Building storage units seems to be an increasingly profitable business, at least that’s what the big developers of industrial projects say. Specialists recommend the long-term business, the investment recovering in a maximum of five years.
The builders are of the opinion that the investment is relatively small, considering that the land outside the cities is relatively cheap. Money is earned from renting these spaces. So, whoever builds such spaces is safe, because the demand is still high.
How Much Does it Cost to Build Storage Units?
The cost to build a storage unit will be affected by several factors such as the complexity of the construction, the material used, location, and others. Taking into consideration an average cost of around $25 per square foot, the average cost for building a storage unit from scratch would be around $3.8 million.
Compared to the costs of building other types of constructions, the expenses with the storage units will be lower as these don’t need climate-controlled interiors. Though, the costs can get higher if you like to build a more advanced unit with full climate control.
When talking about the expenses involved with building a storage unit, the main categories of costs you need to consider are the following:
- financial costs: $100,000;
- land: $354,000;
- legal fees: $22,000;
- construction: $3,245,000;
- marketing: $75,000;
- engineering: $79,500;
- equipment: $22,500;
- fees/permits: $32,500;
- insurance: $11,000 per year.
In the following lines, we are going to talk about each of these categories, so you can get a better idea of how much you would need to budget for building a storage unit.
Financial costs refer to any costs that may appear from things such as loans, interest payments, or any type of funding. These costs will be greatly affected by the type of loan you get for building the storage unit.
In general, for financing the acquisition of land and the construction you will want to get a commercial property loan. In the United States, the average interest rate for commercial property is anywhere between 2.75% and 15%.
It is difficult to give an exact figure as the interest rates can change over time. Taking into consideration a low-interest rate of 2.75% on a commercial loan of around $3.8 million, it would result in annual interest costs of almost $104.500.
Funding a storage unit facility
When comparing the upfront costs of storage units with those of other many businesses we will see that these are higher as they need a large structure to be built. In case you don’t have a large amount of money saved up, you will have to get a commercial property loan from a financial institution.
In general, the best type of commercial property loan you can get for a storage unit is an SBA loan from the Small Business Administration (SBA). These loans offer up to $5 million and guarantee up to 75% of that money. This means that the government will cover up to 75% of the loan in case you fail to pay it back. With such a reduced risk the banks are more willing to offer money for the property.
One of the most important things when building a storage unit is the land, if not the most important as here is where the construction will be placed.
The price of land will vary and depends on the place where you are living. For instance, in North Dakota, these costs will be lower than in Massachusetts or California. Though, in general, land costs will be anywhere between 20% and 30% of your total development expenses.
Expect to pay around $1.75 per square foot, according to Mako Steel. But you should know that you are going to use only around 40% of the land you buy for your storage unit. So, to get an effective rate per square foot you will have to divide the land by 0.40. This will result in a cost of $4.48 per square foot.
This price estimate is one of the lowest and according to other sources, you will have to pay around $4 per square foot. Taking into consideration a 40% coverage, you will need to pay around $10 per square foot.
In general, an average storage unit will be built on around 2.5 acres which means 108,900 square feet. So, the average land costs will be around $435,600.
The land costs are greatly affected by the location. Most of the storage units (more than 50%) are built in suburban areas, while just around a third are located in rural environments. It would be best to build a storage unit near a retail center, which is also close to the main intersection and is easy to access by trucks.
However, you should not be too worried about these expenses because the renting costs for a storage unit are similar to those for renting a small apartment. Also, you can be more efficient with the land if you choose to construct a multi-storage unit, even though the building costs will be higher.
The main legal costs regarding the construction of a storage unit are the costs of getting paperwork together for property registration and the costs of getting a business license.
It is pretty hard to estimate the legal fees as these will vary from one state to another, but you should budget around $0.22 per square foot. So, the legal fees for a 2.5-acre storage unit will be around $24,000.
Construction costs are the next thing to think about once you have the land. These costs can be divided into two main categories: actual building and land development.
Land development refers to the land preparation for construction and involves work such as clearing, excavating, and leveling the land.
Be prepared to pay anywhere between $7 and $10 per square foot for land development. This results in a cost of $762,300 for a 2.5-acre storage unit if we take into consideration the lowest price.
After preparing the land you will have to choose between constructing a single-story or a multi-story storage unit. You should expect to pay anywhere between $26 and $42 per square foot for building a single-story storage unit, while for a multi-story unit with 3 to 4 stories you will have to pay anywhere between $46 and $72 per square foot. So, for a single-story building, you will need to budget around $2,831,400 for the construction alone.
You should also know that the construction cost will depend on the type of amenities you want to have. For instance, the cost will get higher if you want a climate-controlled unit, while for a relatively barebone structure you will need to pay less.
