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How To Start A Self Storage Business

How To Start A Self Storage Business

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How To Start A Self Storage Business

How To Start A Self Storage Business

If you are searching for a business opportunity with sustainable growth potential that can be run somewhat passivley, the self-storage sector might just be your next entrepreneurial venture.

The self-storage industry has undergone substantial growth, and with the ongoing demand for storage, this industry can make for a great business investment. While starting a self-storage business can take some time, especially if you need to build your own facility, this type of business can produce significant profits when managed well. By hiring talented staff, a business owner can largely step back from the self-storage business, making for potential residual income that leaves you free to explore other activities and business opportunities.

This guide will walk you through the ins and outs of starting your own self-storage business, encompassing industry information, practical steps to kick-start your venture, and answers to common questions.

Business Overview

A self-storage business primarily involves renting out storage units to individuals and businesses. These units are typically used to store personal belongings, office equipment, inventory, and other items that the clients might not have space for in their regular premises. The business model can range from single site storage facilities to larger franchises, depending on the scale and resources at your disposal.

Self-storage facilities allow customers to rent out spaces that they can access as needed. Spaces may range from as small as 5’x5’ or can be 10’x20’ or greater. Customers use self-storage spaces for a variety of situations, but storing extra belongings during moves or life transitions is a common use. Some facilities offer special spaces for boats and RVs. Some facilities now offer ameneties such as climate-controlled storage and easily accessible storage spaces where customers can drive their cars right up to the doorways.

Profitability in this sector is driven by factors such as location, demand for storage space, quality of service, security measures, and the extent of value-added services you can provide to your customers.

Industry Summary

The self-storage industry has experienced robust growth over the past several decades, and es expected to reach $29.2 billion by the end of 2023, according to a report from IBISWorld. The industry has proven itself resistant to economic downturns due to its low operational costs, stable demand, and the continual need for storage space.

Factors such as urbanization, increase in population, mobility of workforce, and growing e-commerce industry have contributed significantly to the rise in demand for storage units. Many self-storage businesses have expanded their offerings to include climate-controlled units, vehicle storage, and even professional moving services to meet diverse customer needs and increase their revenue streams.

According to SpareFoot, 11.1% of US households rent a storage unit. They go on to show there are 51,206 facilities that house over 2 billion square feet of rentable storage space in the US.

Eighteen percent of self-storage facilities are owned by the six largest public companies: Public Storage, Extra Space Storage, CubeSmart, Life Storage, National Storage Affiliates Trust, and U-Haul. Small operators own 73% of the facilities.

Self-storage is in high demand in certain cities, with Houston, Texas; Los Angeles, California; New York, New York; Chicago, Illinois; and San Antonio, Texas having the greatest demand.

The self-storage industry is continually evolving with changing consumer needs and technological advancements. Here are some significant trends impacting the sector:

Maximizing space and repurposing buildings: To cater to the escalating demand for self-storage, many businesses are finding ways to optimize their space. Smaller sites and multi-story facilities are becoming increasingly common. There’s also a growing trend of repurposing existing buildings into self-storage facilities, offering a win-win solution of meeting market needs while reducing the carbon footprint.

Offering niche storage solutions: With an eye on the diversified demands of customers, some operators are carving out niches for themselves. They provide specialized storage options tailored for specific items or markets, allowing them to stand out amidst the competition.

Enhanced user experience: A seamless user experience is key to customer satisfaction, and many self-storage businesses are elevating their service quality by introducing online options for easy accessibility and connected units for round-the-clock access to storage spaces.

Tech-integrated operations and security: The self-storage industry is increasingly leveraging technology to streamline operations and enhance security and many technological advancements allow self-storage units to be largely self-operated. Self-serve kiosks allow customers to sign rental agreements online or through their phones. Keypads and gates create enhanced security, which can help to build customer trust and encourage customers to rent space. Security cameras are more affordable yet offer great quality. Cameras are must-haves for self-storage businesses and should be incorporated into the planning process early.

