Why Is Building a Self-Storage Facility Beneficial to My Bottom Line?
The Covid-19 pandemic caused self-storage facilities to see record-breaking occupancies and profits. This increase in demand was due to major life changes, such as having to make space to work from home, kids coming home from college, downsizing, and divorce. Today, self-storage facilities are heading back to pre-pandemic occupancy, and with spring here and summer around the corner, seasonality will continue to boost rentals and rates.
Now more than ever, if you are looking to get into self-storage, you must weigh the pros and cons of expanding via acquisition or new construction/conversion — both are viable options. New construction is expected to slow in 2023 due to increased interest rates, extended entitlement timelines, and construction costs; however, we believe it will pick back up once inflation subsides. Let’s explore why new construction is a viable option for self-storage ownership.
Learning How To Make the Most Out of Your Investment
One of the most attractive aspects of self-storage is how reliable it is. This is due to the high consumer need for storage; compared to other real estate assets, self-storage offers month-to-month leases allowing price adjustments which provides owners maximum returns and flexibility.
Additionally, there are plenty of ways you can save money while operating a facility. The easiest way to lower operational expenses is to implement a remote management model instead of hiring a full-time on-site storage manager. According to Salary.com, the national average salary for a self-storage manager was $58,415 in February 2023. Remote management increases net operating income and lowers expenses, giving owners a greater ROI.
What Are the Key Success Factors of Building a Self-Storage Facility?
There are three key factors when deciding to build a new self-storage facility — market research, finding a competitive and reliable building company, and picking a successful management company.
1) Market Research
Market research is essential to learning about the surrounding area, average rates, market needs, competitors, and buying patterns. Market research will also help identify market segments and groups that will make up the primary buyers of storage units. Understanding your market segments will help you to learn who your customers are, their needs, and how to target them effectively.
Market research, like a feasibility study, will also provide insight into pricing compared to the national average. Market needs are critical in assessing what types of units and amenities to include in your facility. Consumers are looking for a safe, easy-to-access, and reliable self-storage facility. Being aware of your competitors and what amenities and features they offer is essential to success. Having information on your target market and what the consumer breakdown is will help you in the future when implementing digital marketing.
2) Finding a Competitive and Reliable Building Company
Partnering with a competitive and reliable building company is crucial to minimizing costs while maintaining quality. When choosing a building company, it is crucial to do thorough research to eliminate surprises and review their previous work. In self-storage facilities, all the space needs to be utilized, or you will miss potential revenue. Hiring a builder that is conscious of this is essential. Lead time and price are important when assessing potential groups to build. Ensure you pick a company that can get the job done on time and on budget.
3) Picking a Successful Self-Storage Management Company
Picking a successful self-storage management company is the final key factor, but one that you need to decide on early in the process. First, you need to consider which services you need from a potential management company. If you are new to self-storage, research the ins and outs of the business — you might need more services than you anticipate. Copper Storage Management offers day-to-day operations, which include a call center, lien auctions, marketing, and collections. Additionally, CSM offers bookkeeping, seamless unit rentals, and the creation or transferring of websites.
Our bookkeeping service takes care of the day-to-day transactions and accounting responsibilities, like setting up a merchant account for credit card processing. Additionally, we provide a quarterly accounting report. Our customer service center can be broken into two main pieces: sales and service.The most important job of any management company is to rent units. A management company must be able to generate new revenue and bring in new tenants. On average, 10% of tenants move out each month. That’s a lot of people to replace! Once the potential leads become actual tenants, we must be able to service their needs. We provide full customer support 8:00 AM – 8:00 PM, seven days per week, in all four time zones. Customers can call, email, text, or even chat on our website. Providing human customer support is essential to managing a successful facility.
Our Auction Department manages online auctions, processes past due accounts, prepares units for auction, and handles buyers and payments. The collections services will ensure that tenants are paying for their units, and if they are not, move them into the lien auctions process accordingly. Our lien processes are state-specific in accordance with local lien laws. This is beneficial in ensuring that your units are creating revenue and being turned over efficiently.
Websites are the focal point of generating today’s self-storage leads. As times and expectations change, our online presence has become the new storefront. It is more important than ever to have a well-developed website. It needs to be modern, while allowing tenants to rent units and pay bills easily.. The marketing services that Copper Storage Management offers are website development, management, paid digital marketing, organic marketing, and content creation. Great digital marketing is essential for remote management because most people find their storage units through the internet or their phone’s map app. Having an informative website and appearing at the top of a Google page is critical to stay competitive in a changing market.
