How to Start a Storage Unit Business: 7 Steps for Success

Self-storage is on a roll — analysts forecast that the industry will see a compound annual growth rate (CAGR) of 7.53% through 2027. The reason why is simple: people have a lot of stuff and nowhere to put it.

Investors love self-storage, too. It offers lower employee overhead compared to apartment complexes, and the eviction process for problem tenants is far simpler than with residential or other commercial real estate like office buildings or retail.

What does it take to start a self storage business? This article covers the key steps to get started. You'll learn about the current market trends driving the industry's growth, how to conduct market research, and what to consider when choosing a location.

We'll guide you through creating a solid business plan, exploring financing options, and managing the acquisition process. You'll also gain insights into marketing strategies and operational best practices to help your self-storage business thrive.

Understanding the self-storage business

The entire operations model for a self-storage business is to provide people and businesses with a secure, convenient space to store their belongings. This real estate niche rents out storage units of various sizes to customers on a monthly basis. These units are all inside a larger facility, which might be one building or several.

Storage units offer features like sturdy construction, individual locks, and often climate control to protect sensitive items from extreme temperatures and humidity.

The people who use self-storage do so for various reasons, such as decluttering their living space, storing seasonal items, or managing inventory for a small business. Many self-storage facilities have advanced security systems — including surveillance cameras, gated access, and security personnel — to protect the safety of the stored items. Some self-storage businesses even offer additional services, such as packing supplies, moving truck rentals, and insurance options for stored goods.

The business model behind self-storage is straightforward: provide flexible storage solutions with appealing features at a minimal overhead cost compared to other real estate investments. Owners generate revenue through rental fees, services, and product sales.

Self-storage investing trends

CBRE forecasts a 9.2% return for the self-storage industry through 2027. Key trends that drive this forecast include the following:

Urban population growth

Over 80% of the U.S. population lives in urban areas, where smaller living spaces increase demand for self-storage. City dwellers need somewhere to stash their stuff, including everything from seasonal decorations to extra furniture.

Urban areas also tend to attract renters, who tend to move more often than homeowners and therefore need temporary storage solutions. Further, all the small businesses that provide goods and services in the city need affordable spaces to store inventory and equipment.

E-commerce

Online retail continues to grow, with forecasts of a CAGR of 18.9% from 2024 through 2030.This generates demand for the self-storage industry by creating new needs for inventory storage. Small e-commerce businesses often start from home but quickly outgrow their garages or spare rooms. These businesses need affordable space to store products, packaging materials, and shipping supplies.

Even larger online retailers use self-storage for last-mile delivery solutions, setting up mini distribution centers closer to urban areas. This helps them meet the increasing demand for fast, same-day deliveries.

Seasonal businesses, like those selling holiday decorations or summer gear, use self-storage to manage inventory during the off-season. It's a flexible, cost-effective alternative to long-term warehouse leases.

Flexible lifestyles

High housing prices and rising interest rates have pushed home ownership down to 65.4%, as of early 2024. This means more renters in the market, and they often need extra space to store their belongings.

Lifestyle shifts are also affecting storage needs, such as the build-to-rent boom, which caters to millennials or empty nesters who prefer renting over buying. Digital nomads are on the rise, with 17 million Americans in search of flexible storage solutions as they move around and work remotely. Even the tiny house trend creates demand for off-site storage.

Benefits of a self-storage business

For real estate investors evaluating the self-storage business, key benefits of this investment include the following:

• Low overhead costs: once you're up and running, ongoing expenses are relatively low. You don't need a large staff or expensive equipment.
• Steady cash flow: people tend to rent units for long periods, giving you a predictable income stream. Plus, late fees can add to your revenue.
• Recession-resistant: even in tough times, people need storage. Whether they're downsizing, moving, or just decluttering, storage needs don't disappear during economic downturns.
• Scalability: you can start small and expand as demand grows. As your business takes off, you can add units and additional locations.
• Diverse customer base: from homeowners to businesses, students to retirees, everyone needs storage at some point. This variety helps mitigate risk.
• Potential for add-on services: boost your income by offering packing supplies, truck rentals, or even moving services.
• Passive income potential: once established, a self-storage business can run with minimal day-to-day involvement from the owner.
• Flexibility in management: depending on your preferences and other commitments, you can choose to manage it yourself or hire a property management company.