Target Market

Most self-storage businesses market to the general public. Typically, self-storage customers are adults who have some disposable income. Customers may be in the middle of a move and may need temporary storage, or they can be families who need ongoing storage for items that they don’t have space for at home. Businesses are also sometimes part of that target market when they’re undergoing renovations, expanding, have seasonal storage needs, or moving and need extra space.

Checklist To Start A Self Storage Business

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If you’re thinking about starting your own self storage business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.

Step 1: Assess the Market

Because self-storage has earned a reputation as a financially rewarding investment opportunity, the market has started to become saturated as more and more businesses are built. It’s important for anyone considering opening a self-storage business to research the market and tailor your offerings to meet the specific needs of your target customers and ensure you aren’t building too close to an existing storage business.

Here’s some tips on how to go about conducting this essential market research:

Demographic and economic data: Study the demographic and economic data of the area where you plan to open your self-storage facility. Understanding factors like population growth, household income, and real estate trends can give you insights into potential demand. Government census data, city development plans, and real estate reports can be valuable resources for this research, and these are often available online at no cost.

Competition analysis: Research your competition in the target area. This includes not only other self-storage businesses but also alternative storage options like spare rooms or garages. Pay attention to their pricing, unit sizes, occupancy rates, and additional services. This will help you understand the existing market saturation and identify potential gaps that your business can fill. Online directories, competitor websites, and in-person visits can provide this information.

Customer surveys: Conducting surveys or interviews can provide direct insights into the potential demand for self-storage in your target area. You can ask about people’s current and anticipated storage needs, their experiences with existing storage options, and what they would like to see in a new storage facility. Online survey tools like SurveyMonkey can facilitate this process.

Online search trends: Tools like Google Trends can provide data on how many people in your target area are searching for self-storage options. This can give you an idea of the online demand for your service.

Local community engagement: Participating in local community events or forums can also be an excellent way to gauge interest in self-storage. It offers the opportunity to engage with potential customers directly and gather qualitative insights into their needs and interests.

By taking the time to understand the market thoroughly, you will be able to make more informed decisions about your business strategy, from pricing and unit sizes to marketing efforts and value-added services. This research can be the difference between a thriving self-storage business and one that struggles to attract and retain customers.

Step 2: Write a Business Plan

After coming up with the idea, the next step in starting your business should be to write a self-storage business plan. Beyond acting as an internal guide, a business plan is often a requirement if you’re seeking external funding from banks, investors, or other financial institutions.

Here are some sections that are particularly important for a self-storage business seeking funding:

Market analysis: This section showcases your understanding of the industry, competition, and customer base. For a self-storage business, you should include a detailed analysis of your target market, including their storage needs and preferences, as well as a thorough evaluation of your competitors, their pricing, and their offerings.

Location and site plan: For a self-storage business, the location can make or break your venture. Your business plan should include details about your chosen location, justification for its suitability, and a detailed site plan. Discuss factors like accessibility, visibility, local demand, and competition in the area.

Marketing and sales strategy: How will you attract customers to your self-storage business in a competitive market? This section should detail your promotional strategies, partnerships, customer retention plans, and digital marketing tactics.

Financial projections: This section is of prime interest to lenders and investors. You should provide a detailed forecast of your income, expenses, and cash flow for the next three to five years. Also, include a break-even analysis to show when your business will start making a profit.

Related: How to write a business plan

Step 3: Secure Funding

After thoroughly researching the market to make sure an opportunity exists and completing a comprehensive business plan, the next step in starting a self-storage business is securing the necessary funding.

Here’s the most common sources of funding available for self-storage businesses:

Personal savings: Self-funding or bootstrapping is a common route for entrepreneurs. Utilizing personal savings gives you complete control over your business. However, it’s important to ensure you have enough funds left to support personal needs and emergencies. If you’re planning to seek external funding, it’s still likely that you’ll need to contribute a portion of the total required capital.

