storage facility business plan pdf

Self Storage Business Plan Template

Written by Dave Lavinsky

Self Storage Business Plan

You’ve come to the right place to create your Self Storage business plan.

We have helped over 10,000 entrepreneurs and business owners create business plans and many have used them to start or grow their Self Storage companies.

Below is a template to help you create each section of a storage unit business plan.

Executive Summary

Business overview.

Secure Self Storage is a startup self storage company located in Nashville, Tennessee. The company is founded by Bill Williams, an experienced self storage manager who has been working in the self storage industry for over a decade. Bill has recently earned a bachelor’s degree in Business Administration. Now that Bill has obtained the education and experience that will allow him to successfully navigate the process of starting a business, Bill is ready to open his own company, Secure Self Storage. Bill plans on recruiting a team of highly qualified professionals to help manage the day to day responsibilities of running a successful self storage facility – marketing, security, maintenance, accounting, and rent collection.

Secure Self Storage will provide a convenient, safe, and secure self storage solution for anyone in the Nashville area who needs to store their belongings. Secure will ensure that every storage need of the customer is being met. Secure Self Storage will be the ultimate choice in Nashville for self storage solutions while being the best-priced company in the area.

Product Offering

The following are the self storage solutions that Secure Self Storage will provide:

• Small Storage Units (5×5)
• Medium Storage Units (10×10)
• Large Storage Units (10×25)
• Vehicle Storage Units
• Temperature Controlled Units
• Extra Security Units
• Pickup & Delivery Services
• Disposal Services

Customer Focus

Secure Self Storage will target adults 18 years old and over in Nashville who need a storage unit for any reason such as moving, decluttering, doing home renovations, or those who need storage for business, college, or to store an automobile. No matter the customer, Secure Self Storage will deliver the best communication, service, and security.

Management Team

Secure Self Storage will be owned and operated by Bill Williams. Bill has a bachelor’s degree in Business Administration and has been working as a self storage manager for another local storage facility for over a decade. Now that Bill has obtained the education and experience that will allow him to successfully navigate the process of starting a business, Bill is ready to venture out and open his own self storage company. Bill will be the owner and manager of Secure Self Storage.

Bill has recruited his peer, Ken Smith, a financial professional with a Masters degree and fifteen years of experience doing financial work for various construction companies, to be the financial manager. Ken will help manage all of the finances for the company from finding a cost-effective location to set up shop to reporting and budgeting to make sure the facility is profitable.

Success Factors

Secure Self Storage will be able to achieve success by offering the following competitive advantages:

• Self storage units are easily accessible 24 hours a day, temperature controlled, and have the latest security technology to keep customers’ belongings safe and secure.
• On-site security guards are deployed 24 hours a day to ensure belongings, customers, and employees are safe at all times.
• On-site staff to answer questions, help customers, and keep the facility clean.

Financial Highlights

Secure Self Storage is seeking $250,000 in debt financing to launch its self storage business. The funding will be dedicated towards securing the facility space and purchasing equipment and supplies. Funding will also be dedicated towards three months of overhead costs to include payroll of the staff, rent, and marketing costs. The breakout of the funding is below:

• Self storage facility build-out: $50,000
• Equipment, supplies, and materials: $20,000
• Three months of overhead expenses (payroll, rent, utilities): $150,000
• Marketing costs: $15,000
• Working capital: $15,000

The following graph below outlines the pro forma financial projections for Secure Self Storage.

Company Overview

Who is secure self storage.

Secure Self Storage is a newly established high security self storage company in Nashville, Tennessee. Secure Self Storage will be the most convenient, secure, and customer-focused choice for storage unit renters in Nashville. Secure will provide a variety of self storage solutions for anyone looking for a secure storage option. The company’s customer-centric approach will include 24/7 on-site security and customer service staff, the latest security technology, and temperature controlled units.

Secure Self Storage will give customers peace of mind that their belongings are secure. The management team is composed of experienced professionals including business managers, security officers, and maintenance technicians. Secure Self Storage removes all headaches of the self storage unit renter and ensures all issues are taken care off expeditiously while delivering the best customer service.

