Start a self storage business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your self storage business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a self storage business?
MakoSteel says to allocate 25% to 30% of the total development project budget to buy the land. If land costs $1.25 per square foot and there is the ability to build out the coverage to 40% of the job site, then the land cost for the building would be about $3.13 for each rentable square foot.
A single story facility costs $25 to $45 per square foot to build. A multi-story building is $42 to $70 per square foot for construction. For a businessperson wanting to start up a new self-storage facility, they would have to have the financial clout (or investor support) to be able to finance the land purchase and the construction costs. Typical projects require financing of $2 to $3 million with 10 to 20% down payment.
Inside Self Storage gives an example of a development budget:
Statement of Development Cost Annual
What are the ongoing expenses for a self storage business?
The monthly expenses include loan debt service, staff expenses, maintenance, marketing expenses, utilities, security expenses, and insurance.
Inside Self Storage gives an example of the financials for a business able to rent 50,000 square feet for $9 per square foot per year. This is about half the current national average because the example is based on the year 2000. Even so, a modest operation such as this one is still nicely profitable.
Who is the target market?
The best customers are the ones that have a longer-term need for storage, such as a military member who is on active duty outside of the United States, and who are able to pay for the monthly rental by using some method of automatic payment, such as a monthly credit card payment or an electronic fund transfer (EFT) from a bank account.
The most popular storage size is a 10’ by 10’ by 10’ space with the best customers renting one for up to two years or more.
How does a self storage business make money?
The income streams include monthly rental collections, auction proceeds from past due accounts, fees, and sales of related products such as moving supplies and locks.
These businesses make extra money from administrative fees, lost key fees, lock removal services, late fees, and other fees, in addition to the normal rental fee structure. Some charge a premium rate for the rental of storage spaces in a climate-controlled building. Others offer insurance, for an additional monthly premium, to insure the contents of the items placed in a storage space.
How much can you charge customers?
Easy Storage reports the average monthly rate per square foot (PSF) of non-climate controlled storage units in America is $1.26 PSF and for climate-controlled space the average monthly rate is $1.60 PSF. The overall average is $1.42 PSF. The most popular size is a 10’ by 10’ unit. This means the average rental income for each of these units would be $126.00 to $160.00 per month, depending on whether the building was climate-controlled.
During 2015, there was a national average of 90%+ occupancy for all storage units. Some that are located in more popular areas have waiting lists and therefore may charge rates that are higher than these national averages.
An average moving truck rental customer, pays around $200 to $500 for the rental truck and equipment needed to make the move, if the move is a local one. They may pay up to three or four times this amount if the move is long distance, depending on the distance driven.
How much profit can a self storage business make?
The Parham Group says that an average storage facility will be 60,000 to 80,000 of rentable square feet and break-even once occupancy reaches about 40 to 60%. A successful facility will operate with 83% to 93% occupancy and produce net income of about 26% of rental income after paying for expenses and loan debt service.
At the average rent of $1.42 PSF per month ($17.04 per year), this example would produce $1,022,400 to $1,363,200 in annual rental income and $265,824 to $354,432 in before tax cash flow per year.
How can you make your business more profitable?
Adding moving truck rental services, moving equipment, and supplies to the business will increase income by about 5% according to the Parham Group.
Many self-storage facilities extend their business operations to include managing a fleet of rental trucks, vans, and moving trailers, such as those offered by national franchises like U-Haul or Budget. These businesses can operate side-by-side or as one combined enterprise. Besides offering moving vehicles, the moving equipment offered for rent includes furniture dollies, furniture pads, and hand trucks. The rental office may also sell moving materials such as packing tape, packing supplies, and moving boxes.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your self storage business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, and it's easy enough to form by yourself, or check out the top business formation services.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: You can get $200 when you open a Chase business checking account with qualifying activities. Learn more.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a self-storage business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Services Contract (e.g. MSA)
Self-storage businesses should require clients to sign a services agreement before leasing a space to a new customer. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and length of the rental. Here is an example of one such services agreement.
Labor safety requirements
It is important to comply with all Occupational Safety and Health Administration requirements.
Here is a resource with relevant regulations for a self-storage business.
