October 13, 2022
Adam Hoeksema
IBIS World gives us a general insight into the $23 billion a year self-storage and warehouse leasing industry raging in the US. Over 182,000 businesses have opened nationwide to take their share of the pot. Increasing in both 2020 and 2021, despite the pandemic, profit is expected to reach the highest share of revenue since 2002 with a growth of 2.5% every year.
How Much Profit do Storage Unit Owners Make?
The average profit for a storage unit business owner is $184,500 annually. Of course the potential profit for any specific storage unit facility will depend on the size of the facility, the market rate for rent in the area, and the operating efficiency of the business. We estimated the annual profit of $184,500 by taking the average storage unit facility size of 50,000 square feet x the average annual rental rate of $9 per square foot = $450,000 in annual revenue. Then taking a profit margin of 41% gives us a forecasted annual profit of $184,500. We will dive into the sources for these assumptions and the ranges in revenue and profit margins in the article below, and show you how to use our self storage facility financial model to forecast your own potential profit for your unique property.
Common Steps to Starting a Self-Storage Unit Business
Such promising revenue numbers beckon forward when it comes to making the decision to start such a business. Let’s review some of the most common steps needed for a successful and profitable business.
- Budget for the business and determine the potential size
- Determine the target market and perform market research in the area
- Finance the business and purchase or rent space and equipment
- Complete all required paperwork and form a legal entity
- Obtain required permits and insurance to operate as a business in the area
- Set up necessary accounting and banking
- Start an advertising campaign
- Complete any necessary renovations before opening the doors to the public
How Much Does It Cost to Start a Self-Storage Unit Business?
The average cost to start a self storage unit business is $2 million.
Three sources (Storable, LovetoKnow, MakoSteel) give us estimated startup costs of starting a new self-storage unit business.
- Minimum startup cost for a self-storage business = $1.5 million
- Maximum startup cost for a self-storage business = $2.4 million
- Average startup costs for a self-storage business = $2.0 million
The majority of the expenses incurred during the startup process fall into the following categories:
- Land purchase
- Construction
- Permits and licenses
- Outfitting the premises
What is the Average Size of a Storage Unit Facility?
The average size of a storage unit facility in the US is 56,900 square feet according to Easy Storage Solutions. For easy math throughout this article we will use a 50,000 square foot facility as an example.
Cost to Construct a Storage Unit Facility
The average cost to construct a storage unit facility can range from $1.25 million to $3.5 million. We estimate this range based on an average size 50,000 square foot facility and a construction cost of $25 to $70 per square foot based on information provided by Storable. This does not include the cost of the land or other operational startup costs.
Acquiring a Storage Unit Business
Rather than spending $1.25 to $3.5 million to build a new storage unit facility, you might want to consider acquiring an existing facility. Although an existing facility would be older and might require some additional repairs and maintenance, if the facility is already fully operational and leased up with tenants, you will be able generate positive cash flow faster. It can take 2 to 4 years to reach a stabilized occupancy rate for a new 50,000 square foot storage unit facility, so acquiring an existing facility with tenants can really speed things along.
You can find hundreds of self storage facilities for sale on LoopNet.
Acquiring vs. Constructing a Self Storage Facility
One of the great things about our self storage financial model is that it will allow you to easily compare the differences between acquiring an existing facility versus constructing a new storage facility. You can enter assumptions about the purchase price or construction price into the model, details about financing, and the number of units available to rent.
How Much Can a Self-Storage Unit Business Make in Sales?
The potential revenue for any business varies due to a number of factors. The size of the self-storage facility, whether it’s one or two floors, the market need for storage in the area, and how many units are likely to get rented at any time.
How to Set the Price of One Unit?
The price of each unit is the key to running a successful business and making a profit. The revenue potential is held within this business element. There are two approaches to setting the right price.
Market-Based Pricing
A quick and simple approach to setting a price is completing market research. Staying competitive in the market can make all the difference and it’s not time-consuming. Search engines provide quite a bit of information on prices in the same area.
Target Based Pricing
This approach will require more work than the first, but it has an end goal in mind. Rather than setting the price to match those of competitors, you work to set the price of potential gross profit margin.
The typical profit margin of a self-storage business, according to Storable, is around 41%. Target-based pricing means setting the price in such a way that you’ll meet that goal. According to QT Business Solutions, there are around $3 in operating expenses for every raw square footage of the facility.
Calculating the amount to charge per storage unit will depend on a couple of factors. For example, you’ll need the exact amount of square footage of the facility and the sizes of the units, and their number. Once you have the information, you can double any potential expenses to get to the required revenue to meet at least the 41% profit, unless you are aiming higher.
