January 13, 2023
Adam Hoeksema
The storage unit industry has seen gradual growth for some time now, driven by the consumer lifestyle changes that come from rising house prices and the availability of travel and remote working possibilities.
If you’re looking to buy a pre-established storage unit company, we’ve got a handy guide through the general process coming up. We have also developed two self storage financial models that might be helpful for you as you consider your options.
- Existing Self Storage Model - Use this model if you are buying one or multiple self storage facilities.
- Self Storage Development Financial Model - Use this model if you want to model the new development and construction of a self storage facility.
Now, let’s look at why you might be considering a self storage business, and what to look out for.
Is Buying a Storage Unit a Good Idea? An Industry Overview
Self-storage is typically defined as a building or large space that can be divided and rented out to clients for the express purpose of keeping their property safe. It involves individual compartments of varying sizes and is secured from theft and climate threats.
Advancements in smart technologies have allowed for a wider application of automation in monitoring, maintaining, and adjusting these conditions, bringing the cost of running a storage unit down. Market drivers include the rising cost of housing, an increase in travel and remote work, and an increase in seasonal behaviors, leading to more people using temporary storage, rather than larger living areas, to store their property.
This makes urban populations the primary market for storage units, and the items being locked away will range from commercial inventory to parking vehicles, house decorations, and holiday or travel items.
By 2022, the global self-storage market had hit 54 billion dollars, and it’s expected to continue at a CAGR of 7.53% heading up to 2027, topping out at nearly 84 billion dollars by that time.
Self-storage grew to more than 1.6 billion square feet of space in 2022, and a third of Americans reported planning to move reported a use of the service. Gen-X is the most likely to use self-storage, and the most common area used is a 10’x10’ space.
Furniture and clothing are the most commonly stored items, and Idaho and Utah are the most populated with self-storage users. On average, a 10’x10’ unit costs $128 a month ($144 for a climate-controlled equivalent), lower than the previous year by 0.8%.
Buying a storage unit, therefore, can be a profitable venture if it’s in the right place. Location may be the single most important factor to consider, so let’s look into those stats in more detail.
Before You Buy Storage Units: Location Matters
Finding a balance between your desired revenue and the affordability of your service is a major thing to consider when looking to buy storage units. In terms of cost, here are the most expensive cities:
- San Rafael, CA - $301
- Santa Barbara, CA - $286
- Honolulu, HI - $277
At the other end of the spectrum, the cheapest cities are:
- Bardstown, KY - $50
- Claremore, OK - $51
- West Bend, WI - $58
These prices will change from year to year, as demand fluctuates. Shelby, NC is one of the fastest-growing cities in terms of the price of the units being offered, up more than 35% from the last year. Covington Georgia is also showing a rapid rise in prices, only a little behind Shelby at 33%.
It’s important to identify the current trends in an area before looking to buy, as well as the convenience of the location. But the specific city is only one part of the location assessment. Self-storage needs a certain amount of local traffic to be profitable. We’ll talk about this more shortly, but in general, you’ll need to find a spot with enough people within 3 miles of it to guarantee the success of the business.
You’ll also need to consider the weather. Areas with extreme weather fluctuations may require more high-tech management solutions to keep the temperature stable throughout the year, and this will bring the cost up.
While the location is critically important to finding the right storage unit to buy, there are plenty of other considerations to be aware of, too.
Further Considerations for Those Who Want to Buy Storage Unit Businesses
The industry is typically divided into small and large businesses. Family-owned, smaller units make up about 70% of all self-storage in the US, but the majority of the value lies in larger companies. Both of these will require a different business model to work with, so one of the first things you’ll need to think about is which direction you’re planning to take here.
Play to your strengths and your resources. If you want to take on a highly-managed climate-controlled, and multi-story unit, and you can get the appropriate financial backing, you’ll find businesses in well-developed locations that have been chosen based on extensive market research and planning.
If you want to start or stay small, you might not be able to lean on such detailed research, but you’ll get a far cheaper option from a mom-and-pop unit. This choice will also affect your opportunities to expand.