Bank loans: Bank loans are one of the most common forms of funding for self-storage businesses. These are usually used to finance property purchases or large capital expenses. The amount of loan, interest rate, and terms would typically depend on your credit score, business plan, and the amount of your own money you’re putting into the business.

Especially with the cost of building a new self-storage facility or purchasing an existing one, a lender will want additional assurance that the loan will be repaid, and this is where Small Business Administration (SBA) loan guarantees come in. The SBA doesn’t provide the financing, but they guarantee that the bank will get repaid a portion of the loan if the borrower defaults. The SBA 7(a) and 504 loan programs are the two most popular SBA programs and can be used to purchase land, construct or renovate existing buildings, and other significant expenses.

Investors: In some cases, you might seek investment from individuals or investment firms. These could be people within your personal network or professional investors specializing in the self-storage industry. In exchange for their investment, these investors would typically expect a return on investment and potentially a degree of control over the business.

Hard money loans: These are short-term, asset-based loans provided by private investors or companies. Unlike traditional loans, hard money loans are primarily based on the value of the real estate being purchased, not the borrower’s creditworthiness. This characteristic makes hard money loans particularly appealing to entrepreneurs who might not qualify for traditional bank loans or need quicker access to capital.

Related: Finding the money to start a business

Step 4: Choose your Location

Securing an optimal location for your self-storage business is a critical step in the startup process as the location can significantly impact the potential for your storage unit facility. Here are some key steps to follow when acquiring and preparing a location for your self-storage business:

Site selection: Choosing the right site is paramount. Consider factors such as local demand for storage, proximity to residential or commercial areas, ease of access, and competition in the area. Consider factors like whether you should have space for boat and RV storage, how valuable climate-controlled storage may be in your location, and whether you want to offer drive-up or indoor-access storage units. Unit size is also an important factor, as is the size of the self storage facility and overall layout.

Hiring a commercial real estate agent with experience in the self-storage industry can be beneficial.

Zoning and permits: Before you can open your self-storage facility, you’ll need to make sure your property is zoned correctly. This usually involves working with your local city or county planning department. Zoning laws for self-storage facilities can be quite complex, as they often involve considerations related to the size of the facility, traffic impact, and aesthetics.

Building design and layout: Visit other self-storage facilities to get ideas for layout and design. The goal is to maximize space usage while maintaining ease of access for customers. Storage unit mix (sizes and types) should be based on your market research of local storage needs. Specialized self-storage design firms can provide expertise in creating an efficient layout.

Security setup: Security is a top concern for customers. Invest in high-quality security systems, including surveillance cameras, gate access control, and well-lit premises. The layout should also consider security, with clear visibility of storage units and no hidden corners.

By following these tips, you can prepare an optimal location for your self-storage business, positioning it for success from day one. Remember that while setting up a location requires a significant upfront investment, the efficiency, customer satisfaction, and profitability it brings will pay dividends in the long run.

Step 5: Register the Business

Starting a self-storage business involves several legal considerations to ensure that your business is registered correctly and in compliance with all applicable regulations. The precise requirements may vary depending on the state and local laws. Here are some general steps you would need to consider:

Business structure: Deciding on a business structure (also called a legal entity) for your business is one of the most important steps as there is legal and tax implications. The four main types of business structures in the U.S. are Sole Proprietorship, Partnership, Corporation, and Limited Liability Company (LLC). An LLC or corporation are often the most popular choice for self-storage businesses, as it provides liability protection for the owners.

Related: Comparison of business structures

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

Related: Tips and ideas for naming a self-storage business

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain business licenses and permits: Depending on your location, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, sign permit, seller’s permit, and Employer Identification Number (EIN).

