Self Storage Business Profits

SEVEN MOST FREQUENTLY ASKED QUESTIONS:

1. I do not have any self storage background. Can I build a successful self storage business?

Yes you can. In fact the vast majority of the 50,000 self storage business in the USA are owned byindividuals who only own one self storage facility. They started out just like you and I with no selfstorage background. The great thing about self storage is that it is not complicated compared tomost businesses. With research and some help along the way you can build a business that cost lessthan most real estate businesses and other businesses and has a very low risk rate. And best of all itproduces one the most important things that many business never produce: a residual positive cashflow that can last a life time or even for generations. And its fun! The best way to get started in selfstorage is with a proven system - Check Out Storage Authority opportunity at the end of this blog

2. How much money (equity) do I have to have to build a self storage? ( How much will the bank loanme?)

Typically you will need 15- 35% of the development costs and the bank will provide a loan for thebalance. There can be exceptions to both the low end and high end depending on the market andeconomy in your area, you business experience credit rating, individual banks and other factors.

3. How much does it cost to build a self storage?There are three main areas of cost that should beconsidered.The first is the pre construction costs (or pre loan costs). These include engineering costsfor site plans and regulatory approvals; bank fees for the loan application ( loan application fee orpoints, appraisal fees etc.); and land option fees. While these fees are often considered part of yourequity in the project you typically have to pay these fees out of pocket because a bank will not giveyou a loan without an Town approved project or bank loan fees paid up front. This is money at riskbecause there is no guarantee that the town will approve you project.

So it is very important you do your due diligence regarding the "quality" (wetlands - easements -zoning - other restrictions) of the land and with the Town before you spend large sums for finalengineered site plans. Often paying a local civil engineer to review the property and zoningregulations and provide you with a conceptual plan to review with the Town is money well spent.Typically this first group of fees can be in the range of $25,000 to $50,000 if no major problems areincured.

The second area of costs are the land and construction cost. These fees can vary greatly dependingon the price of the land, individual land improvements and size and type of self storage facility. Landcan vary from $50,000 to several hundred thousand. Individual land improvements vary greatlybetween sites.

I own 3 self storages and each had distinct special land improvement cost. One site was relativelylevel with sand and gravel which had low site improvement cost. A second self storage was on on asloped parcel which required an extra 3-4 feet of fill for the entire site. One property required$20,000 worth of soil testing for pollution and much more for soil remediation required by the stateand federal laws.

I hate to give you a single number for construction but I know that is what you need for some

preliminary investigation. So prior to reviewing and individual parcel and proposed development Iwould use a number of $40 per square foot. This is for your basic metal self storage buildings anddoes not include the cost of the land, special land improvements or other unusual cost that may beencountered.This cost can be refined after you have a chosen a property and your local civilengineer has done a conceptual site plan. And once a Final detailed site plan is completed you canhave a contractor provided you a construction estimate for a more realistic cost. It is typical to add15% to contractor estimates for unforeseen extras that will occur.

The third area of construction are the start up costs. If you did not include the office (and site)equipment supplies don't forget to include them here. You are going to open your new self storagebusiness with your typical operational costs ( loan - employee - utilities - taxes ect) and limited rentalincome. Every month you will have to put money into your business until there are enough rentals topay for your bills. This can take several months to two or three years depending on a lot of factors.

If you have done your due diligence and determined there is a need for the new storage facility, havea good location with suitable drive by traffic and are prepared to market the facility well you cansignificantly reduce the time to break even and make a profit.

Again I know you are looking for a numbers. I can tell you for the three facilities I own I have threedifferent rent up times to break even - less than 1 year, 1.5 years, (and hopeful less much less thanone year for the facility I just opened) I had a full time employee at each facility. Many experts in thefield recomend you budget for a 2 year period to break even.

Your two biggest operational cost after your loan payments are going to be your employees andproperty taxes. Early on you should meet with your local tax assessor or check what other selfstorage facilities in your town are paying for taxes so you are not surprised. An off the wall atmonthly expenses for an unknown phase 1 self storage (25,000 +-sf) could be around $15,000 + or -5k. So assuming an average rental rate of $100 per unit means you would have to rent 150 units tobreak even.

