If there is always one solid investment, it is property. Property is a good investment because everyone always needs it and it tends to appreciate in value regardless of the state of the economy. You might be surprised to know that owning storage units can be a lucrative business. But one big question most people have is: how much does it cost to build a storage unit business?
In short, the average cost for building a storage unit from the ground up is approximately $3.5 million assuming an average cost of approximately $25 per square foot. This cost includes most major aspects of funding a storage unit, including land, construction, insurance, permits, and other business expenses. Some multi-story buildings or buildings with complex climate control can cost up to $70 per square foot.
Of course, these figures are just average. The actual cost can vary heavily depending on location, materials used, the complexity of the building, and other relevant construction factors. The exact details are pretty complex. So we put together this comprehensive guide on storage unit building costs.
- Cost of Building Storage Units
- Funding a Storage Unit Facility
- How Much Can You Make With a Storage Unit Facility?
Cost of Building Storage Units
Storage units do not incur as large of a cost as some other kinds of buildings because they normally do not require climate-controlled interiors. However, more advanced units with full climate control can be more expensive.
When it comes to a storage unit, there are main categories of expenses to look at:
- Land – $353,925
- Construction – $3,244,500
- Engineering – $79,000
- Permits/fees – $32,000
- Insurance – $10,000 (per year)
- Equipment – $22,000
- Marketing – $75,000
- Legal Fees – $22,000
- Financials Costs – $100,000
Total – $3,500,000
We will take a look at each of these categories of expenses and give some estimates for costs as well as factors that can influence those costs.
The first thing you need to look into island. Land costs a premium because unlike other kinds of resources, you can’t really make more land. So, you are going to want to take care of getting some land first before you can start constructing a storage unit.
Land costs can be very finicky, depending on where you buy. Obviously, the land will cost more in an area like California or Massachusetts than it will in North Dakota. In general, a good estimate is that land will cost approximately 20%-30% of your development costs.
According to Mako Steel, the average cost of land for commercial use is about $1.25 per square foot. However, keep in mind that you only use about 40% of the land that you purchase for your storage unit. So, divide the cost of land by 0.40 and you get an effective rate per square foot of about $3.13.
This is a lower bound estimate. According to another estimate, the cost of land is approximately $3.25 per square foot. Assuming a 40% coverage, that comes out to approximately $7 per square foot. Generally speaking, the average storage unit building sits on a plot of land about 2.5 acres (108,900 square feet) large. That comes out to an average cost of about $353,925 for land costs.
One of the biggest things that will affect how much land costs is your location. The majority (52%) of storage unit buildings are located in suburban environments while only about a third are found in urban areas. Only one-tenth of storage units are found in rural areas. The best place for a storage area is one that is close to a retail center that is also near some kind of major intersection it is easy to travel to by truck.
You should not worry too much about these costs though. According to several expert resources, the cost of renting a storage unit usually keeps pace with the cost of renting a small apartment. You can also be more efficient with the land if you build a multi-storage unit, although that would incur more construction costs.
Once you have secured some land, the next thing you should consider is construction costs. Construction costs can be split into two main costs; land development and actual building. Land development involves preparing the land for construction by excavating, clearing, and leveling any land required to build on.
You can expect to pay between $5 to $8 per square foot for development. So for a 2.5-acre storage unit building, that would come out to about $544,500 assuming a low estimate of development rates.
Once land is developed, you can decide to build either a single-story or a multi-story building. In general, construction for single-story buildings costs between $25-$40 per square foot, while construction for a multi-story building (3-4 stories) will cost about $45-$70 per square foot. We will assume a single-story building for our calculations. That comes out to approximately $2,700,000 just for construction costs.
To put it another way, the average indoor storage unit facility has a 60,000-80,000 rentable square foot area and costs about $45-$65 per square foot. Keep in mind that construction costs and land development costs are separate, you need to budget for both of them.
Also, construction costs will depend on what kind of amenities that you will have. For example, if you have a relatively barebones structure, then you may not have to pay much for amenities. On the other hand, climate-controlled units will cost much more.
Climate-controlled units can maintain temperatures between 55-80 degrees, but they have increased installation costs. Many customers would prefer to use climate-controlled units because they are mold-resistant and will protect things from moisture and other corrosion.
