Starting a new business is difficult in any industry, and the self-storage industry is no different. Below are six of the most important steps that you need to take in order to get your self-storage facility off the ground.
Step #1: Start Researching Your Local Market
One of the most important steps in starting a rental storage unit business is to do your homework and figure out whether starting one in your area will be sustainable or successful. There are a few factors you should consider when conducting this research:
Local Demand and Competition
Investing in self storage facilities, or in any type of property, means taking on a little bit of risk. You need to cover all expenses for the facility while ensuring you’re also making some profit. Think about the places where a storage facility would be well-suited, like near a college campus or off a popular highway exit. You’ll want to be sure that you have enough demand to fill your units. You should also look at things like vehicle traffic, since self-storage businesses often get leads via drive-by interest.
Local competition can be a negative factor influencing the success of your business. Look around; have nearby storage facilities been able to fill their units? If you place a second storage facility close to another one that already is having trouble getting tenants, both businesses will suffer.
Self-storage renters tend to be people from their early 20s up to those in their mid-50s. Keep in mind that most self-storage businesses have a customer base within a radius of three- to five- miles, so placing your facility in a town with a low population or in an area that is relatively quiet is not a great idea. You should also consider projected population and job trends to see how small businesses will likely fare in the coming years.
To estimate expected self storage investment returns from your facility, you should investigate the average rates for storage units in your area. Use this information to get an estimate of how much you would be able to charge for your units.
Step #2: Create a Business Plan
Now that you’ve done your market research, it’s time to organize what you’ve learned into a readable format for future lenders, partners, or other interested parties. Describe what type of business you’ve created, lay out key financial metrics, and explain your market strategy. Take your time with this step—your self storage business plan is what will help you get funding.
Step #3: Get a Loan
Financing is an important part of making your small business plans a reality.
There are many different loans available for self-storage investors. Some of the most common options are SBA 504 loans, SBA 7(A) loans, or conventional loans. If you plan on constructing your own self-storage facility, you will need a construction loan that will require you to put at least 25% down in most cases.
When trying to secure a loan and get an interest rate that’s as low as possible, you’ll need to have a strong business plan that you present to lenders.
Step #4: Build/Buy Your Storage Facility
Now your hard work comes to fruition.
If you’re building a new storage facility, check with your local city planners to make sure you can build your facility on the plot you’re intending to. Zoning requirements could require you to re-zone your plot and wait for approval from the city before you can move on with construction.
If you’re buying a facility, negotiate with the seller on the price and conditions; get your new investment appraised and inspected; and analyze the property’s prior cash flow, tax returns, and any other information that could clue you in on potential risk factors.
Step #5: Write a Rental Agreement
Before starting to get any new tenants, you’ll need a thorough self-storage rental agreement. You should include the following in your leases:
- Contact information for you and your tenant
- Monthly rent and when it’s due
- Lease start and end dates
- Security deposit details
- Grace period/late fee amounts and policies
- Responsibilities of the leasee
- Responsibilities of the lessor
- Rules about items that can and cannot be stored
Step #6: Use Software to Manage your Self-Storage Units
Using self-storage software to manage your units is a great idea for every self-storage investor. Software allows you to automate many of the tedious day-to-day tasks that landlords must complete, so utilizing quality software can free up time and energy for you to work on other aspects of your business.
Self-storage software can track tenant leases, provide tenant screening tools, consolidate financial reporting information, generate tax documents, and also collect rent automatically. Property management software companies like Innago can help you manage your storage units as you would traditional properties. Do your own research to figure out which platform works best for you and your new business.
Starting a new business can be intimidating, but hopefully the steps above help you feel more confident when tending to your burgeoning self-storage facility. When in doubt, ask fellow self-storage investors how they handled starting their business. Having a solid business plan and high-quality property management software is a smart place to start.