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Home Business

Cost of Building Storage Units: An Overview

by msz991
March 11, 2021
in Business
5 min read
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Building storage units can be a profitable real estate investment. According to Sparefoot, there are over 49,000 storage facilities in the United States with 1.9 billion square feet of total rentable space. An estimated 10 percent of American households rent a self-storage unit, bringing the annual industry revenue to about $39.5 billion.

Storage units exist to provide a safe space for clients to store their items. People pay rent, usually monthly, to the owners of these facilities to store their items. These figures are no doubt appealing to would-be investors.

Like any other potential investment, you must be aware of the basics of the business and possible drawbacks if any. In this case, for instance, it’d be best to know the cost of building storage units, pick a location for your business, research the market, and assess the competition.  

Table of Contents

  • Why Invest in Storage Units?
    • High Demand and Impressive ROI
    • Lower Overhead Costs
    • Multiple Business Opportunities
    • Hands-Off Approach
    • Fewer Problems
  • What Is the Cost of Building a Storage Unit?
    • Cost of Land
    • Construction Costs
    • Franchising Fees
    • Marketing Costs
    • Operating Costs
    • Buying a Self-Storage Unit
    • Financing a Self-Storage Investment
  • Conclusion

Why Invest in Storage Units?

Self-storage provides advantages that you’ll probably not find in other real estate investments. The following reasons are why you may want to consider investing in self-storage.

High Demand and Impressive ROI

Ecommerce stores are making it easier for consumers to buy items and the demand for storage space continues to rise. Storage units are hardly affected by recessions, easily scalable, and often offer great investment returns.  

Lower Overhead Costs

Self-storage units are cheaper to maintain than other property investments. For instance, when you build prefabricated mini storage units, you don’t have to worry about the renovation for a long time, seeing as the metals used in its construction are durable and eco-friendly.

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You only have to use about 35 to 40 percent of your operating income on expenses. This low operating cost is because you don’t have to deal with faulty toilets, leaky pipes, damaged equipment, or freshening up the place when a client leaves. You may have to fix roofs, gates, doors, and so on but these are usually straightforward expenses.

Multiple Business Opportunities

Rent isn’t the only way to profit from your storage unit investments. You can add other businesses such as U-Haul affiliate storage to your units. Furthermore, you also get to increase your personal and business network when you store items for people and businesses in your area.

Hands-Off Approach

You can decide not to be fully involved in your business. Operating storage units don’t require a full hands-on approach so you can hold a day job, or run other businesses while earning from your units.

Fewer Problems

You don’t have to deal with the typical tenant problems associated with single or multifamily rentals. More so, you can also auction off the property of defaulting clients without the emotional or financial implications of evicting tenants.

What Is the Cost of Building a Storage Unit?

You’ll need to estimate self-storage construction costs, depending on your location. However, owning a storage unit usually costs between $1,000,000 to $4,000,000 in total. Don’t forget that these are rough estimates. Knowing how much it’ll cost to build a storage unit depends on some factors like: 

  • Cost of land
  • Construction costs
  • Franchising fees (if any)
  • Marketing costs
  • Operating costs.

Cost of Land

The cost of land is often one of the biggest expenses involved in building a storage unit. As a rule of thumb, it’d be best not to spend more than 25 to 30 percent of your total budget on land. How much you’ll pay for land depends on whether you’re building in an urban, suburban, or rural area. Naturally, rental prices will also reflect land costs.

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You can expect to spend a gross sum of $1.25 per square foot of land, and you’ll be using only about 45 percent of your total space for storage. So, you may look at the net cost of purchasing land to be $3.25 per leasable foot of the property. You can even maximize land use by building multi-story storage units.

Construction Costs

Construction costs may involve land improvement charges for draining, excavation, clearing, amongst others. While construction costs are variable, you might pay between $25 to $42 per square foot for single-story buildings, and $45 to $75 per square foot of multi-story units you build. Architectural designs and in-unit facilities like climate control equipment can also significantly affect construction costs. You might want to include the cost of self-storage metal building prices, if you’re building prefab storage units, seeing as it’s what clients prefer now. 

Franchising Fees

One way to quickly get your foot in the storage unit market is by leveraging on an existing franchise. Established storage companies will let you use their name for an upfront payment and royalties from your rentals. Fees vary among franchisers, so you’ll need to find out directly from the company how much you’ll need to use their brand.

Marketing Costs

If you won’t be partnering with a franchise, then you’ll have to consider marketing costs. You may want to take out an ad, put up a website, and hire social media influencers. Spreading the word can cost money.

Operating Costs

The Self-Storage Expense Guidebook estimates that the average storage unit spends around $3.78 per square foot. Figures can vary based on salary costs and the use of amenities like climate control and video monitoring equipment.

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Buying a Self-Storage Unit

Another way of getting into the self-storage industry is by buying an existing unit. However, prices can vary widely depending on your location. While you may be able to get a mini storage building cost of less than a million dollars in some rural parts of the US, you might have to pay up to $10 million dollars for a unit in highly urban parts of say, New York or California.

Before buying an existing unit, consider seeking out the services of a self-storage expert to help you find and broker a deal for a unit.

Financing a Self-Storage Investment

Self-storage investment as we’ve seen requires a significant amount of financial commitment. You need to decide how you’ll finance your project. If you don’t have enough liquid capital, you may want to look at some self-storage financing options. Self-storage acquisition or construction loans help space out the total cost of acquiring or constructing self-storage units over a 20 to 30-year window.

Lenders would normally assess your qualification for self-storage loans based on your credit score, debt service coverage ratio, and the ability to run the business. Also, you’ll need to make a down payment of about 15 to 20 percent of the total cost.

Conclusion

The self-storage industry continues to blossom in the US, providing great opportunities for investors looking to go into real estate. It becomes a viable investment option due to the consistent cash flow, property appreciation, and recession-resistance.

You’ll have to spend money, time, and energy to get your business up and running at first, but in a sector with so much untapped potential, self-storage remains a worthwhile investment for anyone looking to diversify their business portfolio.

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