Metal vs Brick/Cinderblock Buildings
Nowadays, the vast majority of storage units use standardized metal frames that you can erect fairly simply. Often, these kinds of frames can serve as an alternative to traditional construction. The average cost for metal buildings like these is approximately $80,000 for a 10×20 unit long section.
Given that the average storage unit facility has 526 units, that comes out to around $250,000 in costs for metal frame buildings. These kinds of metal storage unit frames can be much cheaper but they do not come with any special kind of climate control. In order to get climate control, you will likely have to build a separate building.
Generally speaking, most storage units nowadays are not made out of brick or cinder blocks anymore. These kinds of materials are just not very cost-effective for storage anymore. So if you are going the route of building a new unit, we would highly recommend sticking with metal construction.
Apart from the raw construction costs, engineering costs relate to other various aspects of the building’s physical arrangement. Things like cleaning, excavation, storm drainage, utility installation, and more all require a specific installation and depend on the site. Generally, property developers hire the services of a professional civil engineer to handle these developments.
Engineering costs can vary greatly depending on the kind of services needed. If heavy engineering services are needed, then you may need to hire multiple engineers. According to the Parham group, the average engineering cost per square foot is less than a dollar at $0.72.
If we take out the 2.5-acre assumption, that comes out to approximately $79,000. Keep in mind that those engineering costs can vary based on your location. Engineering costs in a city might cost more than in a rural area due to the greater concentration of buildings and stricter local codes. Our estimation is on the lower end as most storage units exist in suburban areas where engineering costs might not be as high.
As with constructing any building, you will need to pay for permits for the new building and other administrative fees related to construction licensing. All other things being equal, storage units do not require as many zoning permits as other kinds of businesses but they still need to abide by general local zoning restrictions for buildings of that size. Your local codes will likely differ depending on where you are and how large your location is.
Examples of some kinds of permits you might need include:
- Occupancy permits – these are required to operate a business out of a specific physical location.
- Payroll tax registration – All businesses and employees need to register their business for tax purposes.
- Zoning fees – depending on where you are, you may need to pay certain zoning fees.
One of the trickier parts of building a storage unit is getting the go-ahead of the local zoning board. Many people consider storage units and buildings to be an eyesore, so it can be hard to get permission to build one in a particular location.
According to costs projected by the Prnham Group, permits and fees will cost you approximately $0.29 per square foot. Assuming out 2.5 storage unit size, that comes out to approximately $32,000 for permit costs.
Again, permitting costs for a storage unit building is not that expensive as they do not require many. The hardest permit to get for a storage building will probably be the occupancy permit.
All businesses require insurance and a storage unit building is no different. Like other kinds of expenses, storage, unit buildings do not require that much insurance due to the kind of business that they are.
The main kind of insurance that a storage unit building needs are property insurance and general liability insurance. Property insurance will protect the building and other parts of the physical structure while liability insurance will cover legal fees and damage in case anyone gets hurt while on your premises. For example, if someone slips on a puddle of water in your building, falls, and hurts themself, then your liability insurance will cover it.
You also need to consider insurance for your equipment and other damageable assets. Many insurance companies offer umbrella insurance that will cover things under a wide range of incidents.
Once again, insurance costs for commercial storage units are not that high because they do not require much by law. The kind of insurance you will require likely varies by state so make sure you understand insurance laws in your state.
The total cost of insurance will probably fall anywhere between $5,000 – $15,000 per year, depending on the size of your operation. Small businesses can often get very good insurance deals and only pay a few thousand a years. But if you own a very large storage unit then you will have to pay more in insurance costs.
Generally speaking, most self-storage units do not require that much equipment. Most of the time, customers bring their own tools to carry their things. You may have to buy a few dollars for community use but you should not need any heavy machinery such as forklifts or trucks. Some storage unit facilities also rent trucks, but these are the minority.
The only kind of real equipment you will need is basic office equipment such as computers, phones, desks, tables, chairs, and other miscellaneous office equipment. Office equipment and furnishings are not that expensive all things considered, and should run you somewhere around $0.20 per square foot.
For our purposes, that comes out to about $22,000 for furnishings. These costs can be greatly reduced depending on what kind of equipment you have in your storage unit.
Like any business, a storage unit will need marketing materials and advertising materials. You will need to attract customers and there are a lot of ways that you can do that. Some of the most common methods of marketing a storage unit include billboards, mailers, internet ads, and email marketing. No matter what kind of business arrangement you choose, you should expect to spend anywhere between 6% to 8% of your gross income on advertising costs.