How full will the facility get?
Self-storage unit businesses run year-round which alleviates one potential worry. However, estimating revenue will depend on how many renters there will be. QT Business Solutions explains that most facilities see an occupancy rate sitting at around 90% in today’s market.
Though most businesses in the industry will shoot for occupancy of around 80% to 90%, Storable tells us that 65% of occupancy will at least cover the operating and debt expenses of the business.
With the current trend in downsizing homes and apartment versus home rentals, self-storage units are a popular choice among millennials. 2020 showed an occupancy average of 91.7%, and those numbers have been holding steady, if not growing.
Of course, those who own a self-storage unit business should not shoot for anything higher than around 90% so that there is always storage to rent. You do not want to find yourself shooting for 100% occupancy and have nothing left for new customers.
Self-storage unit business revenue potential
The revenue potential for a self-storage unit business is quickly calculated once you have all the right information on hand.
To start with our example, let’s say we are using a facility the size of 50,000 square feet -- the average for these types of businesses. To cover the expenses required to run the business, Truic advises setting the price at around $9 per square foot, per year.
This estimates the yearly revenue around $450,000, or $37,500 monthly. Of course, this number is for 100% occupancy, which means we need to deduct vacancies of at least 10%. This brings us to a total of $405,000 a year before any other expenses are taken into account.
Self-Storage Unit Business Annual Revenue
The average revenue for a self storage business is $450,000 per year.
Three sources (Truic, SweatyStartUp, BizFluent) tell us the expected revenue amount for a 50,000 square foot self-storage unit business.
- Minimum revenue for a self-storage unit business = $90,000
- Maximum revenue for a self-storage unit business = $600,000
- Average revenue for a self-storage unit business = $450,000
What Are Common Operating Expenses for A Self-Storage Unit Business?
Self-storage unit businesses come with the potential for higher revenue. On the flip side, there are also quite a few ongoing expenses to track. These expenses will vary based on the size of the building and its location.
Expenses are divided into two categories: variable and fixed. Fixed expenses don’t change from month to month, whereas variable expenses can change.
Variable Expenses for a self-storage business
- Utilities
- Repairs
- Maintenance
- Landscaping (especially for areas with a cold winter season)
- Credit card processing fees
- Office supplies
Fixed Operating Expenses for a self-storage business
- Loan Repayments
- Taxes
- Management services
- Advertising and marketing
- Insurance
- Software
- Retail type products (boxes, tape, etc)
- Pest control
How much profit can a self-storage business generate?
Profit from a self-storage unit business will vary drastically. Depending on the area, the size, and the market need, this business has the potential for a high return on investment.
Self-Storage Unit Business Profit Margin
The average profit margin for a self storage business is 41%.
Three different sources (Storable, BizFluent, RoadLessTraveledFinance) provide us with the expected profit margin for a self-storage unit business so that you too know what goals to set.
- The minimum profit margin for a self-storage unit business = 11%
- The maximum profit margin for a self-storage unit business = 60%
- The average profit margin for a self-storage unit business = 41%
Financing a Storage Unit Business
Whether you are looking to finance an acquisition of a storage facility or finance the new construction, an SBA loan can be an excellent option for you. Because a storage unit facility can be used as collateral and since the primary use of the proceeds will be for real estate, you will likely be able to secure a longer term than average with an SBA 7a loan. SBA 7a loans offer terms of up to 25 years for real estate loans.
Raising Investment for a Storage Unit Business
You will only be able to borrow a percentage of the acquisition price or construction cost of your storage unit facility, so you will need to raise some investment. That could be your own personal investment into the business, or you might look to pitch investors to join you in the business. If you are pitching investors, you should have a good understanding of what the internal rate of return that your potential investors expect. Once you create a set of cash flow projections for your storage facility, you can calculate the IRR - internal rate of return that you expect investors would be able to generate. This video will teach you how to calculate IRR with our projection templates.
Self Storage Business IRR
The average IRR for a self storage facility was 16.9% between 2009 and 2018 according to Forbes. So as you are calculating your forecasted IRR you will want to make sure that the facility can get within the range of returns that investors expect.
Once you complete your storage unit projections you will be able to see how your facility compares to industry standards in our Profit and Loss at a Glance table as seen below:
If you’re exploring starting your own self-storage facility and need to create comprehensive financial projections for planning, investors, or lenders we offer a CPA-developed, easy-to-use, and affordable template built specifically for self storage businesses, please check out our self storage pro forma template.
Top Right Photo by Ketut Subiyanto from Pexels