Secure Self Storage History

Secure Self Storage is owned and operated by Bill Williams, an experienced self storage manager who has a bachelor’s degree in Business Administration from the University of Tennessee. Bill has worked for a local self storage company in Nashville for over a decade. Bill’s tenure with the self storage company combined with his education has given him the skills and knowledge required to venture out on his own and start his own company.

Since incorporation, Secure Self Storage has achieved the following milestones:

• Registered Secure Self Storage, LLC to transact business in the state of Tennessee.
• Has scouted a few location options and reached out to the owners for more information.
• Reached out to numerous contacts to include former customers to let them know about the upcoming facility.
• Began recruiting a staff of accountants, maintenance workers, security, and other facility personnel to work at Secure Self Storage.

Secure Self Storage Services

Industry analysis.

The United States self storage industry generates an estimated $39.5B in annual revenue with over 49,000 storage facilities throughout the country. The total rentable self storage space is approximately 1.9B square feet. An estimated 10.6% of U.S. households are currently renting a self storage unit. The average self storage space used per person is 5.9 square feet. The average monthly cost to rent a self storage unit is $90.

Self storage construction spending has nearly doubled in the past five years. According to the Self Storage Almanac, the market is highly fragmented with 31% of space being owned by six large public companies, 16% being owned by the next top 94 companies, and 53% being owned by small businesses. Self storage industry operators have the potential to achieve highly lucrative businesses if they manage them smartly. The average self storage company’s profit margin is around 11 percent, which is much higher than many other small businesses in other industries that are often closer to 3-5 percent.

Customer Analysis

Demographic profile of target market.

Secure Self Storage will target adults 18 years of age and older requiring self storage services in Nashville, Tennessee. The company will target people in need of storage space for a variety of reasons including moving, renovating, college, business, or to store a vehicle.

The precise demographics for Nashville, Tennessee are:

Customer Segmentation

Secure will primarily target the following customer profiles:

• People who are in the process of moving
• People who need storage space for a vehicle
• People who need storage for business
• People who need storage for college
• People who are renovating their homes

Competitive Analysis

Direct and indirect competitors.

Secure Self Storage will face competition from other companies with similar business profiles. A description of each competitor company is below.  

Nashville Self Storage

Nashville Self Storage is a temperature controlled self storage facility operating in Nashville, Tennessee. The facility has 400 units of varying sizes from 2×5 up to 30×30. Nashville Self Storage uses state of the art security systems with cameras throughout the facility to keep its patrons and their belongings safe and secure. The company currently has one facility with plans to open a second location in the next few months. The owners of Nashville Self Storage have been working in the storage industry for over 20 years and pride themselves on providing exceptional customer service.  

ALottaStuff Self Storage

ALottaStuff Self Storage is a Nashville-based self storage facility that provides outstanding service and storage solutions for its customers. ALottaStuff Self Storage takes the risk out of leaving your valuables in an unsecure storage facility by providing 24/7 secure monitoring of all of its units. They have temperature controlled units available in addition to non-temperature controlled units. Customers can depend on ALottaStuff Self Storage to handle their belongings with the best of care. The company provides pickup and delivery services for an extra fee.  

In-Boxes Self Storage

In-Boxes Self Storage is a trusted Nashville self storage company that provides superior service to customers in Nashville and the surrounding areas. They are able to provide a convenient storage solution for a wide range of customers with multiple locations throughout the city. In-Boxes Self Storage offers low prices for do-it-yourself storage facilities. Drive-up units are available for a flat monthly fee and indoor temperature controlled units are available for an additional charge. In-Boxes Self Storage maintains a clean, secure atmosphere with friendly staff available during office hours to assist with customers’ storage needs.

Competitive Advantage

Secure Self Storage will be able to offer the following advantages over their competition:

• On-site staff are available to answer questions, help customers, and keep the facility clean at all times.

Marketing Plan

Brand & value proposition.

Secure Self Storage will offer the unique value proposition to its customers:

• Experienced team of security professionals, customer service associates, and maintenance staff on-site 24/7 to help customers and keep the facilities clean, safe, and secure.
• Unbeatable pricing to its clients – Secure Self Storage offers competitive pricing with promotions and discounts for new and returning customers.

