What is the Best State to Build Your New Self Storage Facility?
By Marc Goodin
For ninety-five percent of us it is going to be the state we live in - in our own backyard. Owning a long distance business takes much more time and is typically less profitable. Instead of spending 5 to 8 hours a week, guiding and improving your self storage to make a great 6 figure income and build it into a multimillion dollar asset is going to take double or triple the time if you have to jump on a plane to visit. You might get lucky and find a key employee but for sure that would cost at least $40,000 more than the average self storage managers pay and again reduce your profits.
So before you start looking at areas more than an hour from home you really need to determine the reason why you are looking at a long distance business option. It could be one of three reasons. Maybe you have a partner in another state and are both willing to build in either area. Or maybe you company has offices in multiple cities with boots on the ground. Or maybe you truly are ready to move to where you decide to build. But often the main reason not to build in your own back yard is because the rental rates in your area are simple to low or the land prices are just too high for your budget (Like LA or NYC).
First it would be important to determine why the rental rates are low in your area and how far you have to go to find better rental rates. Maybe in your city most of the facilities are owned by old timers who have not raised rents in 10 years or maybe there is too much self storage for the population.
Your next step would be to get on one of the Self Storage apps like Stortrack or Radiusplus where you can see the rental rates, population and existing self storage to see what is happening in your city and the next city over or maybe cities over or even in another state if you are ready for a long distance business. Learn how to do your own mini feasibility study here.
Just because the above cities have high rental rates and low supplies does not mean they are the best place for you to build. For starters the land in these areas are extremely high and will require significant more investment capital.
There are many reasons why one state may be better than another today. But you have to remember that free enterprise and other events are always adjusting the markets so a couple of years from now overbuild areas may be under built areas and vice versa. For example NY state has one of the lowest amount of existing self storage per person of any state with around 4 sf/per person. On the other hand Houston has double NY’s existing square feet of self storage/per person. But today NY also has a high new supply pipeline as a percentage of existing at around 18%. While Houston’s new supply pipeline as a percentage of existing stock is at a low 2.3%. And Texas has a recent high population growth rate of 1.3% while NY population declined by 0.6%.
NY has a high personal state income tax and Texas does not have a state income tax. As you are starting to see it is very difficult to determine the best state or city to build self storage without a lot of investor input and research.
Let’s assume you are ready to move. I would have to ask you several questions to help determine where you should build. I would start with the question where would you like or love to live. Maybe you would love a Metropolitan City in New England like Boston or Sarasota, FL or maybe a more urban. What states would you rule out?
How large a facility are you going to build, 50,000 to 80,000 sf or over 100,000 sf ? Do you have $750,000 cash to invest or do you have millions to invest in expensive areas like Brooklyn, NY or Miami, FL (or half of CA). How are you going to manage the facility? How much effort are willing to put in looking for land? How long are you willing to search for a good location? Are you going to build one or many facilities? Do you want to build single story or multi story facility. How far are you willing to travel to your facility on a regular basis.
As you can see from the above chart a low self storage per person does not always mean high rates.
Typically the end goal is to build the maximum size self storage you can afford to build, that fills up swiftly at premium prices. And I am sure we can agree that the easier and faster you can get open is important as well. There are many areas that have significantly underserved areas that high rental rates and little vacancy but are you ready for the intense approval process, high land costs, additional regulations and crazy income tax? NYC and area and many of CA are like this. But if you live there now this still may indeed be the best location for you.
There are three initial steps. First you have to determine how much cash equity you have to invest and what size self storage that will allow you to build. For many people with under a million equity it will mean your facility will not in a downtown metropolitan city like Tampa but more likely the edges of Tampa and nearby suburban areas where land is more affordable.
Second you must review the existing self storages in any given area, to determine if they are full and if they are they charging premium rates or at lease reasonable rates. After price and vacancy check many people rely on the amount of existing square feet of self storage/per person in the competition radius to help choose the best area in a given city. There are on line self-help apps like Stortrack, Radiusplus and full service help like Yardi and others that are constantly updating their data.
The third step is to determine how much more self storage can be absorbed in the area where the facilities will continue to be full and charge premium rates. This is part science and part art and part courage. Unfortunate, since self storage is a three mile business this is next to impossible to do nationwide or even state wide so we typically look at this on a site by site basis. You have to remember when you have low population 10,000 to 15,000 people in the 3 mile radius the normal rules may not apply.
Because most self storage renters rent within 3 miles from their home the best location is not a state or even a city, it is a 3 mile area. Self storage opportunities could be great on one side of town and terrible on the other side due the amount of existing self storage in a given area. Besides demand and rental prices there are several key factors like zoning, the cost of land, cost of development and the availability of land.
For example, Houston TX has the easiest approval process in the US because they have virtually no zoning. And Austin TX just 20 minutes north is one of the hardest cities to obtain zoning approvals. Sure Austin has higher rates but are you ready for a 2 year plus zoning battle and associated risk?
One of our franchisees build a facility in Houston TX www.stroageauthoritywaltersrd.com Once he found the land there was never a question if it would get approved or what extreme measure the city would impose upon him. He met the building codes (vs zoning regulations and applications and building codes) and it was as approved. And he has overcome the lower Houston rates (which are now rising) by doing a great sales & marketing along with providing over the top service that allow him to charge 20 to 30 cents per sf a month more than his competitors. You do the math that’s huge.
Even if there is a high needed demand for additional self storage but the competition is owned by old timers who have next to no mortgage and have not raised their rents in over 5 years the area will have a low rental rates and make it difficult to make good returns on your investment even if you charge 30% more than the competition.
Finding land is a hard and time consuming everywhere in the US. And if you are looking far away from home it will take more time and with the added cost of traveling to find and scout land. We find half of our land parcels offline by being part of the community and driving the main roads weekly.
One of our franchise owners lived in South Florida. A friend of his had land for sale several hours north in Mulberry FL near Tampa. The site was not perfect but it was a go. He decided to move to Mulberry to insure it success. Now opened under 2 years it a cash cow with an monthly income just why of $100K/month. It is for sale for a cool $14,200,00. A true success story! Read more & view pictures about Storage Authority Mulberry here: https://www.storageauthorityfranchise.com/post/14-200-000-wow-open-less-than-2-years
If you have more questions about developing your own self storage a good place to continue your research are the 12 Storage Authority Franchise FAQ’s that get right to the point.
If you want to get more information, please provide your contact info here: storageauthorityfranchise.com/opportunity1/
Marc Goodin is President of Storage Authority. www.StorageAuthorityFranchise.com He owns 3 self-storages he designed, built and manages. He has been helping others in the self-storage industry for over 25 years. He can be reached at marc@StorageAuthority.com or directly at 1-941-254-3055 to answer your self-storage, franchise, development, marketing, sales and operational questions.