Chapter 6
The Five Most Frequently Asked Questions
1 I don’t have any self storage experience; can I build a successful self storage business?
Yes, you can. In fact, the vast majority of the 50,000 self storage businesses in the USA are owned by individuals who only own one self storage facility. They started out just like you with no self storage background. With research and help along the way you can build a successful self storage business that will be more profitable than most other real estate businesses.
Many of the existing self storage were built when “build it and they will come” infancy period of self storage. Now with all the competition and smart money you must be better prepared from day one. You need 3 out 4 of the four things to develop a very successful self storage:
1 Time
2 Money
3 Self Storage Experience
4 Marketing & Sales Experience
Storage Authority obviously provides items 3 & 4 but you will be surprised how Storage Authority helps you with items 1 & 2 as well.
The three most common problems I have noticed for new developers is 1) to under estimate the costs (often by over looking some items), 2) under estimating the development and rent up time frames and 3) underestimate the importance of sales and marketing platforms online and off line,
Why build a self storage vs. other business?
Self storage consistently has provided better returns on investment then the other types of real estate investments. It requires fewer employees and significantly less maintenance, which means less headaches and work for you. (better lifestyle)
And best of all self storage produces one the most important things that many businesses never produce: a residual positive cash flow that can last a lifetime or even for generations. And its fun!
How much money (equity) do I need to build a self storage? (How much will the bank loan me?)
I hate do give a dollar amount because there are so many factors not to mention size. But I know that is what you are looking for. So to start a self storage business (not a self storage hobby or side line) it is typically approx. $400,000 for an SBA bank loan and more for a conventional loan.
Typically, you will need 25% to 35% equity for a conventional bank loan. There can be exceptions to both the low end and high end depending on the market, economy in your area, your business experience & credit rating, individual banks and other factors. It is important to meet with your banker(s) early in the process. You do not even need a piece of property or facility picked out to meet with a banker (or two) to get some preliminary banking input.
SBA loans are available for self storage and they typically require significantly lower equity often 15% of the total cost.
There are several specifics that must be considered to determine the best option. And it is very important to realize not all loans are equal by a long shot. Yes, interest rates and required equity are important there are several other equally import items and that is why you need a self storage expert help you with your loan package.
How much does it cost to build a self storage?
There are three main areas of cost that should be considered.
The first is the pre construction costs (or pre loan costs). These include feasibility study cost, land surveying engineering costs for site plans and regulatory approvals; bank fees for the loan application (loan application fee or points, appraisal fees etc.), soil testing fees and land option fees, architectural fees etc.
While these fees are often considered part of your equity in the project you typically have to pay these fees out of pocket because a bank will not give you a loan without a Town approved project. This is money at risk because there is no guarantee that the town or bank will approve your project. So it is very important you do your due diligence regarding the “quality” of the land (wetlands – easements -zoning – other restrictions) and with the chances of approval with the Town before you spend large sums for final engineered site plans. Often paying a local civil engineer to review the property and zoning regulations and provide you with a conceptual plan to review with the Town is money well spent. Typically, this first group of fees are typically range from $75,000 to $200,000 if no major problems are incurred.
The second group of costs is the land and construction costs. These costs can vary greatly depending on the price of the land, individual land improvements and size and type of self storage facility. Land can vary from $50,000 and acre to several hundred thousand per acre depending on the location and amount of land. Individual land improvements can vary greatly between sites.
I own 3 self storages and each had distinct special land improvement cost. One site was relatively level with sand and gravel which had low site improvement cost. A second self storage was on a sloped parcel which required an extra 3-4 feet of fill for half of the site. One property required $20,000 worth of soil testing for pollution and more for soil remediation required.
It is hard to give a specific cost for construction. Recently many feasibility studies are using $60 per square foot for construction for typical single story metal self storage buildings, plus soft costs and the land. This preliminary construction cost by square foot estimates do not include the special land improvements or other unusual cost that may be encountered. Multi buildings are typically higher than the cost of single story buildings.
The costs can be refined after you have a chosen a property and your local civil engineer has done a conceptual site plan. And once a final detailed site plan is completed you can have a contractor(s) provide you a construction estimate for a more realistic cost
Early on in the process, as soon as you find a piece of property, I recommend you contact a building manufacturer to get input on the building design. They can also give you a proposal to supply and construct building. I use Trachte www.trachte.com because they make the process simple, and have a better product at a great price.