Even though climate-controlled units are more expensive, most of the clients choose to use such units because they are mold-resistant and their things are protected against corrosion and moisture.
Cinderblock/brick vs metal buildings
These days most storage units use standardized metal frames that can be assembled very easily. In general, these frames are an alternative to traditional storage unit construction. Expect to pay around $82,000 for a 10×20 metal storage unit.
Taking into consideration that an average storage unit has 526 units, it will result in a cost of approximately $250,000 for metal frame buildings. These units are cheaper, but they are not climate-controlled.
In general, most of the storage units built now are not made of cinder blocks or brick anymore because these materials are not cost-effective. So, it is recommended to choose metal construction when building a storage unit, especially if you have a limited budget.
Obviously, you will want to attract customers and for this, you will need advertising materials and marketing materials such as billboards, e-mail marketing, internet ads, and mailers. Be prepared to spend on marketing and advertising anywhere between 6% and 8% of your gross income, regardless of what type of business arrangement you have.
The Self-Storage Association says that the average gross income for storage units will depend on the type of unit. So, the net average monthly revenue for a climate-controlled unit will be around $1.65 per square foot, while the average net revenue for a non-climate-controlled unit will be $1.30 per square foot.
A 60,000 square feet non-climate-controlled unit which is fully rented will bring you a gross income of $78,000. So, the marketing costs will be around $4,680.
In general, property developers hire a professional civil engineer to handle developments such as excavation, cleaning, utility installation, storage drainage, and other works related to the construction of the storage unit.
The engineering costs will depend on the services you need. You may need to hire more engineers if heavy engineering services must be done. Expect to pay around $0.85 per square foot for average engineering.
Taking into consideration the surface of 2.5 acres we will have an engineering cost of approximately $93,560. It is very important to mention that these costs will vary from one location to another and in urban areas, the costs will be higher than in rural areas. We estimated this cost based on the lower-end prices we found.
In general, most of the storage units do not need a lot of equipment as the clients have their own tools to move around their own things.
The main equipment you will need is basic office equipment which includes desks, computers, chairs, phones, tables, and others. Be prepared to spend around $0.25 per square foot for the furnishings and office equipment. So, for a 2.5-acre storage unit, the equipment costs will be around $27,225.
Like with the construction of any building, you will also need to budget for the fees and permits. A good thing about the construction of storage units is that these do not require so many zoning permits. Some of the permits you will need are:
- zoning fees which depend on the location;
- payroll tax registration;
- occupancy permits, that are needed to run a business out of a certain physical location.
Be prepared to spend around $0.30 per square foot for the permits and fees. This will result in a cost of around $32,600 for a 2.5-acre storage unit.
Due to the specifics of the business, the insurance costs for a storage unit are not that high. The main type of insurance that is required is general liability insurance and property insurance. Also, you will need insurance for your equipment and other assets that can be damaged.
The insurance costs will vary from one state to another, but you should expect to pay anywhere between $5,000 and $15,000 per year, depending on the size of your business.
Purchasing a storage unit
If you don’t want to build a new storage unit from the ground, you can buy one that is already built. The costs of an existing storage unit will depend on the type of unit, location, performance, operating expenses, and net income.
Be prepared to pay anywhere between $42 and $52 per square foot for an average storage unit facility. Taking into consideration the lowest price, it will result in a price of more than $5.6 million, which is around $1.8 million more than the estimated costs for building your own storage unit. However, it is more convenient to buy an existing unit as this does not involve so much effort on your part.
Franchising a storage unit
When it comes to operating a storage unit business, another option is to purchase a franchise. In this case, you will have to pay the initial franchise fee and after that a part of your gross revenue every month.
Franchising costs will depend on the certain franchise you choose. For instance, Go Mini has a base franchise fee of $45,500 and requires a total initial investment of almost $500,000. Besides these types of requirements, other companies ask for some experience running a business beforehand and a certain amount of liquid capital.
In general, it is cheaper to franchise a storage unit than to build one from the ground. But you will be restricted to a particular brand and you will have to pay advertising and royalty fees.
How much can I earn with a storage unit facility?
One of the safest investments you can make is in storage units, as these have a huge success rate of 92%. The occupancy rate for most companies is 70% and the most successful have an occupancy rate of 90%.
An average storage unit can be rented for $65 to $190 per month or even more, depending on the location and features. For instance, the monthly renting cost for a climate-controlled storage unit will be anywhere between $80 and $225.
A storage unit will reach its maximum revenue potential in 12 to 24 months, so in the first year, you may not get any profit.
When it comes to profitable investments storage units are a great option. Even though they have relatively high upfront costs, you will start to recover your investment and earn money in less than 2 years.