I’ve spent over $10,000 in my lifetime on storage (at least). I find it hard to believe that someone on the other side isn’t making some serious profit.
So, I was curious. Are self storage businesses profitable?
Let’s dive in and see why owning a storage unit facility can be such a great investment.
The Consistent Demand to Rent Storage Space
Turns out, I’m not the only person who’s spent a pretty penny on self-storage. In fact, one in five people in the United States currently rent out self storage units.
Here are some other mind-blowing statistics on the self storage sector
- Annual industry revenue: $29 billion
- Number of storage facilities: 51,206 facilities in the U.S.
- What is the average monthly cost for a self-storage unit: $100.04
- The average occupancy rate of a storage facility is 96.5 percent.
- The U.S. comprises 90 percent of worldwide self-storage inventory.
- The self-storage industry had a 7 percent annual employment growth from 2017 to 2022.
- The average rental cost per square foot of self-storage units in the U.S. is $1.16
- The average size of a self-storage facility in the U.S. is slightly larger than a football field.
It’s clear that there is profit to be made in self-storage, but how much?
Reasons Storage Facilities Make Great Investments
There are plenty of reasons storage facilities make great investments. Here are just a few reasons to consider becoming a self storage investor.
Recession Resilience
Even in economic downturns, storage units often maintain consistent demand. When people move, declutter, or downsize, they’ll need storage solutions for their possessions. That type of demand will never go away.
Low Overhead
Storage facilities typically have fewer operating expenses than other real estate ventures. There’s less wear and tear, less maintenance, and limited staffing needs.
Stable Cash Flow
Thanks to long-term rentals and lease agreements, storage unit investments offer a steady stream of monthly income, which can create dependable and hands-off revenue potential.
High Return on Investment (ROI)
The combination of sustained demand, low maintenance costs, and scalability allows storage units to yield an impressive ROI, especially when managed effectively.
Scalability
One of the advantages of storage unit investments is the ease of expansion. As demand grows, you can add more units or acquire neighboring properties to increase capacity.
Diverse Customer Base
From individual homeowners to businesses needing extra space, storage units cater to different clients with different needs. Diversity like that reduces dependency on a single revenue stream and enhances business stability.
Passive Income Potential
Once established and with proper management, storage units can generate income with minimal day-to-day involvement, making it an attractive option for those seeking semi-passive investment opportunities.
Annual Income Owning Storage Units
Whether you’re using self-storage or full service storage, your net operating income could vary. A self storage business can net anywhere from $100,000 a year to $1,000,000 a year. Of course, It depends on a lot of factors. Here are just a few.
Location and Market
Geography can be a storage facility’s most significant asset or its most considerable liability. Densely populated urban areas or places close to transition hubs, such as universities, military bases, or job centers, are likely to have a continuous flow of people moving in and out.
Understanding the local demographic can also influence the types of units to offer. For example, a student-dominant area might benefit from smaller, more affordable units, while affluent neighborhoods might require larger, climate-controlled spaces.
The Efficiency of Daily Operations
Like any business, the backbone of any profitable self-storage facility is how efficiently its day-to-day operations run. Income generated will hinge on the smaller details like regular maintenance checks and efficient bookkeeping practices that track income and expenditures,
To manage a storage facility efficiently, leveraging software tools that can streamline billing, monitor unit occupancy, handle delinquencies, and offer online booking are a must. A well-trained staff that can manage customers and create a smooth rental process can significantly impact the bottom line.
Facility Features
Modern consumers look beyond just space; they seek value and assurance. By integrating advanced security features such as CCTV monitoring, biometric access, and alarm systems, facilities can offer peace of mind to renters, warranting premium pricing.
Furthermore, specialized amenities, such as climate-controlled units for sensitive items or drive-up units for easy access, can cater to niche markets, providing a competitive edge.
Beyond the physical aspects, impeccable customer service is vital. Quick responses to concerns, a helpful attitude, and consistent communication can create loyal customers who also act as brand ambassadors through word of mouth.
Marketing and Visibility
A strong marketing strategy can be the difference between full occupancy and a ghost-town facility. In the digital era, an optimized website with a user-friendly interface can attract potential renters, while search engine optimization ensures the facility ranks high on search results.
Engaging in community events, partnering with local businesses, and utilizing social media can also bolster a facility’s presence and reputation. Offline efforts, like hosting community events or offering referral discounts, can further enhance an existing facility’s visibility.
Pricing and Diversification Strategy
Pricing isn’t just about covering costs and marking a margin; it’s a strategic tool. Regularly reviewing competitor prices, understanding the facility’s unique selling propositions, and gauging feedback will inform an adaptive pricing strategy. Plus, the more types of storage you offer – like vehicle storage – the higher the revenue potential.
Real Estate Trends
A storage facility is also a commercial real estate investment – especially if you own the land it sits on. Over time your investment will appreciate, just like other real estate investments do. Your initial purchase price and financing terms can do a lot to determine if you earn some positive cash flow.
How to Get the Most Out of Your Commercial Storage Unit Investment
To maximize your profit margin in a storage unit business, focus on the operating expense ratio. Stay stringent about cost control measures, analyze your financial statements carefully, and proactively manage operations.
The operating expense ratio (OER) for self-storage facilities typically falls in the range of 30% to 40% of the gross rental income. This ratio represents the percentage of income that is spent on operating expenses, which include costs for self-storage operating expenses such as property maintenance, utilities, insurance, property taxes, marketing, and management expenses.
By maintaining a low operating expense ratio, you can maximize the profit margins of your storage unit business.
Conclusion
A storage unit is one of those things that everyone pays for at least once in their lives. While the storage unit business isn’t a guaranteed gold mine, its potential for profitability, combined with the benefits of passive income and relatively low operating expenses, makes it a worthy consideration for investors.
Getting Started In The Storage Unit Business with Neighbor
Owning your own storage unit business can be a bit overwhelming. The good news is that you don’t have to go all in to start making money with self-storage. With a peer-to-peer storage service like Neighbor, you can rent out extra or unused storage space to earn extra income. If you’ve got a garage, a driveway, an attic, or a basement, you can run your own micro-storage business and get paid to help your neighbors.