Related: Common business licenses, permits, and registrations by state

Starting a self-storage business involves navigating a variety of legal requirements, and the details can often be complex. Therefore, it’s highly recommended to seek advice from professionals such as business attorneys and accountants to ensure you’re in compliance with all laws and regulations. Remember, setting up your business correctly from the start can save a lot of time, money, and potential legal problems down the road.

Step 6: Set Up the Facility

Designing and constructing your self-storage facility is a significant stage in starting your business, involving critical decisions that will determine the efficiency of your operations and overall customer experience. This process begins with understanding your target market and their needs, guiding the design, size, and types of storage units offered.

If starting from scratch, the design process should prioritize maximizing the number of rentable units while ensuring ease of access and movement for customers. The facility layout should accommodate a diverse range of unit sizes, from small lockers to larger units for vehicles or sizable belongings. Additionally, consider incorporating climate-controlled units, which are increasingly in demand for the storage of sensitive items.

Depending on the plot’s size and the local zoning regulations, you may decide to construct a single-story or a multi-story building. Single-story facilities often require more land but provide customers with direct drive-up access to their units. On the other hand, multi-story buildings can accommodate more units per square foot of land but require elevators and carts for customers to access upper-level units.

Once the construction process begins, you’ll need to work closely with a reliable contractor experienced in self-storage construction. It’s important to ensure that the construction follows the approved design and complies with all local building codes and regulations. Regular site visits can help you monitor progress and address any issues promptly.

As the facility nears completion, you’ll need to procure storage units and equipment. The storage units should be durable, easy to maintain, and secure. A variety of suppliers specialize in self-storage units and can provide solutions tailored to your facility’s design and customer needs.

Besides the storage units, consider the additional equipment needed for your facility. This can include security systems, such as surveillance cameras and access control systems, office equipment for the management office, and moving equipment like dollies or carts for customer use. If your facility has multi-story buildings, elevators will be a necessary investment.

Remember, while design and construction represent substantial upfront costs, a well-designed and constructed facility can significantly enhance operational efficiency and customer satisfaction, leading to higher occupancy rates and greater profitability in the long run. It’s therefore worth investing time, effort, and resources to get this step right.

Step 7: Develop a Marketing Strategy

Marketing your self-storage business effectively is critical to attracting and retaining customers. A well-considered marketing strategy helps increase your business’s visibility, build your brand, and communicate the unique benefits your facility offers.

Start by understanding your target customers and their needs. Are they homeowners in need of extra space, businesses requiring storage for equipment, or students looking for summer storage? Knowing your customers helps you tailor your messaging and choose the most effective marketing channels.

Having a robust online presence is a must. Develop a professional, user-friendly website that showcases your facility, communicates the benefits of your service, and allows customers to easily reserve or rent units. Optimize your site for local search keywords to ensure people searching for self-storage in your area can find you. Also, consider paid digital advertising options such as Google Ads or Facebook Ads. These can be targeted to reach people in your local area when they’re actively searching for self-storage options.

Leverage social media platforms like Facebook and Instagram to engage with your audience and build relationships. Share helpful content, facility updates, and promotional offers. Engage with your followers by responding to comments and messages promptly.

Online reviews significantly influence customer decisions. Encourage satisfied customers to leave positive reviews on platforms like Google and Yelp. Always respond to reviews, whether positive or negative, in a professional and courteous manner.

In addition to digital marketing, local marketing tactics are also essential. Partner with local businesses, real estate agencies, and moving companies to reach potential customers. Participate in community events or sponsor local teams or charities to raise your business’s profile in the community.

Related: Low-cost ideas to market a new business

Step 8: Hire & Train Employees

Self storage facilities can be run by the owner, or staff can be hired. If hiring employees is a part of the business plan, hiring the right people is important. The right staff can greatly enhance the customer experience, support efficient operations, and contribute to the overall success of your business. However, becoming an employer also entails various responsibilities and legal requirements.