Promotions Strategy

The promotions strategy for Secure Self Storage is as follows:

Word of Mouth/Referrals

Bill Williams has built rapport with an extensive list of customers over the years by providing exceptional service during his tenure as a self storage manager. Many have communicated to Bill that they referred their friends to the storage facility because they were happy with the service he was providing. Once Bill advised them he was leaving to open his own self storage business, many contacts have committed to help spread the word of Secure Self Storage.

Professional Associations

Secure Self Storage will become a member of professional associations such as the Self Storage Association, the Nashville Self Storage Association, and Inside Self Storage. Bill will attend industry expos and events to promote the company.

Print Advertising

Secure Self Storage will have print ads and flyers made for newspapers, magazines, direct mailers, and to post around the city and hand out at industry events.

Website & Content Marketing

Secure Self Storage will create and maintain an easy to navigate, well organized, informative, website that will list all of the available storage options and pricing. The website will also contain an informative blog with storage related posts.

SEO Marketing

The company will use SEO marketing tactics so that any time someone types in the Google or Bing search engine “Nashville self storage” or “self storage near me”, Secure Self Storage will be listed at the top of the search results.

Social Media Marketing

Secure Self Storage will create and maintain an active presence across social media platforms including LinkedIn, Facebook, Instagram, Twitter, TikTok, and YouTube.

The pricing of Secure Self Storage will be competitive so customers feel they receive value when purchasing their services.

Operations Plan

The following will be the operations plan for Secure Self Storage.

Operation Functions:

• Bill Williams will be the Owner and Manager of the company. He will oversee all staff and operations. Bill has spent the past year recruiting the following staff:
• Ken Smith – Financial Manager who will provide all accounting, budgeting, tax payments, and monthly financial reporting.
• Shannon Bowman – Marketing Manager who will provide all sales and marketing initiatives for Secure Self Storage including management of the company website and social media accounts.
• Benjamin Stephens – Maintenance Manager who will oversee all maintenance of the facility.
• Micheal Brown – Head of Security who will provide all security for the facility and oversee a small team of on-site security guards.

Milestones:

Secure Self Storage will have the following milestones complete in the next six months.

8/1/2022 – Finalize contract to lease facility space.

8/15/2022 – Finalize personnel and staff employment contracts for the management team.

9/1/2022 – Begin build out of the facility.

9/15/2022 – Begin networking and marketing campaign.

9/22/2022 – Begin moving into the Secure Self Storage facility.

10/1/2022 – Secure Self Storage opens its facility for business.

Bill has recruited the help of his peer, Ken Smith, a financial professional with a Masters degree and fifteen years of experience doing financial work for various construction companies. Ken will help manage the finances for the company from finding a cost-effective location to set up shop to reporting and budgeting to make sure the facility is profitable.

Financial Plan

Key revenue & costs.

The revenue drivers for Secure Self Storage are the self storage fees that will be charged to the customers for their services. The company will charge a monthly fee for unit rentals. The fee will vary depending on the size of the unit.

The cost drivers will be the overhead costs required in order to staff a self storage facility. The expenses will be the payroll cost, utilities, maintenance costs, and marketing materials.

Funding Requirements and Use of Funds

Secure Self Storage is seeking $250,000 in debt financing to launch its self storage business. The funding will be dedicated towards securing the facility space and purchasing equipment and supplies. Funding will also be dedicated towards three months of overhead costs to include payroll of the staff, rent, and marketing costs for the print ads and association memberships. The breakout of the funding is below:

Key Assumptions

The following outlines the key assumptions required in order to achieve the revenue and cost numbers in the financials and in order to pay off the startup business loan.

• Average number of occupied units per month: 200 out of the total 500 units (40%)
• Average fees per month: $30,000 (average $150.00 per medium sized unit)
• Annual Lease on Facility: $100,000

Financial Projections

Income statement.

Balance Sheet

Cash Flow Statement

Self Storage Business Plan FAQs

What is a self storage business plan.

A self storage business plan is a plan to start and/or grow your self storage business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections.

You can easily complete your self storage business plan using our Self Storage Business Plan Template here .

What are the Main Types of Self Storage Businesses?

There are a number of different kinds of self storage business , some examples include: Portable container, Climate controlled storage, and Vehicle storage.

How Do You Get Funding for Your Self Storage Business Plan?

Self storage businesses are often funded through small business loans. Personal savings, credit card financing and angel investors are also popular forms of funding.

What are the Steps To Start a Self Storage Business?