Certificate of Occupancy
A self-storage business is generally run out of a warehouse. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a self-storage business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your self-storage business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a self storage business
The location of a self-storage facility is a critical factor. It is best if it is located near a highly populated area that has many renters. Large billboards are effective advertising on the nearby freeways. Bus stop ads are also effective. Having the facility painted with signage to be a prominent advertisement can be very helpful. Easy access to major freeways is very desirable.
National companies that offer franchise opportunities have cooperative media advertising campaigns that coordinate efforts on the Internet with websites using standardized branding and style. They make use of radio promotion, physical ads, and television ads to create more brand awareness and advertise the locations in the local area.
How to keep customers coming back
In order to compete with larger national companies, smaller self-storage companies may consider offering more competitive rates and cater to a previously underserved area. Hand delivery of discount flyers to apartment buildings and neighborhoods that contain potential renters helps attract customers. Active digital marketing is important using the best search engine optimization techniques available.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Self Storage Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
People who succeed in this business enjoy working with people and are excellent when it comes to tenant relations. It helps to have simple maintenance skills to fix some of the things that may need repairs. You should be able to use a ladder to change light bulbs and be able to keep the place painted nicely.
What happens during a typical day at a self storage business?
Many of the storage spaces are owned and operated by a team. Marketing of available spaces is ongoing. Interested new tenants are shown the facilities. Applications need to be taken and processed with background and credit checks. Security deposits, key deposits, and the collection of rental payments, all need to be handled properly. Monthly accounting records need to be up-to-date and accurate.
The facility needs to be kept clean and constantly supervised to prevent vandalism and theft. Rent for any storage space that is past due needs to be collected, and if there is a serious problem with the rental payments, the proper legal processes need to be taken to manage the problem. This may include turning the account over to collections, filing court papers, giving eviction notices, and/or selling the items left abandoned in storage spaces after the correct amount of time has passed according to the local laws and the rental contract agreement.
Statistics Brain says that the contents of about 155,000 storage spaces are auctioned each year, for the average price of $425, because of past due rental payments.
What are some skills and experiences that will help you build a successful self storage business?
As this type of business bears many similarities to the real estate business, previous experience in the real estate field may be a helpful skill when starting this type of business. Renting and maintaining storage spaces is similar to renting apartments.
What is the growth potential for a self storage business?
This industry sector has everything from locally run single storage facilities, to huge major national operations with thousands of locations. There are over 54,000 storage locations in America with over $30 billion in annual revenues. The SpareFoot Storage Beat reported on the largest public storage companies, their market valuation, and revenues for 2015. They are:
- Public Storage: Market Valuation $2.38 billion
- Extra Space Storage: Market Valuation $782.27 million
- CubeSmart: Market Valuation $444.5 million
- Sovran Self Storage (Uncle Bob’s): Market Valuation $366.6 million
- U-Haul: Market Valuation $211.1 million (self-storage revenue only)
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a self storage business?
If you plan to open a new facility, be prepared to finance a negative cash flow for about 18 month to two years before the facility has an occupancy rate that is high enough to create long-term sustainable profitability. The key in the early years is to focus efforts on getting the facility rented and work hard to reach higher occupancy rates.
Once a self-storage business has stabilized with plenty of renters, it has a tendency to create a long-term profitable revenue stream and become much easier to manage after the first two years.
How and when to build a team
There needs to be enough staff to cover the hours of operations for the administrative office. This depends on the size of the facility. Smaller facilities, usually have just two people running the administrative office. If there is a larger volume of new customer flow, then additional staff may be necessary during certain times to respond to the customer needs. You want to make sure the customers do not have to stand in line for extended periods.
Most storage facilities are highly automated and require very few staff. Statistics Brain notes that during 2015, there were 58,000 storage facilities in the United States, with an average of 566 units each. They employed around 172,000 people in total. This means there was only an average of three people per location across America.
A storage facility may also offer extended hours of operation for tenants who wish to move things in and out of their storage space. Some facilities allow 24-hour access by issuing security codes for the drive-in gates. During the extended hours, the administrative office may be closed so that the only requirement for staff is to cover facility security, which can be done remotely by video surveillance.