In a self-storage business, you might hire various types of employees. Facility Managers or Site Managers are common roles, responsible for overseeing the day-to-day operations of the facility, assisting customers, managing rentals, and maintaining the property. Maintenance staff can help ensure the facility remains clean and in good repair. If your business is large or offers 24/7 access, you might also employ security personnel.

Before you start the hiring process, it’s important to clarify the roles and responsibilities of each position. Job descriptions should be detailed and precise, outlining necessary skills, experience, and duties.

As an employer, there are several key responsibilities and steps to take before hiring:

Obtain an Employer Identification Number (EIN): This is issued by the IRS and is needed for tax purposes.

Set up records for withholding taxes: As an employer, you’ll need to withhold social security and Medicare taxes from employees’ wages and deposit these with the IRS.

Employee Eligibility Verification (Form I-9): You are required by law to verify that each new employee is legally eligible to work in the United States.

Register with your state’s New Hire Reporting program: Employers must report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date.

Obtain workers’ compensation insurance: This is a mandated insurance program in most states that provides compensation to employees who suffer job-related injuries and illnesses.

Post required notices: Employers must display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws.

While hiring employees can support the growth and operational efficiency of your self-storage business, it also requires compliance with various legal requirements and tax obligations. Consider consulting with a human resources expert or employment attorney to ensure you meet all responsibilities as an employer.

Related: Stage guides for hiring your first employee

Step 9: Prepare to Open!

With the crucial steps of identifying your market, drafting a business plan, securing funding, registering your business, and setting up your location under your belt, there are still several tasks left to ensure your self-storage business gets off to a smooth start.

Every business will have different needs, but some of the most common final steps include:

Business insurance: Just as with any other business, it’s crucial to protect your self-storage business with the right insurance. You’ll need a commercial property insurance policy to protect your buildings and on-site equipment. Liability insurance can cover you if a customer or other third party is injured on your property. If you have employees, you’ll also need workers’ compensation insurance. In the self-storage industry, it’s also common to offer or require customers to have insurance for their stored items.

Related: What types of insurance does a self-storage facility need?

Bookkeeping: A robust bookkeeping system is essential to keep track of your income, expenses, and overall financial performance. Many small business owners opt to use accounting software like Wave Accounting (FREE) or Quickbooks for this, but you could also hire a bookkeeper or accountant.

Contracts: In a storage unit business, the rental agreement is an essential contract. This outlines the terms and conditions of the storage rental, including pricing, duration, access hours, liability limitations, and rules for usage. You may also have contracts with suppliers, service providers, and employees. RocketLawyer offers a free

RocketLawyer offers a free storage space lease agreement that may be helpful, though having an attorney review or create something custom is a good idea.

Bank account: Opening a separate business bank account helps keep your business finances separate from your personal finances, simplifying bookkeeping and tax preparation.

Management software: There are various types of software that can streamline operations in a self-storage business. These can include facility management software like Easy Storage Solutions, SiteLink, or storEDGE, which help manage rentals, payments, and facility maintenance, among other features.

Credit card processing: Being able to accept credit cards is a convenience for customers and can streamline your payment processing. There are various providers to choose from, such as  Square or Stripe, so consider factors like transaction fees, setup costs, and customer service when selecting one.

Grand opening: Planning a grand opening event can help generate buzz and attract your first customers. Consider inviting local media, offering promotional discounts, and using it as an opportunity to network with other local businesses.

Other considerations: Depending on your business, you may need to consider additional tasks. For instance, if you’re offering climate-controlled units, you’ll need to set up and maintain HVAC systems. Security is another critical concern for self-storage businesses, so you’ll need to install and monitor security cameras, access control systems, and alarms.

Every self-storage business is unique, and your journey may not look exactly like another’s. Still, by systematically working through these common tasks, you can position your business for a successful start and long-term success.

This material is property of StartingYourBusiness.com

Greg’s Tip: Ensure you fully understand the legal requirements of operating a self-storage business. This includes having proper rental agreements in place, complying with lien laws when dealing with delinquent renters, and understanding any specific zoning laws for self-storage facilities in your area.