Starting a self storage business can be an exciting endeavor. Having a clear roadmap of the steps to start a business will help you stay focused on your goals and get started faster.

1. Develop A Self Storage Business Plan - The first step in starting a business is to create a storage facility business plan pdf or doc that outlines all aspects of the venture. This should include potential market size and target customers, the services or products you will offer, pricing strategies and a detailed financial forecast.  

2. Choose Your Legal Structure - It's important to select an appropriate legal entity for your self storage business. This could be a limited liability company (LLC), corporation, partnership, or sole proprietorship. Each type has its own benefits and drawbacks so it’s important to do research and choose wisely so that your self storage business is in compliance with local laws.

3. Register Your Self Storage Business - Once you have chosen a legal structure, the next step is to register your self storage business with the government or state where you’re operating from. This includes obtaining licenses and permits as required by federal, state, and local laws. 

4. Identify Financing Options - It’s likely that you’ll need some capital to start your self storage business, so take some time to identify what financing options are available such as bank loans, investor funding, grants, or crowdfunding platforms. 

5. Choose a Location - Whether you plan on operating out of a physical location or not, you should always have an idea of where you’ll be based should it become necessary in the future as well as what kind of space would be suitable for your operations. 

6. Hire Employees - There are several ways to find qualified employees including job boards like LinkedIn or Indeed as well as hiring agencies if needed – depending on what type of employees you need it might also be more effective to reach out directly through networking events. 

7. Acquire Necessary Self Storage Equipment & Supplies - In order to start your self storage business, you'll need to purchase all of the necessary equipment and supplies to run a successful operation. 

8. Market & Promote Your Business - Once you have all the necessary pieces in place, it’s time to start promoting and marketing your self storage business. This includes creating a website, utilizing social media platforms like Facebook or Twitter, and having an effective Search Engine Optimization (SEO) strategy. You should also consider traditional marketing techniques such as radio or print advertising.

Learn more about how to start a successful self storage business:

• How to Start a Self Storage Business

Everything You Need to Know About How to Start a Self-Storage Business

From Alaska to Alabama, roughly 50,000 self-storage facilities are scattered around the country. That’s about the same number of McDonald’s, Starbucks and Subway locations across the U.S.  combined . These facilities are the foundation of the U.S. self-storage industry , which was projected to generate $37 billion in revenue in 2019.

At each of these self-storage facilities, people pay rent — usually by the month — to store their stuff in units of various sizes. They could be stashing furniture, art, appliances, TVs, documents, holiday decorations, wine, vehicles, boats or RVs. Many small businesses rely on self-storage units to keep business equipment, inventory and supplies. Some customers even have converted self-storage units into high-end “man caves” and “she sheds.”

Each of those self-storage properties is not only a warehouse for our wares — every facility also is a small business. And it can be a lucrative business, at that. By one estimate, the typical profit margin of a self-storage business in the U.S. is 11%. That’s well above the profit margins for many other types of small businesses; for example, the typical profit margin of a restaurant ranges from 3% to 5%.

Given those numbers, starting a self-storage business sounds pretty appealing, doesn’t it? It sure does. However, anybody looking at starting a self-storage company must look beyond the profits and weigh the practical considerations:

• How much will it cost to start a self-storage business?
• What kind of research and planning do you need to do before starting a self-storage business?
• Should you buy an existing self-storage facility?
• Should you build a self-storage facility from the ground up?
• How will you manage and market your self-storage facility?

Those are big questions, of course, but then starting a self-storage business is a big undertaking. Follow along as we guide you through what it takes to start a self-storage business.

How Much Will it Cost to Start a Self-Storage Business?

Before scouting locations for a self-storage facility — no matter whether you’re looking at buying an existing facility or building a new one — you’ll need to crunch some numbers.

At the outset, you’ll need a good sense of how much it’ll cost to get into the self-storage business. The numbers will vary widely based on a variety of factors, such as location, acquisition costs, land costs and facility construction costs . (We’ll get into the details later.)

Not only must you think about the costs to purchase or develop a facility, but you also must examine where the money will come from:

• Do you have enough liquid assets to buy or develop a self-storage facility on your own? Can you afford to earmark those assets for a self-storage facility?
• Do you need to take out and acquisition or construction loan?
• Do you need to recruit self-storage investors to help finance an acquisition or development deal?

