As more people look for safe places to store their possessions, self-service storage seems to be one of the most convenient businesses for the job. In 2018, 9.4% of US households rented a self-storage unit (source). Self-service storage facilities perform well even in a recession because no matter what, people will always want a safe place to store their stuff.
Can you earn passive income from Self-service storage? With an ideal location, enough units, good business management skills, and a loyal clientele, self-service storage can be a lucrative source of passive income. People like B. Wayne Hughes (Forbes 804th richest man) built his $2.8 billion fortune on self-storage.
In this guide, we uncover the self-service storage business idea and see how you can turn it into a passive income business. If you are an individual who wants to rent out a storage space in their home, then check out this guide. Like most passive income ideas, running this type of business will require a lot of your dedication, patience, good business skills, and practice. With these, you can turn your business into a passive income source. With time, you can automate, outsource and even open other self-service storage facilities and boost your passive income. Let’s get started.
Self-Service Storage Industry Statistics
As the world population grows, there has been a steady rise in the demand for self-service storage facilities. Most often, it is people moving, lifestyle transitions, travel and life events like retirement, marriage, divorce, a death in the family, etc., that create the demand. Recent studies indicate a positive trend in market demand and the occupancy rate of self-storage units. Some people even rent more than one storage unit.
In the US, for example, there are over 50,000 storage units and 1.7 billion sq. ft. of rentable space (source). Ownership is fragmented with 73% of the facilities owned by individuals & small operators, 18% by six large public companies, and 9% by the next top 100 operators. Self-storage is a $38 billion industry that is bound to grow in the future. With a few storage units, you can make passive income by outsourcing the management work to run a self-storage business.
At an average cost of $60/month for the smallest unit (5×10), and $126/month for the largest ones (10×15), renting a few units can be a lucrative passive income idea. With just 20 small units and 15 large ones all rented out, you could make $3,000 per month (without considering expenses).
Deciding if the Business Can Work For You
Self-service storage doesn’t just have to do with storing people stuff. Self-service storage is very related to Real Estate. Finding the right location and serving a good clientele is extremely important when setting up a self-service storage. You should be comfortable with Real Estate or be willing to work with a qualified professional to build such skills as this is a key part of the business.
You should also consider the financial investment you are willing to part with since this business is expensive to start. Building your own self-storage can be a high-cost investment. You will have to consider the land space to use. This can account for more than 30% of the total cost. The cost can range from $25 to $40 per square foot for single storage and $70 per square foot for a multi-story space (source).
Therefore, consider your current skills, willingness to learn, personal motivation, financial capacity and tolerance to risk before getting started with this business. One of the best things to do is talk to your certified financial planner, lawyer, accountant and any other relevant qualified professional before getting started.
Identifying Your Target Market [Niche]
Choosing the right niche for you can save you a lot of time and money. Self-service storage can be suitable for many different uses, and you probably do not want to serve a risky clientele in an area with a questionable reputation. The target market that you identify can be influenced by certain factors. You can consider the location for your store, consumer storage tendencies, security measures to protect you against theft and regulations in your area. In short, your niche should look at:
- What are the potential customers would you like?
- How suitable is your location?
- What is the location is missing compared to existing stores self-service storage facilities?
- What are some of the additional services that you can offer?
- And how can you improve on the services that are provided by your competitors to stand out?
Try to find out who your ideal customer is, try to think about who you would like to serve. If you would like to open a shop in a high-end neighborhood, you may have richer families. If you are located in the country, you may cater to a different clientele. The clientele may also be different if you are located near a marina (boaters for example). You can come up with unique ideas that will set you apart from the others within the industry. In short, you can identify a suitable niche for your service store if you:
- Have unique products or services that you can offer to improve on your customer’s storage experience, this can be in the form of technological inputs, space, promotions, and offers.
- Become actively involved in some of the business community discussion groups within your location.
- Use the information you have on your competitors to improve on the areas that they may be underperforming.
- Are up to date on the market research reports and trends on the self-service storage service sector.
You will probably be actively involved in business operations until you get it off the ground. We will talk more about making this business passive later on in this guide.