What are the Pros of Building a Self-Storage Facility?
The first advantage is building more equity over time, this is beneficial in creating funds for future investments. The second advantage is being able to implement the latest technology for your facility, making your facility more competitive and increasing the potential pool of buyers once selling the facility comes into question.
An advantage to building is being able to lower long-term building cost. If you acquire an outdated facility, you will have to eventually renovate and fix emerging issues that can be avoided with building. Self-Storage, much like all other forms of real estate, is all about location. Choosing the exact location of your facility is a major advantage. Another pro of building in comparison to acquiring is being able to assess current market demands and build the proper unit mix to meet these demands.
People like new things and prefer to store their belongings in a brand-new facility than one that is twenty years old, no matter how well-maintained that facility is. Additionally, people want to feel like their personal belongings are safe at a storage facility, and curb appeal and presentation go a long way in making customers feel the facility is safe.
What Are the Cons of Building a Self-Storage Facility?
There are several potential risks or disadvantages when building a self-storage facility, including unknown problems that can arise during construction, such as weather-related building delays, supply chain issues, labor shortages, equipment failure, and project mistakes or conflicts. If you do not hire a skilled and knowledgeable general contractor, poor product management can cause additional delays. These delays can also cause you to miss opening in time to get the full rental season, resulting in lost revenue. Having an allocated contingency budget that is 5-10% of the total construction budget will help lessen the financial repercussions of delays and issues that arise during building.
Another factor that can be a potential barrier is municipality bureaucracy which elongates the process of getting final permits and approvals. The next risk is zoning issues. Residents might push back on building a self-storage facility on a property that is not zoned correctly. It is also important to be aware of inflation costs and how these additional costs will affect your project and return on investment. Lastly, modern building codes can be strict compared to being grandfathered into outdated facilities building codes through acquisition.
Customer Spotlight: Zanesville Best Storage
Nick has been investing in single-family rentals and mobile homes for over 11 years. In 2020, he decided to focus primarily on storage because of the growing market and impressive returns. His facility launched in mid-December and saw significant growth despite the off-peak season. The three components of self-storage that were the most appealing to Nick were operational capabilities, technology, and scalability. Nick was especially interested in the ability to live outside of the area around his hometown and feel comfortable running a facility with the help of a remote third-party management company. He chose to build his storage facility because he was able to be in full control of decisions like layout and unit sizes, and he understood what his market needed through his use of market research. Nick was very successful in creating his units with a mix of sizing. This made him stand out from competitors in the area and create value for his customers.
Nick liked being able to educate customers on how his facility operates from the beginning, rather than having the consumers adapt. Nick owns Zanesville Best Storage, located approximately 55 miles outside of Columbus, Ohio. Zanesville Best Storage has 436 total units, 138 units are temperature controlled, and there are drive-up units as well. Nick diversified his facility with different sizing options and features, which is great for attracting many consumers with different storage needs. Nick decided to implement remote storage management into his business strategy because he saves money by not hiring a full-time on-site storage manager. Nick was able to save time and money by hiring Copper Storage Management (CSM) because he did not have to worry about hiring or training reliable employees. Nick found that CSM has added substantial value to his facility through our bookkeeping services, marketing services, and call-center services. Nick is currently seeing a growth rate of 4% per month and is expecting this metric to grow with the busy season.
Conclusion
The self-storage industry has great opportunities whether you build or buy. Although the self-storage industry is coined as “recession resilient,” building a facility is not recession resilient. There are better times to undertake a new build, so this decision must be well thought out and planned. There are many pros and cons to building a self-storage facility. New build facilities that will see the most growth have owners that understand what their market wants, caters their facility to their target audience, and understands the importance of market research.
Sources
Jones, T. (2022, June 13). Economic uncertainty suggests the self-storage industry is about to face it’s Next Big Test. Inside Self Storage. Retrieved March 1, 2023, from https://www.insideselfstorage.com/revenue-management/economic-uncertainty-suggests-self-storage-industry-about-face-its-next-big-test
Storage Property Manager Salary. Salary.com. (n.d.). Retrieved March 1, 2023, from https://www.salary.com/research/salary/recruiting/storage-property-manager-salary.
Vestal, B. (2023, February 3). Self-storage market outlook for 2023: Demand, Real Estate, development and more. Inside Self Storage. Retrieved March 1, 2023, from https://www.insideselfstorage.com/market-conditions/self-storage-market-outlook-2023-demand-real-estate-development-and-more