Greg's Business Tip

Common Self Storage Startup Questions

How much does it cost to start a self storage business?

Starting a self-storage business involves several costly upfront costs. While the exact figures will vary based on your location, the size of your facility, and other factors, the startup costs can often range from $250,000 to $3,000,000 or more. Here is a breakdown of some of the costs involved:

Land acquisition: This cost varies depending on the location and size of the land. You should also factor in the cost of any necessary site preparation, like clearing, grading, or environmental testing.

Building construction: Construction costs for a single-story self-storage facility can range from $25 to $40 per square foot. If you plan to build a multi-story facility, the costs can be significantly higher.

Storage units and equipment: Depending on the number and type of storage units, the cost can range from $3,000 to $5,000 or more per unit You will also need to budget for items like security cameras, access control systems, moving equipment, and signage.

Business registration and licenses: The cost of registering your business and obtaining necessary permits and licenses varies by state, but you should budget at least a few hundred dollars.

Initial insurance costs: The cost of insurance will depend on the size of your facility and the extent of your coverage, but a typical startup cost could be around $1,000 to $3,000.

Marketing: Marketing costs for a new business can vary widely based on your strategy and local market. For example, if you opt for a grand opening event, online advertising, and print materials, you could spend between $1,000 and $5,000.

Management software: Initial costs for facility management software can range from $500 to $2,000, depending on the features you require.

Operating expenses: These are your ongoing costs such as utilities, salaries, maintenance, and marketing. It’s wise to have at least three to six months’ worth of these expenses on hand when you open, to cover your operations until your income stream is reliable. Depending on the size and complexity of your facility, this could amount to anywhere from $20,000 to $60,000 or more.

It’s important to conduct a thorough analysis of the costs specific to your chosen location and business model.

How profitable are self storage businesses?

The profitability of a self-storage business can be influenced by a variety of factors, including location, occupancy rate, size of the facility, and operational efficiency. According to the Self Storage Association, typical rental rates for a self-storage facility range between $0.50 to $4 per square foot. To calculate the potential profitability, we’ll use a median value of $2 per square foot and consider an average unit size of 50 square feet.

First, let’s calculate the potential revenue for a single unit. With each unit being 50 square feet and the rental rate being $2 per square foot per month, a single unit can generate 50 sq ft * $2/sq ft = $100 per month or $1,200 per year.

Assuming a medium-sized self-storage facility with 1,000 units, if the facility is 80% occupied (the industry average is between 75% and 95%), it would have 800 rented units. This would yield an annual gross revenue of $1,200 * 800 units = $960,000.

Operating costs are assumed to be 30% of gross revenue (industry average is between 25% and 40%), would amount to $960,000 * 30% = $288,000.

Subtracting expenses from gross revenue, the net operating income, or profit, would be $960,000 – $288,000 = $672,000 per year.

This is a simplified model and doesn’t account for initial start-up costs or variations in unit sizes and rental rates. However, it provides a basic illustration of how a self-storage business can generate profit. As always, careful planning and financial analysis are crucial when starting a new business.

What skills are needed to run a self storage business?

Starting a self-storage business doesn’t require a business degree, but certain skills and advantages can be beneficial in this industry.

Attention to detail: Running a self-storage business requires plenty of attention to detail, from managing rental agreements to monitoring the security of the property.

Organizational skills: Great organizational skills will help a business owner stay on top of rental agreements, bills, and more.

Technology knowledge: Some experience working with technology will help a business owner to successfully implement, use, and troubleshoot the business’ security systems.

Customer service skills: Experience providing great customer service is important in this industry. A business owner will need to engage with customers, and strong customer service skills can encourage customers to extend their rentals or return in the future.

What is the NAICS code for a self storage business?

The NAICS code for a self storage business is 531130.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Resources:
Self Storage Association

How To Start A Self Storage Business

How To Start A Self Storage Business

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