Budgeting to Open a Self-Service Storage
Having an organized budget will go a long way to help make your idea successful in the future. This can save you a lot of money, especially since this passive income idea will require a considerable financial investment. If you are planning to build your own self-storage facility you will have to look into some of the costs that you may incur including construction costs, equipment costs and other costs that may come up from the operations of your self-storage service. Compare some of these costs with your competitors and improve on the drawbacks.
In this guide, we have covered some of the general expenses that you would expect to incur when starting a self-storage service. We have given a general overview of some of the issues that you are likely to face as you try to develop a means of passive income from this venture. We highly suggest that you look at the existing local and federal government regulations on the same within your location. Also talk to your certified financial planner, lawyer, accountant, and any other relevant qualified professional before getting started.
Registering Your Business
You should ensure that you register your business with local authorities. The cost of registration depends on the type and activity of the business. Factors like business size, location and activity are used to determine the amount you are likely to pay for registration. You should make sure that your space has met all the legal requirements or you may lose your investment. You can visit any local or state authority for more information regarding this topic.
A license gives your business the legal legitimacy to carry out its activities. Very few people will trust an unlicensed business to help store their belongings. Most businesses will require approval from both federal and state authorities before they can begin operating effectively.
Some of the agencies may require licensing fees for some of the activities that you are about to undertake including having a construction license if you are planning to put up a self-storage structure. Others may include parking fees that may vary in different states based on government policies, and location. A license is very important for any business so make sure you have yours before going ahead with your idea. Learn more here and with your local authorities.
Your business has a legal obligation to submit its tax returns to the government. This includes property and sales taxes. Different states will have separate tax requirements. The location of your storage facility will have a role in determining where to pay your taxes. It can also determine the amount of tax you are liable to pay. In this article, Brian Sharpe shares some of the ways you get a favorable property tax assessment for your self-storage facility.
The law requires that most businesses remain covered by an insurance policy. It is very important to ensure that your business has a policy to protect you from loss, theft, or in the event of damages to your customers’ products. A policy will also help to build your customer’s trust in your ability to handle their belongings that may range from household items such as clothes, furniture and appliances, to more expensive items including luxury cars, collectibles and jewelry. They will also be more sure of compensation in the event of loss or damage to their belongings.
You can decide on different insurance policies including CGL insurance, Business property insurance, Business interruption insurance, and business owners policy that protects the owner of the facility against liability, business interruption and property losses all in a single package (source). If you have hired additional help from employees, you can also pick out covers to protect them against injury, loss or other liabilities as they perform their employment duties. Learn more with your insurance broker.
Equipment & Accessories
You may require a lot of equipment to run your self-service storage facility. However, what you will need will depend on the niche that you choose to engage in. This can include air conditioning, surveillance, automated kiosks, storage racks and more depending on the services you would like to offer.
Promoting Your Self-Storage Business
Promoting your self-service storage business is a good strategy that will help you reach more people and increase your returns. There are different methods you can use to promote your storage business. For instance, you can take advantage of the internet and advertise your services online.
You can also offer attractive packages for new customers including reduced charges for all first-time users. Creating awareness amongst your customers is a very suitable way of boosting traffic for your self-service storage business. You can create hype on different platforms like social media to help promote your business. Before you start creating hype, you can consider,
- Creating a sense of urgency to prompt to your customers to act including the benefits that make your business stand out from the competition.
- Pinpointing the interests of your target customers and relating them to your self-storage store.
Enjoying your Passive Income
Once your self-service storage business is operational, it will be time to start making it more passive. Do not expect to be passive from the start! Just like any other passive income idea, this investment will take time before it fully matures and starts earning you a passive profit. You will more than likely be actively involved with key business decisions at the start. It will require your hard work, resilience, and patience. You must also be ready to spend a lot of time and capital investment as you start. Once the business is more mature, you will find it to be much easier to earn a steady stream of passive income.
