If there was ever a time to invest in the self-storage industry it’s now. Self-storage units are the most recession-resistant asset class, still profit at only 60% occupancy, and are easily managed from the safety of your home office. So what are the self-storage building costs? What do you factor in when calculating the development cost of your self-storage space? How does the cost to build affect self-storage operations?
Everything from the building material to the location affects self-storage building costs. Keep reading for a breakdown of the most common self-storage expenses so you will know what to expect when making embarking on your next self-storage projects. Follow this advice, and you will see your self-storage business flourish.
Whether you want to build your self-storage units from scratch or buy outright, one of the most important factors in determining the cost is the unit’s location. Units in urban areas near busy, residential streets will cost more but eventually bring a better ROI. For a breakdown of self-storage costs by region, check out this operating expense report.
The size and features of the facility also create wide variability in prices. The average monthly cost of a 5 x 5 unit is $45.18 whereas a 10 x 20 might run you upwards of $122.83. Keep in mind that any features such as climate control or video monitoring can increase costs by 15 to 30 percent, and as such will contribute to increasing the revenue per square foot. Therefore, you must take these factors into consideration when going through the site selection process for your new self-storage business.
Finally, you need to calculate property taxes in your area since this can constitute over 25% of your total costs and are usually at least 1% of the facility’s value. To calculate this, and identify profitable storage facility investments near you, you can always use our Valuator Analysis Software. An easy-to-use software package that will help you identify the best area for you to invest in a storage building.
Construction, Negotiation, and Financing Self-Storage Costs
If you’re buying a developed site you can likely contact the owner and negotiate. Prices range from one to ten million, so research units in the area and consult with an advisor to figure out the property’s cap rate.
Always look for deals on self-storage units. You can do this by networking, browsing the internet, or even getting in touch with a commercial property broker who specializes in storage facilities. In other words, keep your eyes peeled and your ears to the ground because you never know when and where you will find storage units to develop. Also, if you’re lucky, the previous owner might be open to seller financing so you can take the messy business of searching for loans out of the equation.
Constructing or converting buildings can minimize costs compared to buying, but you need to be careful about additional expenses such as hiring an engineer and designing plans. Generally, self-storage construction costs per square foot run from $25 to $75, so you will need to factor these into your construction budget. Additionally, the cost to build storage units will vary greatly depending on the area you choose because of land costs. For example, building storage units in New York or Los Angeles will cost more than developing your storage unit business in a more rural area of the country.
However, when choosing to build your own self-storage development, you also need to consider land cost, as this will have an impact on the size of your development and have an impact on your site plan. These costs will also impact rental rates so, the bigger the development cost, the higher the rent will be; that is why, when choosing to build your own storage unit facility, you need to consider the demographic of the area your building will be serving.
Let’s Talk Financing Your Self Storage Facilities
Owning a self-storage facility can be a nearly 3 million dollar investment according to the Self-Storage Association. You’ll probably need to front 15-35% of the initial costs while a bank or credit union provides a loan for the balance.
Remember though, part of financing your self-storage units should also include the return you are likely to receive per square foot. This is a crucial part of the process because it will determine whether your investment in self-storage is viable or not. The best advice we can give you is to encourage you to do your calculations and then consider how you will finance your investment in your self-storage facilities.
Also not be neglected during this part of the process are your storage units operating costs, including rental prices, occupancy rates of your storage units. Not only should these costs feature prominently in your business plan, but they should also be taken into account when calculating the cost to build storage units in the area you are looking to make your investment in.
Marketing and Maintenance
You should have your marketing and maintenance plan in place long before you purchase your self-storage facility. Operating costs run between $2-$4 per square foot with utilities, site upkeep, and marketing constituting the majority of the expenses associated with investing in self-storage facilities.
Don’t forget operating costs like credit card fees, technology updates, and insurance. If you have an airtight business plan these variable costs can be greatly reduced, but you should always be updating your facility. Your storage facility will only be attractive to potential tenants if your facility can offer them the best value per square foot, so it might be worth it to equip your self-storage facility with some of the latest mod-cons. These could include a moving truck rental service, selling boxes, or padlocks. However, you will, of course, need to consider these operating expenses into the rent you are charging for a storage unit.
It goes without saying then that marketing and maintenance should constitute the most important operating costs of your self-storage business. Not only will a good marketing strategy help you promote a competitive edge over neighboring storage facilities, but well-maintained units will also contribute to people coming back to your business when they are in need of a storage unit.
The Bottom Line
Regardless of what kind of self-storage facility or storage building you invest in, you need a solid business plan for an in-depth understanding of your self-storage cost. A great place to start investing in the self-storage industry is with our comprehensive home study system. Get started here to formulate your perfect self-storage business model!