Is your Self Storage Conversion in the best location?
You found the perfect property, but did you? You know that it is in the right area and you know that the demographics work, but does the configuration of the building work?
When you are looking at a building, you need to assume that you are only going to be able to rent 75% of the space. This is a good rule of thumb. Obviously that number will not be perfect, but it will be close enough to run your numbers. For example, if you find a property with 100,000 square feet, you will only be able to rent 75,000 square feet because you have walls and hallways that must be accounted for. This is true no matter the size of the building.
You are also going to want a small office and a small display area where you can sell additional products that your clients may need for moving to generate additional profit. Keep in mind that with everything going online due to Covid19, you may want to keep these very small and offer your supplies online and delivered directly to their unit.
When you are evaluating a potential self storage conversion project, look at the height of the ceilings in the building. If your ceilings are over 19 feet, then you can add a second floor and that doubles your square footage. You may want to consider 21 ft or 22 ft as your minimum height so that you are not at the very minimum height requirements.
How large should your self storage conversion be?
The more square footage you have, the more money you will make because you will have more rentable space. If your community will support more units; you should seriously consider putting them in. Think about your costs. Whether you put in 50 units or 100 units, your costs are mostly fixed. The cost of running a larger building is minimal compared to the additional rent that you will generate. Your costs will stay low, but your profit will double. This will increase your net income substantially. Take advantage of every square foot that you can. The more rentable space you have, the more money you will make.
When you are evaluating your conversion, look at the walls. Are you going to be able to put your storage unit walls where you want them? The supporting walls in the current building cannot be moved. Will your floor plan work with the support system that is already in place? Remember that you are going to put the smaller units on upper floors or the farthest from the front door. The larger units are going to be on the main floor in the prime locations. You can charge more for the prime units. As you are evaluating the layout, keep the different size units in mind.
Another thing to consider is a sprinkler system. What does your city planning and zoning commission require? If the building is large enough, then the city will probably require you to have a sprinkler system in case of a fire. Sprinklers are going to cost a minimum of $2 minimum a foot depending on where you are in the country. The most important thing to remember if you must put in sprinklers is, does the building have access to water? It is very very expensive to bring water to a building. If the building does not have access to water find out how far away the water is and then determine if the cost is worth it. The land may be free, but if you must spend a lot of money bringing water to the building, you may find that the land is too expensive to purchase.
As you evaluate the building, where are you going to put your entrances? Your doors need to be big enough to bring in large pieces of furniture, from mattresses and exercise equipment to large bookshelves and appliances. Your tenants want the freedom to be able to store whatever they want. Are you going to have to enlarge the entrances to the current building? Are the entrances where you want them, or do you need to add additional entrances?
Finally, if this self storage conversion is going to be a multi-story building, where are you going to put the elevators? For whatever reason, renters do not like buildings that are more than 3 stories high. The higher you get in a building, the less you can rent your space for. If there are not easy places to put elevators inside the building, remember that you can put them on the outside of the building and punch holes in the exterior walls. Also, make sure that you put in more than one elevator if you have a large amount of square footage. Elevators are very expensive so you want to make sure that you can justify the cost. You need to have enough elevators that your tenants are not always in line waiting for the next one without spending so much money that they are never being used. Your feasibility study will help you find a balance. You also need to decide if you are going to put the elevators side by side or on either side of the building. The advantage of having them side by side is that your tenant knows when the next elevator is available. The disadvantage is that if you have other entrances, they will have to go to where your elevators are to access upper floors.
Self storage conversions are a great way to get into the self-storage business. Start looking for low cost square footage to see if you can find the perfect building. In our next blog, we will discuss some tips that you need to keep in mind when you are looking at self-storage properties. As always, happy investing.