Profitability of Self Storage


With any business opportunity, you need to crunch the numbers. Determine if it will yield the return on investment you desire. This section of our website will answer the burning question, "how much money can I make in self storage?"

Before we break out the calculator, let's first review how self storage stacks up to other types of real estate investments.

Development Costs

The development cost of self storage is one-third to one-half that of multi-family, office, or retail properties.

Operating Costs

Real estate properties must continually maintain grounds, appliances, plumbing, electrical fixtures, etc., which usually require a maintenance staff. Self-storage operating costs are a fraction of other real estate properties.

Break-Even Occupancy Rates

When you own a rental property, you must rent a certain amount of space to be profitable. In self storage, the break-even point is considerably lower than other real estate ventures.

Annual Rent Ranges

This chart illustrates that the annual rental ranges for self storage fall within the range of other real estate. However, considering the lower development and operational costs, self storage can yield a better bottom line.

Failure Rate Comparison

Compared to other real estate investments, self storage has the ability to absorb economic fluctuations, maintaining value during both good and bad economic times.

Source: "The Big Financial Picture" Inside Self Storage Magazine, Nov. 2000, by Mike Parham, National Development Services, Inc.


Profile

  • Most owners entering self storage have an annual household income of $80-$100K and a net worth of $300K
  • It usually takes 8-18 months to achieve 90% occupancy, depending on size and location
  • Most owners realize a profit after the third year
  • 70% of the appraised value is standard to secure financing
  • Cash-on-cash return is about 8.5% for larger facilities, and 11% for smaller facilities
  • According to the Self Storage Association, the gross revenues in 2006 of primary self-storage facilities were approximately $22.6 billion. That's a national average of $441,208 per facility or $11.27 of gross revenue per occupied sq. ft.

Example

Let's take for example a typical self-storage facility consisting of 45,600 net rentable square feet. The facility includes six one-story buildings, one climate-controlled building, and an office. Total development costs are $1,368,000 ($30/sq. ft.) plus $520,000 for four acres of land ($3/sq. ft/acre). Potential annual gross income at 100% occupancy is $364,800. Annual operating costs (30% of gross income) amount to $109,440, excluding loan payment. 70% of the project was financed. Break even occurs at 66% occupancy. In the third year of operation, the facility is 90% occupied and generating $87,140 cash flow (excluding depreciation). Considering a 30% investment of $566,400, the project is yielding a ROI of 15.4%

Calculator

But that's just one example. Your market, your site, your situation is unique. To determine the viability of your potential site, utilize our investment calculator. It's a great tool we've developed to help you know how much money you can make in self storage.