound appealing? It should, and it isn’t that hard to get started. Let’s take a closer look.

Should You Build New or Buy Existing?

This is a great question, and the answer to it is usually about money. Building a new facility is a great idea if you have a long-view of keeping your investment. A new storage facility will have lower maintenance costs on things like your A/C, roof, etc.

The cost to build self-storage is significantly higher though. A new self-storage business can run anywhere from $1 million up to $3 million depending on the size and location. If you need financing you’ll have to come up with at least 15 percent or $150,000 to $300,000 upfront to secure the loan.

Buying an existing self-storage business gets you up and running right away. You also have the opportunity to look at historical data to determine profitability. You also start with a customer base so income (hopefully profitable) is being generated, so you aren’t running at a loss for the first few months.

If you need financing you will still need upfront money, but some sellers are willing to offer seller-financing. This will remove the hassle of finding and processing a loan. For the seller, the tax advantages and profits are both extremely beneficial.

In this seller-financing scenario, you can negotiate your upfront costs down. However, the seller will want something in return and that’s usually a higher interest rate. If you’re limited in what you can pull together this might be the best option.

You might also find an investor to contribute. Many people are willing to put money up for a good business plan with the potential to make money. If you do the work you could find yourself opening a self-storage business with little to no money down.

In either case, your decision will come down to money.

Self-Storage Costs – Planning for the Day-To-Day Expenses

Size plays an important role, as does location when determining self-storage costs. Urban areas are more expensive to run but command higher rates. Larger storage facilities have higher earning potential, but cost more to run.

Building a budget is critical to the success of your self-storage business. Payroll is easy to project. Utilities are usually the same month to month, with some seasonal variations. Your loan payments should be factored in.

Maintenance expenses can vary though. Lawn care might remain the same, but what about snow removal? Your gate and access control system should have regular maintenance, but what happens when a truck smashes into it?

Building repairs and maintenance should also be considered. A/C units need regular bi-annual service, but how much will a new air-handler cost?

You don’t know when it will snow next, nor can you predict when your A/C unit will need major repairs. You can budget for emergencies though, and assessing the age of systems can help with these predictions.

Are You Ready To Invest?

After assessing the self-storage costs and you believe you have the money, know-how, and desire, then it’s time to find a self-storage business to invest in. Contact us for a complete guide to finding, evaluating, and purchasing a self-storage business.

The Self-Storage Private Money Summit Live From Dallas, Tx

This is your opportunity to see cutting-edge syndication strategies that are creating a killing for a “select group” of commercial real estate investors and self-storage professionals.

August 5th to 7th 2021