4. How do I get started?

See above:

Eight things you can to do this week to get you started on the fast tract.

5. How many square feet should I build? ( How much land do I need?)

There are some business theories that should be observed when deciding how much storage to build.One is an having an exit stagey. Typically the highest self storage sales go to facilities that arepurchased by reits or other large self storage opperators. Typically they want facilities of 40,000 sfand larger. You don't want to have a facility that is so small that only proves self storage is a good fitfor the area and attracts a larger facility to make the majority of the profits after you did the hardwork. The exception to this is if you are considering your self storage business a side business thatyou built on land your already own and run out of your existing business office.

Self storage rent up is so much faster (and rents for more per sf) when you have an office withregular office hours. To pay for a manager and make a significant profit and pay for all your effortsand risk you can use a preliminary estimate of 40,000 sf (for all phases) until you have done all thedue diligence for your specific project. You do not have to buildout the entire project in one phaseand in fact phasing is highly recommended. It will save you the added expenses of having a largesupply of unrented units. A 50,000 Sf project could be build in two or maybe 3 phases depending onthe storage needs of a specific area.

Of course the key is calculating the square footage needed for your area and subtracting the existingsquare footage and already proposed storage (but not constructed). For most areas where there arenumerous self storage facilities to choose from the draw area is a 3 to 5 mile radius and the demandis typically 4 to 7 sf per person. These factors do vary significantly from place to place.

You can call a local self storage appraiser (make sure they have a background in self storageappraisal) and ask what numbers they use. Your bank will typically require an appraisal of yourproject and your bank may give you the names of their appraisers to contact for this localinformation.

The amount of land you need is highly dependent on the local zoning regulations and and specificland features. Both should be checked out early on with attention. Often you may need theassistance of a local civil engineer. A single zoning regulation or band of wetlands can make aproperty unfeasible for self storage. If you have no zoning constraints, no utility constraints andgood land (not odd shape, no wetlands or water bodies, no easements, no steep slopes over 3%, youcan use an initial estimate of 10,000 + or - sf of single story ground access self storage per acre ofland. Please beware there is no such perfect piece of land - at least I have not found it yet.

6. What are some of the site plan desing flaws you have seen?

No office.

No sales area in office or sales area too small.

No easy access to customer bathroom.

Customer has to go through the security gate to get to the office.

No 4 foot man gate to access the storage area without opening the main gate.

Access key pad not aligned up with gate.

Located in industrial park or out of the way locations.

Space between buildings less than 24 feet.

Larger units (especially car storage units) not located to the outside of the project where largeraccess drives can be provided.

Not enough landscaping provided.

No windows or small windows in office.

N0 or not enough site lighting. A light at the site entrance is a nice touch.

Storage units not visible from the road.

No security measures.

To many dead ends.

Loss of units due to poor layout.

No small units and or not enough variety in unit sizes.

No locker ( 4? x 4?) units provided.

To meet town approval building some architectural features actually make metal building morenoticeable and unattractive.

Phasing not provided on the approved plans requiring applicant to return to the commission forapproval.

Site signage not on the plans not requiring the applicant to return to the commission for approval.

driveway width and or radius at the Town road to small. Minimum radius of 25 foot and a preferredentrance radius of 45 foot.

Access for RV's not large enough.

7. What are some of the most important things I need to know when we open the doors.

It takes time for people to realize you are open for business and marketing done now will pay offmore than any other time.

Now is the time to start a consistent marketing routine.

It is normal for the first and often the only question for prospects to ask what is the price. This doesnot mean anything - it is simply the only question they know to ask. Price is not the major reasonmost people rent.

You need to develop you facility uniques selling features and benefits today so you can let yourclients know.

Hopefully you have a web site before you open - if not make it a priority.

You need to "show the unit" to rent it.

You need to be the expert and help the prospect come to their own conclusions - you can not justsimple tell them.

You need to ask prospect for the rental or the reservation

You need to learn people objections and solutions to these objections

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