Many of today’s storage facilities have been modernized with high performing technology, better style, and modern materials. For instance, a busy owner can consider the services of an interactive kiosk assistant that helps to manage storage space. This can automate part of the process. You can also have a strong platform built to manage reservations and make it easier for your customers to access or pay for the service without having to interact directly with you.
You can also have security managed remotely, and pay a cleaning company to take care of maintenance. ISS insists that an automated self-service storage unit system can help you to reduce operational costs of operating the service.
How Much can a Self-service Storage Make?
The amount of passive income that you make will depend mostly on the location, size, your target market, number of units, rental costs, expenses and the amount of money you invested at start. For example, with an average cost of $60/month for the smallest unit (5×10), and $126/month for the largest ones (10×15), renting a few units can be a lucrative passive income idea. With just 20 small units and 15 large ones all rented out, you could make $3,000 per month, without considering expenses (source). Major companies have made billions of dollars by operating self-storage services. Some like Makespace.com have highly interactive online platforms that make it easier for their customers to interact with them. If you are new at this, do not expect to make millions of dollars anytime soon. To reach this level you will have to have put in a lot of capital, research, skill and time.
How Passive is a Self-service Storage Business
Self-service storage facilities can be very passive with the right setup and technology. You can outsource and automate a large number of recurring tasks, greatly reducing operational costs (source). However, this does require a certain budget.
If you choose to work in your store, the idea won’t be as passive because It will require your constant attention. You can hire employees to manage it on your behalf and make your business more passive. Some will also prefer to automate their self-storage facilities so that they can run efficiently with minimal human assistance. How passive it is will depend on how you decide to set up your business.
You will find that self-service storage not as scalable as other passive income ideas like online businesses since this business is very location-based. The levels of scalability will depend on a number of factors including the size of the building, location, choice of storage products and your customer base. This business remains mostly scalable by a number of locations.
Starting and running a successful storage facility can be very expensive, especially if you are thinking of building your own store. The cost of construction, equipment, and labor may be too high a financial and stress burden for some. Talk to your financial planner to learn more about if this business is for you from a financial perspective.
Managing a self-service storage business may not be as easy as one might think. This business is very linked to Real Estate since having an excellent location is very important. Having Real Estate skills, or a qualified counselor in the domain may be necessary for success. You will have to put in long periods of time and money before your business idea can grow and start earning passive income. This can take from two to four years or more. Starting a self-storage business will demand your attention and finances before the idea can grow to start making passive profits.
Running your own storage business is a very demanding venture. You might occasionally find yourself spending long periods of time on research, legal procedures and advertising before you can start earning regular passive income. This will require a lot of your patience, diligence, and hard work to make it successful.
A self-service storage facility can operate all year round. It may be slightly seasonal in some locations where leases end in the same month (for example in Quebec, where people generally move on the 1st of July). It is therefore not affected by changes in weather or periods of economic dips. The demand for more space remains mostly constant all year long so you will be sure of having to deal with different customers irrespective of the time of the year.
A self-service storage facility will take up a considerable amount of your capital investment. Therefore, there is a risk you lose all the money you invest. You also run a risk of theft, fire, vandalism if your facility does not have adequate measures to control these risks. You can take up an insurance policy to keep you covered in case anything happens to the business. Security is also key to prevent potential break-ins that can be very costly.
Return on Investment
A successful self-storage business venture can yield high long-term ROI. As a beginner, you may not make large profits early on, however, once you break even, automate and outsource the business, it will be lucrative and passive.
What if my self-service storage property tax rates are too high? It is possible to protest against unfairly high taxation rates for your business. The law allows parties to sue the respective agencies on behalf of their businesses. You will need the services of your lawyer and accountant to help you put up a credible case. (source)
How can I run a self-storage facility passively? You can choose to automate most of the operations within your facility. From welcoming customers, check-in, processing transactions, and security, you can outsource and automate your business. An automated service will help you establish remote control of your business, reduce your operation costs.
Is there a future for self-storage facilities? The self-storage industry is growing in value. Currently, the demand for space in major cities is so high that some authorities have put up strict measures to control the constantly reducing space available. Self-storage facilities will continue to be a major contributor to the economy as people look for ways to store their belongings safely.