Next, you need to understand the different types of storage. These can be split into multiple forms, three of which are most common:
Drive-up – This is the most popular form of storage. Usually, it’s a simple row of available lots with garage-style doors that can be accessed by car. These are the cheapest to buy, manage, and work with and usually offer the bare minimum of storage requirements.
Most people won’t need more than this, so it’s a good way to break into the market; you’ll mostly need to spend on security and a small management crew.
Climate-Controlled – In those places where the weather isn’t your friend, climate protection may need to be in place. The necessity for this depends on the types of property being stored. While most basic furniture or tools can handle a bit of heat or coldness, sensitive documents or particularly expensive items will probably need to be kept in a better-managed climate.
Climate control is more expensive, and your market will pay a premium for it.
Vehicles – This is another common form of storage, particularly in cities with extreme weather. Bikers who can only ride during the summer months, or people with low access to parking spaces for their holiday vehicles may make use of vehicle storage.
Security is even more important with such expensive items, so this will raise the management cost, but there are often cheaper locations available for this type. Offering vehicle storage near an airport, racetrack, or dock, can reach these niche markets.
Ultimately, the unit needs to be in a place that has the necessary traffic from your market.
Before Buying a Storage Unit – Assess the Necessary Traffic
To expand on the earlier points, it’s important to research the traffic your target company will experience. This is going to be a lot simpler with buying an established company than starting a new one, as your due diligence should give you an insight into the traffic that the company has received in its lifetime.
However, trends aren’t always obvious, and part of buying a new company is identifying whether the current success of the business is sustainable.
For a general approach, consider how close you are to the target market. You will want to be situated within 3 miles of prospective customers, and your market research will have to confirm this. A population of 50,000 within that area is a good start, but if nobody there will be changing their living habits any time soon, you’ll be out of luck.
Consider the vehicle traffic, too. The location needs to be accessible, and have more than 25,000 cars passing it on an average day. This is down to the fact that the majority of people who find storage units do so by driving past them. By using numbers this high you can get a very rudimentary assessment of whether you are picking a healthy location that’s going to be easy to spot.
Investigate the median income of the area. Customers need to have enough money to pay extra on top of their rent or mortgages, rather than simply selling their items. A median income of $50,000 might be a good guide, but you’ll need to run the numbers yourself based on your target location.
Before you even approach a seller, this is one of the earliest investigations you can perform to get a feel for whether the company is viable in the long term. It’s a good idea at this time to bring in some experienced guidance that can help you identify the benchmarks for your specific location, and who can also advise you on the next consideration.
Before acquiring a business through seller notes or SBA loans, a QoE Report can offer the financial insights you need to negotiate confidently.
The Size and Price of Your Target Business
Again, you’ll need access to specific trends in your location, but as a general rule, you’ll want to be able to offer up to 6’x6’ for every person in your market. Remember, 10’x10’ is the most popular size, but 5’x5’ is a close second in preference, so this will bring the average space you’ll need down.
It’s just as important not to have too much space as it is to have enough, as is the cost of that space. If you’re looking into a 100+ unit space, rental rates might be as low as $1 per foot of storage. If current rates are significantly higher or lower than this, it might indicate that there’s going to be a problem in the long term.
It bears repeating that these figures won’t be accurate benchmarks for every model in every location. Once you’ve established the targets you should be aiming for and done the basic overview, you will be in a better position to start the buying process.
How To Buy a Storage Unit Business
Many of the early steps in buying a storage unit are simply more thorough versions of the above. Here is the general process, broken into four steps.
Step 1. Do your research
If you haven’t done this already, now is the time to bring in expert help. Talk to people in the industry and start developing a more detailed understanding of the trends and preferences in the market. Storage brokers, appraisers, lenders, and even the storage owners themselves can help you with this.
