How Profitable are Self-Storage Unit Businesses?
In this guide, we will explore how profitable self-storage unit businesses can be. We will cover pros and cons, startup costs, ROI potential, case studies of successful operators, key tips for launching a business and best practices for ongoing management. Let’s dive into some real world examples.
What is self-storage unit business?
A self-storage unit business involves renting secure storage space in units of various sizes to customers who need to store their personal possessions. Units are rented on a short or long-term basis.
How much profitable is a self-storage unit business?
A self-storage unit business can be highly profitable.
| Data Points | Details |
|---|---|
| Annual Income Range | $365,000 – $800,000 |
| Average Net Profit Margin | 2% |
| Average Profit Margin | 41% |
| Annual US Industry Revenue | $38 billion |
| Projected 2026 US Industry Value | $64 billion |
| Annual Employment Growth (2017-2022) | 7% |
What are the pros and cons of owning a self-storage business?
Pros:
- Low overhead costs once built. Self-storage units require little staff and maintenance which keeps expenses low.
- Consistent revenue stream through rental payments. Storage is needed year-round so income continues monthly.
- High profit potential. Average profit margins are over 40% making it lucrative.
- Large and growing market. Demand for storage is increasing as more people downsize and mobility rates rise.
Cons:
- High startup costs. Land, construction, amenities, and permissions require large initial investment.
- Management intensive. Marketing, customer service, cleanups require owner involvement beyond just collecting rent.
- Seasonal fluctuations. Tenants may consolidate during economic downturns reducing short-term revenue.
- Local competition. Newer facilities near yours can attract current customers away.
- Zoning challenges. Obtaining proper permits to build can be difficult if area is not zoned for commercial use.
Startup Costs for a Storage Business
Let’s break down the true costs involved in building a self-storage unit business:
Land Purchase/Lease: The largest initial expense is acquiring the land, which averages $250,000-500,000 for a 1-2 acre lot in a commercial area.
Construction: Building a basic 50,000 sq ft facility costs $3-5 million, including demolition, utilities installation, access roads, fencing and climate-controlled buildings with thick concrete walls.
Office Building: A 1,000-2,000 sq ft office building with reception area, rental station, and managers’ offices costs an additional $150,000-250,000 to construct.
Insurance: Property, general liability and workers compensation insurance are required, costing $10,000-15,000 annually.
Market Research: Feasibility studies assessing the local market and project viability cost $15,000-25,000.
Equipment: Security cameras, gates, lighting systems are $50,000.Storage rental equipment like locks, boxes trucks cost $25,000-50,000.
Permits and Legal: Obtaining proper zoning, building permits, surveys and legal fees are $25,000-50,000.
Grand Opening Expenses: Marketing, signage, and initial operating expenses are $25,000-50,000.
In total, start-up costs for a basic 50,000 sq ft facility range from $3.5-6 million depending on the local land and construction prices. Ongoing annual operating costs also need considering.
5 Key Revenue Streams in Self Storage
Rental income: Revenue generated from renting storage units to customers on a monthly basis for short or long-term storage. This is the primary source of income.
Ancillary/Additional rental fees: Charges for larger unit sizes, extended hours access fees, equipment rentals like locks/boxes/moving supplies.
Late fees: Late payment penalties charged to customers who do not pay rent by the due date.
Auction/disposition fees: Profits generated by auctioning abandoned units whose rent is long overdue.
Other services: Revenues from mail receiving/storage, business services like shipping/packaging for e-commerce customers using the facility for fulfillment.
Operating Expenses
Wages make up 15-30% of revenues, paying for site managers, maintenance, office staff, and dispatchers. Insurance costs 2-5% to cover liability, property/casualty, and workers compensation. Utilities such as electricity, water, sewer and trash removal typically consume 5-10% of revenues.
Marketing and advertising expenses can range from 2-5% to attract new tenants. Other expenses include 3-7% for property taxes, 2-5% for repairs and maintenance, 2-4% for supplies, and 1-3% for management fees. According industry reports, average operating costs are around 35% of total revenue or approximately $4.03 per square foot stored.
Return on Investment (ROI)
- Average annual ROI from 2009-2018 was 16.9%, much higher than other real estate investments
- Profit margins average a very strong 41%, demonstrating the high profitability of self-storage businesses
- National cap-rate ROI in 2010 ranged from 7% for storage facilities valued at $5.4M to 10% for those valued at $3.8M
- A $397,615 investment can realize a 29.6% cash-on-cash ROI once 90% occupancy is achieved
- ROI depends more on financing terms than the business’s core financial performance
- Low overhead costs and operating expenses lead to high profit margins
- Revenue comes from monthly rental fees, which provide consistent cash flow
- Properties require little management or maintenance once constructed
- Strong demand drivers like downsizing, moves, and life changes fuel consistent occupancy
- Small startup costs relative to revenue potential provide opportunity for solid ROI
Success Stories and Case Studies
Ann Wiens of Near Me Storage talks about how working with StoragePug allowed her to offload her marketing efforts and boosted her occupancy. As someone new to the business, she appreciates that StoragePug is a resource that takes weight off her shoulders.
Barry Raber of Bargain Storage discusses how StoragePug delivered a fresh, mobile-first design for their websites. This helped drive over a third of their rentals through their upgraded websites.
Michael Spear of Storage Corral shares that partnering with StoragePug feels like a “family” working together to maximize rental units. He appreciates their help leaving the driving to them.
Stephanie Tharpe of A+ Storage was unhappy with her previous vendor but finds StoragePug’s team exciting and innovative. She saw immediate improvements to her website’s design and brand representation across devices.
Mark Foushee of Economy Storage increased the value of his properties by $50k-$100k through their partnership with StoragePug. They’ve kept tenants longer and boosted occupancy.
Melanie Walker of Storage Corral appreciates the ability to collect online payments and get more web traffic translating to more rentals through StoragePug’s easy to navigate website.
From gensteel. com, Scott Schwartz discusses starting his mini storage business with 2 vans and growing it to over 25,000 square feet of warehouse space through connections with customers.
Tips for Starting and Managing a Profitable Storage Business
Conduct market research to find an underserved area and analyze competitors. Barry Raber started with identifying local storage needs not met.
Create a strong brand and professional website. Storage operators like Ann Wiens benefited from mobile-first designs that boosted web traffic.
Offer amenities like indoor/climate controlled units, large unit sizes. Valerie Gayer finds customers trust their storage with features like easy online payments.
Leverage online marketing and reviews. Stephanie Tharpe saw a big increase renting units scheduled through her improved website.
Provide great customer service and communication. Michael Spear credits personalized tools and support for maxing out rentals.
Use yield management software to optimize pricing. Mark Foushee increased property values through insights helping stay at full occupancy.
Join industry groups to stay current and get referrals. Melanie Walker continues learning about the business through educational resources.
Conclusion
As these success stories from self storage operators demonstrate, businesses like mini-storage units can be lucrative when properly planned, marketed, and managed. Partnerships with experienced vendors also help maximize rental potential and valuation through optimized websites and tools. With the right strategy, self storage presents an attractive business opportunity.