After you’ve come up with answers to those questions, you’ll need to figure out how much it’ll cost to operate the facility once it’s yours. Are you and your family going to run it on your own? Will you have to hire staff to operate it? Would it be best to leave the operations side to a third-party management company? Do you need to install self-storage management software such as SiteLink ? In the end, how much time do you want to spend running a self-storage facility?

Remember, a self-storage facility is more than a structure. It’s a business.

To get into the storage business, you’ll almost assuredly need to carve out millions of dollars to purchase or construct a facility, and to cover various operating expenses, particularly payroll and taxes. A report released in early 2018 by commercial real estate company CBRE shows real estate taxes accounted for 28 percent of all self-storage operating expenses, with on-site and off-site management costs eating up another 38 percent of operating expenses.

What Kind of Research and Planning Do You Need to do Before Starting a Self-Storage Business?

Once you’ve done some high-level thinking about starting a self-storage business, it’s time to do some research. All of that research will go into a feasibility study that will, as its name suggests, tell you whether the business idea is feasible. You might be able to do this study on your own, but you’d be better off hiring a self-storage consultant to perform it.

Whichever route you go, you need to answer a critical question:

If I build it or buy it, will they come?

In other words: if you invest money in a self-storage facility, will you generate enough revenue to cover debt service and operating expenses, and still make a profit?

Performing market research is crucial. This exercise will help you pinpoint the demographics of the customer base within a one- to five-mile radius of the facility. A three- to five-mile area is the typical size of a market for a self-storage facility.

You’ll want to nail down the median income in the market area (self-storage renters tend to be in the middle-income and upper-middle-income brackets), along with the median age (self-storage tenants are normally in their early 20s to mid-50s).

In addition, you’ll want to review the following aspects of your proposed market area:

• Current population (anywhere from about 20,000 people in a rural setting to 100,000 or more in an urban setting, as a general guideline).
• Projected population growth (more people means more prospective tenants).
• Daily vehicle traffic (the majority of self-storage facilities depend heavily on drive-by traffic to attract customers).
• Competitive landscape. Which self-storage facilities already are operating in the area? What is their occupancy rate? Are there any facilities that are under construction or are planned within the trade area?

Other components of the feasibility study normally will include an overview of the self-storage industry; long-range projections for rental rates, income, expenses and property value; and details about the storage project’s zoning.

Writing a Business Plan

Every business should have a business plan. Simply put, a business plan can help propel a business toward success, letting you realize your goals and manage issues that might arise. Most lenders will want to see a business plan before extending a loan.

Lots of online templates are available for writing a business plan, so you certainly can try tackling it on your own. You also can seek assistance from a nonprofit like SCORE, which offers free business mentoring, or you can hire a writer who specializes in business plans.

Keep in mind that a business plan for an existing self-storage facility will look quite different from a business plan for a proposed facility.

Each business plan should be tailored to your own needs, but a business plan for a self-storage facility usually will feature information such as:

• Mission statement.
• Vision statement.
• Ownership structure.
• Business structure (such as an LLC, or limited liability corporation).
• Staff roles and responsibilities.
• SWOT analysis (strengths, weaknesses, opportunities and threats).
• Market analysis.
• Competitive analysis.
• Marketing and sales strategies.
• Pricing strategy. Roughly speaking, monthly rents for a self-storage facility in a high-population area can be anywhere from 50 cents to $4 per square foot.
• Menu of product and service offerings, including a rundown of the unit sizes, like 5×5, 10×10 and 10×20.
• Sources of capital.
• Revenue streams.
• Revenue and expense projections covering several years. Financial modeling will enable estimates of revenue and expenses on a per-square-foot basis.

One factor in making sure revenue projections are met is marketing. While drive-by traffic delivers lots of customers, marketing — particularly online self-storage marketing — can’t be ignored. Self-storage consumers increasingly are turning to the internet as their first stop when shopping for a storage unit.

Any smart internet strategy should ensure your facility can be found on search engines like Google as well as through online self-storage marketplaces like SpareFoot. In addition, your facility’s website should be up to date. Companies like storeEDGE specialize in developing, revamping and maintaining mobile-ready websites for self-storage operators .

