Self-storage facilities are one of the most profitable sources of passive income.
As opposed to getting into the real estate or landlord business where you'll have to
deal with everything from pesky tenant complaints to disgusting busted toilets, storage units
basically manage themselves.
With this kind of operation, you can enjoy high returns with very low maintenance.
You're also very likely to succeed, as only 8% of storage unit businesses fail, compared
to much higher failure rates with other investments.
Here’s what you need to know.
ROI The average self-storage facility can make
a sixty to seventy percent profit at full occupancy According to industry data, the
average occupancy is around 90%.
That being said, it might take you a bit of time to reach full occupancy.
On average this milestone takes self-storage facility owners about 1 to 2 years to achieve.
Now let's break it down to more tangible numbers so you can get a better idea of what we're
working with.
If you have a self-storage facility with 40,000 square feet of rentable or leasable space,
at an average $9-per-square-foot rental rate, this will generate you around $450,000 in
gross rent – that is, if you have 100% occupancy.
Now, there are several more factors that come into play that will affect your net income,
such as late fees, administrative fees, truck rental commissions, and retail sales – think
padlocks and storage boxes.
This will normally account for an additional 5-10% of income.
If you subtract maintenance costs, loan interest fees, utilities, and other overhead expenses,
you'd be looking at about $120,000 in positive cash flow or a 30% return on investment per
year.
If that sounds enticing, you should know that the average is still about 10% higher than
that.
How Much It Costs Opening a self-storage unit facility business
can be pretty expensive.
We'll touch on financing in just a moment, so stay tuned.
If you're planning on constructing a single-story facility from the ground up, expect to pay
somewhere between $25 and $40 per square foot.
Multi-story buildings will run a bit higher at $42 to $70 a square foot.
That means, if you're looking at building a facility around 60,000 to 80,000 square
feet, it'll cost you around $2.7 million to $5.2 million.
Alternatively, you could always purchase a pre-established self-storage unit facility
at a discount, but since the majority of self-storage businesses are successful, they rarely end
up on the market.
And if they do, you'd be wise to figure out why.
You wouldn't want to be the owner of a failing self-storage business.
Financing Starting a self-storage business is just like
starting any other kind of business.
In order to focus on the important details, we are going to skip over some of the basics
like coming up with a business name, registering as an LLC, and writing up a business plan.
But given the steep price of building or buying a self-storage facility business, securing
financing is going to be one of the most critical steps of the process – that is, unless you
can already afford to build one outright with cash.
Some of the most popular financing options include Small Business Administration loans
and regular bank loans.
Qualification requirements for these kinds of loans vary, but generally speaking, you'll
need a decent credit score of 650 or higher somewhere between 15% to 30% down.
SBA loans usually only require 10% down and can allow you to finance all of the construction
interest with up to two years of loan payments.
If you qualify, this could be the best way to go.
Other Considerations Finding a suitable location will be critical
to your success.
The average market size for a self-storage business is three to five miles, so evaluate
the area in this radius to see if it would support your business profitably.
Also consider things like demographics: namely population and density.
You'll want to target customers with disposable income.
Self-storage facilities do best in middle to upper-middle income bracket areas.
The average renter or leaser is also typically somewhere in their early 20s to mid-50s.
It'll also need to be a high-traffic area with good visibility from the road, which
is one of the best ways to ensure you attract customers.
Of course, you may want to scope out the competition to ensure you are not going to be at a disadvantage
from the start.
Ultimately, if you can afford the down payment and secure the financing, a self-storage facility
is one of the lowest maintenance businesses for huge cash flow.
If you have any more questions about this business, drop us a comment below so we can
cover it in a future video.
For a similarly passive business model, check out this video on starting a laundromat business,
and we’ll see you in the next video.