The third group of expenses is the costs during the rent up period before you break even. Some banks will loan you some of the rent up cost but many (even most) do not. If you did not include the office, maintenance equipment & supplies in your construction cost (which I recommend) don’t forget to include them here. You are going to open your new self storage business with your typical operational costs (loan – employees – utilities – taxes etc. outlined in your business plan) and limited rental income. Every month you will have to put money into your business until you have enough rentals to pay all your bills. This can take several months to two or three years depending on a lot of factors. If you have done your due diligence and determined there is a need for the new storage facility, have a good location with suitable drive by traffic and are prepared to market the facility well you can significantly reduce the time to break even and make a profit. Hopefully you have worked with your bank to cover at least some of your start up costs in your loan package.
Typically, the second phase cost much less to build because you have already paid for the engineering, the property and don’t need new staff so the break even point comes faster.
Financing is one of the major issues for many businesses. Banks typically require 30% down and SBA loans require 15% down. So in many regions you can get started with $350K to $400K cash equity. One option is to join forces with a local land owner as I did for my second facility. The land and design cost may be enough to meet your equity investment in the project. A good written partnership agreement is important.
A good feasibility study is a msut and should provide some preliminary cost until you have more detailed plans and actual bids. If you need initial prices before than I recommend you contact a self storage feasibility consultant to review your circumstances and what size facility you plan to build.
How many square feet should I build? (& How much land do I need)
First you need to determine how much self storage the existing population can support and how much self storage already exist. You can do some preliminary calculations on your own. The key is accurately calculating the square footage needed in your area and subtracting the existing square footage and any storage proposed or under construction. For many areas where there are numerous self storage facilities to choose from the draw area is typically a 3-mile radius and the demand is typically 5 to 8.3 sf per person.You can see a sample mini demand study at the Storage Authority News Room
These factors do vary significantly from place to place. For rural areas and areas where there are no self storage facilities the draw area may be larger. You can call a local self storage appraiser (make sure they have a background in self storage feasibility) and ask what numbers they use in your area. Your bank will typically require an appraisal of your project by their approved appraiser. Your bank may give you the names of their appraisers to contact for this local information.
If you are not confident of your calculations or simple want confirmation and some guidance you should get a feasibility study done by an expert. Please understand a feasibility study is not the same as the appraisal required by your bank. For your planning purposes each can cost $6,000 to $7,000. If you want a feasibility study or preliminary assistance with preliminary development cost I recommend you contact Bob Cooper, 866-269-1311 http://www.selfstorage101.com
There are some business theories that should be observed when deciding how much storage to build. One is having an exit stagey. Typically, the highest prices for self storage sales go to facilities that are purchased by REITs or other large self storage operators. Typically, they want facilities that are 40,000 to 50,000 sf and larger.
Also you don’t want to have a facility that is so small that it only proves self storage is a good fit for the area and attracts a larger self storage operator to make the majority of the profits after you did the hard work. The exception to this is if you are considering your self storage business a side business that you built on land your already own and run out of your existing business office.
Self storage rent up is so much faster (and rents for more per sf) when you have an office with regular office hours. To pay for a manager and make a good profit and pay for all your efforts and risks you can use a preliminary estimate of 40,000 sf (for all phases) until you have done all the due diligence for your specific project.
You do not have to build out the entire project in one phase and in fact phasing is highly recommended. It will save you the added expenses of having a large supply of unrented units. A 50,000 sf project could be built in two or maybe three phases depending on the storage needs of a specific area.
The amount of land you need is highly dependent on the local zoning regulations and specific land features. Typically, you will need 4-5 acres for 50,000 square feet of single story buildings, less for multi story buildings. See Site Selection for more information regarding property requirements.
What are some of the site plan design flaws you have seen?
No office.
No curb appeal.
Outdated technology.
No bollards at building corners
Led lights not used.
No product sales area in office or sales area too small.
No easy access to customer bathroom.
Customer has to go through the security gate to get to the office.
No 4-foot man gate to access the storage area without opening the main gate.
Access key pads not aligned up with gate.
Located in industrial park or other out of the way locations.
Space between buildings less than 24 feet.
Larger units (especially car storage units) not located to the outside of the project where there is not a second building to constraint the access drive for better access to the units.
Not enough landscaping provided. A lot of landscaping is a great marketing feature.
No windows or small windows in office.
None or not enough site lighting. A light at the site entrance is a nice touch.
Storage units not visible from the road.
No security measures.
Too many dead ends.
Loss of units due to poor layout.
No small units or no large units or not enough variety in unit sizes.
No locker (5’x 5’ x 4′) units provided.
To meet town approval building some architectural features actually make metal building more noticeable and unattractive.
Phasing not provided on the approved plans requiring applicant to return to the commission for approval.
Site signage not on the plans requiring the applicant to return to the commission for approval.
Driveway widths and or radius at the Town road are too small. Minimum driveway entrance radius of 25 foot should be provided and a 45 feet radius is preferred.
Access for RV’s or large moving trucks not suitable, especially at the ends of the buildings.
Rental kiosk not provided in new construction.
Climate control not properly designed.