How to Create a Self-Storage Business Plan [Plus a Free Template!]

Should You Buy an Existing Self-Storage Facility?

In terms of buying an existing facility , prices are all over the map, just as the self-storage facilities themselves are. As you might expect, an existing self-storage facility in New York City, NY, likely will go for tens of millions of dollars, whereas an existing facility in rural Iowa likely can be purchased for less than $1 million.

A spot analysis of storage facilities for sale in March 2019 found that asking prices generally ranged from $1 million to $10 million per facility. Some facilities on the market also were bundled for sale as a single portfolio.

Unless you’re a licensed real estate professional, it’s wise to hire an experienced self-storage broker to help you find and eventually buy a facility. A seasoned broker knows the market and knows how to negotiate the price.

If you’re going to be running the facility, you, of course, will want to buy a facility in the region where you live. But if you’ll be handing over operations to a third-party management company, then it doesn’t necessarily matter where the facility is. Just be sure you and your broker have a good grasp of the local market.

Should You Build a Self-Storage Facility from the Ground Up?

This should come as no surprise, but location also plays a big part in the cost of building a new facility . You might be able to put up a single-story, 40,000-square-foot self-storage development in a small town for $1 million or less, whereas a two-story, 80,000-square-foot facility in a more urban setting could set you back $6 million. Keep in mind that these are rough estimates.

As a rule of thumb, you can expect to spend anywhere from $25 to $75 per square foot on new construction. However, that’s merely an approximate range. Again, the location of the facility — including the cost of the land — will dictate the price tag for construction.

Here are some statistics to keep in mind if you’re developing a self-storage facility:

• Facilities range from 10,000 square feet to 100,000 square feet or more.
• The average self-storage facility encompasses 46,000 net rentable square feet (the amount of money-generating space that can be rented by tenants).
• A facility typically covers 2.5 to 5 acres.

What follows are six things to take into account when you’re building storage units:

• What will the mix of units be?  If the facility is in a trade area that’s populated predominantly by apartment renters, then you might want to include more small units, such as 5×5 or 5×10. But if the residents of the trade area are mostly homeowners, more 10×10 and 10×20 units might be in order.
• Should the facility consistent only of drive-up units or only indoor-access units?  Or should there be a blend of drive-up and indoor-access units. The answers depend on the demographics of the trade area.
• Should there be only climate-controlled units or only non-climate-controlled units?  Or should there be a combination of the two? The local climate will come into play regarding this decision, as will your construction budget.
• Should you limit the facility to one building?  Or will you have enough room — and does it make sense — to spread the units across several buildings? How much land is available, along with how much demand is projected, will influence the configuration of the facility.
• Should space be set aside for storage of boats, RVs and other vehicles?  The answer hinges, in part, on market research indicating how many boat, RV and vehicle owners live in the trade area.
• Should you look at converting an existing structure, such as a shuttered retail store, into a self-storage facility?  A number of self-storage developers have successfully transformed unused and often overlooked spaces into tax-revenue-generating, job-creating storage facilities.

Aside from what the facility will look like, another key factor is zoning and entitlement.

A huge issue will be how the property is zoned. If the property is already zoned for self-storage, then that removes a huge hurdle. But if the property needs to be rezoned, then you could devote months or even years to seeking approval for a zoning change.

In some places, government officials and local residents vigorously oppose self-storage facilities, based on the ill-informed notion that these facilities are magnets for crime and traffic, and that they’re eyesores. The reverse is actually true. Self-storage facilities don’t cause a rise crime or traffic, and many modern facilities are being designed to fit into and even accentuate neighborhoods.

Additionally, there’s the issue of entitlement. This involves obtaining approval from government entities for your development plans. As with rezoning, an entitlement case could drag on for months upon months.

All of that being said, keep two things in mind:

• Development of a self-storage facility takes time and patience (and, of course, money).  Aside from the zoning and entitlement, construction can be delayed by bad weather, shortages of labor and limited supplies of construction materials.
• Development of a self-storage facility requires expertise.  A development team should include seasoned legal, real estate, financial, construction and design professionals. Few people who are new to the self-storage industry can go it alone when developing a new facility.

Financing a Self-Storage Facility

Just as there is with any business, there are some hard truths about self-storage, no matter whether you’re talking about a newly constructed or newly acquired facility.

