Article by Scott Meyers
All across the U.S., entrepreneurs are talking about the self -storage business. The word is out that investing in the mini storage business can be very profitable. And it’s not just the experienced investors that have their eye on the self-storage business prize. With lower building and management costs than virtually all other real estate investments and a failure rate of around 7 percent, the self-storage industry is drawing first-time business owners and investors alike.
The advantages are obvious: easy start up, easy maintenance, low risk…but what’s the catch? Can it really be that easy? There is no catch, but it does require work. An investment in the mini storage business has a lot of potential, but it is an investment and not a hobby. One needs to be prepared to devote time, resources and of course, capital to a self-storage enterprise. So when you decide you’re ready to commit to investing in an existing self-storage facility, or developing one from the ground up, there are a few things to consider before moving forward.
MYTH: Build it and They Will Come
Before you invest in the land or buildings you will need to do some research into the market in which you desire to buy or build. I also strongly suggest you hire an industry consultant to perform a feasibility study on the project to determine if the project will fly. Even if you have experience in real estate or the self storage industry, an unbiased opinion is invaluable when considering an acquisition or development project.
Location, Location, Location
Those three words ring true for all facets of real estate investing—and self-storage is no different. Many investors have tried to build on a piece of land they already own, or buy the lowest priced piece of land they could find in a given market—but you should never sacrifice a prime location for price. An ideal site is one that has a high traffic count and is highly visible.
How does the competition stack up? How about the number of competitors? Could the market be somewhat saturated? If there is more than 7 sq. ft. of self-storage per person, you may have a more difficult time stabilizing your facility.
So what type of building should you build? Pole barn style, all steel, split block, convert an old building? Since your storage buildings will BE the business, a great deal of planning and consulting with general contractors should be undertaken. In addition, the unit mix and amenities of your site can have a direct correlation to the success of the site. A developer must also plan for driveway space, unit size and placement of the individual doors, lighting, percentage of temperature controlled units and security to name a few. I strongly recommend choosing a builder with experience in the self-storage industry who can advise you in all facets of the construction or conversion process. The right building plan will improve your occupancy rate and help you avoid costly renovations.
The next aspect to consider is financing. Construction loans are dramatically different and at times can be a bit more difficult to navigate than other forms of permanent commercial real estate financing. Before meeting with your lender, you might want to do some phone work to learn more about the size and scope of loans they are able to make and if they make unique loans for self-storage businesses.
Advertising, staffing, and the day-to-day maintenance of your new self storage site should not be afterthoughts. In addition, a great deal of attention should be spent on developing a marketing plan. A simple listing in the yellow pages and a big sign out front won’t fill, or keep your storage units full. Decide on a marketing strategy before you build and pay close attention to altering your strategy throughout the course of the year—with continual tweaks and new messages being tried at all times.
The success of the business post construction lies in your ability to hire and maintain quality managers. Be cautious about hiring friends and family. It’s hard to treat loved ones like employees and hard for them to treat you like the boss. Also, don’t assume that you can do it all yourself. If you want your mini storage business to be a success you’ll probably need to be open more hours than you’ll want to be standing behind the counter.
Don't miss Scott's presentation at this year’s conference on February 21 – 23. He will be presenting on Thursday, February 21st at 1:10pm at DeVos Place, River Overlook E – F.