Get a cash flow analysis underway to examine the net operating income, and begin balancing the expenses of the facility against the revenue it generates. If you are using an SBA loan to fund the acquisition you will need to ensure that the business can meet the SBA cash flow requirements.
Remember, just because a business is doing well, doesn’t necessarily mean it will continue to do so after you take it on, even when managed well. Expected changes in the market may be a good reason for the seller to want to give it up, so be sure to explore the long-term viability of the type of storage you want to be involved in.
Understanding this will also help you identify other units to buy, and can help you broaden your search if you haven’t got your eye on anything specific at this point. Be sure to identify the long-term growth of the market and look into acquisition trends to learn from the mistakes of those who have gone before you.
Speaking of the competition, watch out for the big players. As a smaller company, competing with the economy of scale available to the larger companies might be tricky so start thinking about your specific niche and how you’ll stay competitive. Analyze the competition in depth and explore your options to upgrade your facility over time.
Step 2. Secure Acquisition Funding
You’re likely going to need financial help for this endeavor. This step relies on how well you persuade lenders that you’re a safe bet, and this needs to be done in several ways. Firstly, your business plan needs to be in shape, so once you’ve got a prospective unit in mind, combine the available figures and your extensive market research into a complete document to show to lenders. If you are acquiring an existing business or rolling up several businesses an SBA loan can be a great option to help finance the acquisition. In addition to an SBA loan you might be able to utilize seller financing to fund part of the acquisition alongside an SBA loan.
Your business plan will detail everything you plan to do and how you plan to do it. Publish your competitor analysis, your unique selling points, your financial documentation, and your projections for the next five years.
For an easy-to-use projections template, check out our specially-designed Self-Storage Projection Template that comes with included support. It’s entirely customizable, with or without our help, and can give you professional-looking projections that will appeal to investors or lenders, as well as help you calculate the ROI for your new business, and it is very simple to use yourself.
Once your documentation is all in order, look for the right lender. For a good deal on smaller businesses, consider the SBA loan. If you’re looking for investment instead, a good broker might be able to point you toward the right people. Remember that a loan will need to be paid back regardless of the success or failure of your project, but investors will require you to give up some control of the way you do things.
This is a step that can be considered before you’ve even selected a desirable business, but it needs to be started by this stage at the latest.
Step 3. Due Diligence
Once you’re all set to make an offer, it’s time to make sure all of the information that’s been reported matches reality. If you don’t have experience here, hiring someone who does might save you a disaster down the line.
You’ll need to analyze financial statements, tax returns, and cash flow, among many other things, in order to make sure the valuation of the business is fair and accurately based. Draw upon the research you put into your business plan to help with market and competitor analyses in this stage, and if you have done a good job of persuading the seller that you’re serious about buying, they should be ready to sign a letter of intent and have you sign an NDA that can permit you access to their records.
You’ll need to do detailed physical inspections here, too. Again, the weather is important, so keep in mind that what you’re looking at might be different in six months, and be sure that the assessment takes this into account. Bring in a trusted expert to assess the physical condition of the property and go over it thoroughly. Keep a list of anything that needs deeper inspection or will require modifying or fixing, as all of this will affect the value of the business.
If you’re happy with what you find, it’s time to make an offer.
Step 4. The Offer
You should be coming into this stage well-armed with all the information you need to make a competitive and fair offer. If you’re using a broker, work closely with them to put in something compelling, as the competition will likely be high.
Make sure you have all the appropriate documents including the bill of sale, the adjusted purchase price, and the lease agreement all ready to go. Depending on how you’ve agreed to the transition, this process will take a varying amount of time, but from here you’ll be well on your way to owning your new storage business.
Conclusion
Entrepreneurs or investors who buy storage units can save a lot of time on the necessary market assessments that come with setting one up from scratch, but it’s far from plain sailing. You’ll still need to make sure that current trends are sustainable, that the target company is as viable as the seller says it is, and that you have the necessary documentation to prove to lenders you’re a good bet.
This guide should put you on the right track to all of this, and bring you one step closer to your goal to buy a storage unit business.