For one thing, you’ll need money to launch the business and keep it running.

As we mentioned before, the amount of money you put into a facility varies greatly, based on location and myriad other factors. But before you spend a dime, you’ll have to decide how you’ll go about financing an acquisition or a new development.

For instance, will you need to take out a loan? A number of options are available, such as acquisition loans, construction loans and SBA loans. Many of these loans cover terms of 10 to 25 years. Work with a lending professional who’s well-versed in the self-storage industry to point you in the right direction.

To qualify for a self-storage loan, here are four things you’ll likely need:

• A credit score of at least 680.
• A credit history clear of recent bankruptcies, foreclosures and tax liens.
• A cash down payment of 10 percent or more.
• A business track record of at least three years.

Perhaps you don’t need to take out a loan and, instead, have enough liquid capital to buy or build a facility. However, do you have enough money to operate the facility? You don’t want to drain your retirement fund to purchase or develop a self-storage facility.

Or you might consider teaming up with other investors to buy or build a facility. This can be done through:

• A debt partnership, which is a lending relationship that does not assign an ownership stake to the person or entity you are borrowing the money from.
• An equity partnership, with each partner chipping in a certain amount of cash and owning a share of the business.
• A joint venture with, say, a self-storage developer. Each partner owns a certain percentage of the business.
• A syndicate of accredited investors assembled for the sole purpose of buying or developing a facility.
• A tenant-in-common arrangement, which allows at least two people to own a property and enables the relatively seamless transfer of an ownership stake to another party.

Financing Options for Self-Storage Businesses

How Will you Manage and Market Your Self-Storage Facility?

While storage facilities traditionally generate healthy, stable cash flow, anyone entering the self-storage business must realize that this won’t be a get-rich-quick operation.

Generally speaking, the occupancy rates of self-storage facilities range from 70% to 95%. With a facility that’s newly constructed or that’s being repositioned, a new owner often will face a lease-up period of 18 to 36 months before a facility reaches occupancy stabilization. Positive cash flow also could be years down the road.

However, the good news is that the breakeven occupancy rate for a self-storage facility falls well below other asset classes. By one measure, the breakeven point is 40% to 45% occupancy in self-storage , versus 60% or more in the multifamily sector. Furthermore, self-storage facilities boast some of the best shorter-term and longer-term returns in commercial real estate.

When it comes to buying a self-storage facility, one investment number that’s essential to note is the capitalization rate (cap rate for short). “Capitalization rates are always the over-arching consideration for both buyers and sellers in the self-storage industry,” according to self-storage brokerage firm SkyView Advisors.

As explained by SkyView Advisors, the cap rate is the ratio of a property’s NOI (net operating income) to the value of the property. For example, if a property sells for $1.5 million and its NOI is $120,000, then the cap rate is 8% ($120,000 is 8% of $1.5 million).

“In the simplest terms, the cap rate reveals to an income property investor what percentage [he/she] can expect to earn if he buys the property with all cash,” SkyView Advisors said.

For example, if an investor thinks a property is worth a cap rate of 8%, then he or she expects a cash return of 8%.

In the third quarter of 2018, cap rates for self-storage facilities ranged from 4.5% among Class A facilities to 8.5% for Class C facilities, according to CBRE.

Bottom Line

At the end of the day, buying or building a self-storage facility will most certainly consume time, energy and money. However, the payoff can be substantial in a continually growing industry. Evidence of that growth abounds:

• In 2018, self-storage occupancy rates and rental rates in a number of U.S. markets reached record highs.
• Demand for self-storage keeps going up thanks to an array of trends, including the overall downsizing of baby boomers’ households, the general preference among millennials for renting apartments versus owning homes and the sustained mobility of American workers.
• Over time, self-storage has demonstrated that it’s a recession-resistant sector.

In short, self-storage furnishes a wealth of reasons why acquiring an existing facility or building a new facility can open the roll-up door to attractive investment gains.

“Storage facilities need little capital outlay or upkeep, their property taxes are modest, and net acquisitions in that sector have surged,” Forbes.com contributor Brad Thomas observed in November 2017. “And so, in good times and in bad, kind of like marriage, good old storage units are like a trusty … spouse.”

Related Resources:

How to Buy a Self-Storage Facility

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