According to the self-storage association, the average gross income for storage units depends on the kind of unit that it is
- Average net revenue for non-climate controlled unit – $1.25 per square foot
- Net average monthly revenue for a climate-controlled unit – $1.60 per square foot
For a non-climate controlled unit, with a total rentable square footage of 60,000 that comes out to approximately $75,000. Marketing fees can be fairly expensive depending on your location and what kind of competition is around.
All businesses will have legal costs and a storage unit is no different. The main legal costs of opening a storage unit include the costs of getting a business license and getting paperwork together for property registration.
It is a bit tough to estimate legal fees as they can differ depending on the state and what kind of legal documents that you need. According to the Parham Group, it costs approximately $0.20 per square foot. For our purposes, that comes out to a total cost of about $22,000.
Financial costs include any costs that you incur from things like a loan or any kind of funding or interest payments. Financial costs will depend heavily on the kind of loan that you get to finance the property.
Generally speaking, you are going to want to get a commercial property loan to finance the purchasing of land and the building of the units. The average interest rate for commercial property in the US is between 2.15% and 13.15%.
Interest rates can change over time so it’s hard to give an exact figure. Assuming a low-interest rate of 2.5% on a commercial loan of approximately $4 million, that would come out to about $100,000 in annual interest costs.
Keep in mind that this figure can vary greatly depending on the current interest rates.
Funding a Storage Unit Facility
Storage units have a high upfront cost compared to many other businesses because they require a large structure to be built. So, unless you have a lot of capital saved up, then you are going to have to rely on a commercial property loan.
Generally speaking, the best kind of commercial property loan to get for a storage unit is an SBA 7(a) loan from the Small Business Administration (SBA). SBA 76(a) loans offer up to $5 million and up to 75% of that money is guaranteed. That means that if you default on the loan, the federal government will cover up to 75% of the loan. The reduced risk means that banks are more willing to lend money for property to small businesses.
You do not only have to get an SBA 7(a) loan to build a new storage unit. You can also get one to refinance an existing loan or it can be used to buy an existing storage unit.
Buy an Existing Unit
One option for starting a storage unit is to buy a fully constructed and furnished one. For some, this may be the ideal option if it is hard to find a property that you can buy to build a structure.
The exact costs for buying an existing storage facility vary heavily depending on the location and type of the facility. They also depend on the performance of the unit. If the unit is not doing so well you. Other factors that affect the value of a storage unit facility include the net income and operating expenses.
According to InsiderSelfStorage.com, the average storage unit facility sells for approximately $40-$50 per square foot. Assuming a low value, that comes out to just over $5.5 million. That is about $1.5 million more than the estimated costs of you building one on your own, but it is more convenient to purchase an existing unit rather than build a new one from the ground up.
Franchise Storage Unit
Another option for opening a storage unit is to buy a franchise. Franchising is a good option as the larger business will usually cover the costs of the building and other important business materials. However, you will have to pay an initial franchise fee and pay a portion of your gross monthly revenue.
Franchising fees depend on the particular franchise. For example, Go Mini charges a base franchise fee of $45,000 and a total initial investment of around $500,000. Most companies also have fairly strict requirements about who they allow in franchising opportunities. For example, you usually have to have a certain amount of liquid capital and some experience running a business beforehand.
Franchising is usually a much cheaper option than building a storage unit from scratch. The downside of franchising is that you are restricted to a specific brand and you also have to pay royalty and advertising fees. You may also have to sign a franchise contract fee for a specific period of time.
How Much Can You Make With a Storage Unit Facility?
Storage units are one of the safest investments that you can make. Most other real estate investments fail but self-storage unit facilities have an incredible success rate of 92%. Most companies maintain at least a 70% occupancy rate but the most successful storage units have occupancy rates as high as 90%.
The average storage unit rents for anywhere between $60 to $180 a month, potentially more depending on the location. The average climate-controlled rent can go for between $75-$220 per month.
Keep in mind that it normally takes about 12 to 24 months for a storage unit to reach its maximum revenue potential, so don’t be surprised if you operate that first year in the margins.
Storage units are a great investment that can potentially make you a lot of money. They have a relatively high upfront cost, but a storage unit facility can start making you money in as little as 2 years. So if you are interested in a very lucrative real estate investment, then you should consider looking into building storage units.