Drawbacks of a self-storage business

There are drawbacks to a self-storage business for investors to consider, including:

• High initial investment: land, construction, and security systems can be expensive upfront. You'll need capital or solid financing to get started.
• Market saturation: there's fierce competition in some areas, so it can be hard to stand out or find an underserved location.
• Maintenance: dealing with facility upkeep, pest control, and climate control systems can be challenging.
• Security concerns: you're responsible for other people's belongings. That means investing in security measures and potentially dealing with theft or damage.
• Seasonal fluctuations: demand can vary throughout the year, affecting your occupancy rates and income.
• Challenging tenants: late payments, abandoned property, and problematic renters can create legal and logistical challenges.
• Zoning and regulation: getting approval for new facilities or expansions can be time-consuming and frustrating, especially in urban areas. You'll also face regulations on everything from lien rights and sales tax to unit sizes and security measures.

Steps to start a self-storage business

Here are the steps to start a self-storage unit business:

Step 1: Conduct market research

Before setting up your own self-storage business, you need to understand the market dynamics and the best areas for investment. The factors you should consider include the following:

Local demand

Analyze the population density, growth trends, and the demand for self-storage in the area. For instance, in 2023, the Southern United States experienced 87% of the country's population growth, with South Carolina and Florida leading as the fastest-growing states.

Keep an eye on new apartment complexes and housing developments. These projects drive self-storage demand by bringing in new residents. People often need temporary storage during moves to organize their belongings or store items that don't fit in their new homes. This transition period creates a prime opportunity for self-storage businesses.

Consider the local job market and income levels. The self-storage industry tends to be recession-resistant, benefiting from both strong and weak economic conditions. In a thriving economy, people buy more and often need extra space to store their purchases. During economic downturns, individuals may downsize their living spaces, creating a need for temporary storage solutions.

Competition

Identify existing self-storage facilities, their occupancy rates, pricing, and services. Call around to these companies to get a sense of their current rates, wait lists, and any extra services they provide.

Research from commercial real estate brokers can help you understand areas where increased competition will arise due to new supply. For example, Marcus and Millichap's 2024 self-storage investment forecast identifies the top 5 markets with new self-storage facilities opening this year as the following:

• Dallas
• Southeast Florida
• Atlanta
• Orlando
• Tampa

Demographics and target market

Research the demographics of the area — look for groups like college students, military personnel, or businesses that might need storage. Also, consider identifying market needs for specialized self-storage options such as the following:

• Boat storage
• ATV storage
• RV storage
• Industrial outdoor storage
• Vehicle storage
• Wine storage

Accessibility

Look for locations that are easy to get to via major roads and highways. The best sites for a self-storage unit business are within 3-5 miles of residential areas, businesses, and other places your potential customers frequent.

Be sure to check with the city about any planned traffic issues or roadwork projects that might affect accessibility in the future. You don't want to start a self-storage company in an area that's about to undergo major construction.

Real estate costs

Research land and property costs in your target area. Compare prices for building from scratch versus buying an existing storage facility. Review available properties and zoning laws.

You should consider how these costs will affect your budget and financing options. Also, evaluate the potential for property value appreciation over time.

Zoning laws

Check local zoning regulations to ensure self-storage businesses are legal in your chosen area. Beyond simple legality, you also need to determine if there are any additional restrictions or requirements that may apply. Some cities are tightening regulations on self-storage businesses, making it challenging to open new facilities. This trend is occurring across the United States, and the rules can change rapidly following the election of new officials.

Step 2: Create a business plan

Once you've narrowed down the location — new build or existing self-storage facility — it's time to create your business plan. You'll need this for financing if you are taking out a commercial loan or if you’re raising capital from investors.

Business goals and strategies

Determine your short-term and long-term goals, and outline the strategies to reach these goals. This includes areas like the following:

• Do you plan to hold the property for several years or focus on adding value by increasing revenue and then selling it?
• What market position are you planning — premium, budget, or specialized services?
• How will you measure success — occupancy rates, revenue targets, or market share?
• Are you planning to expand to multiple locations in the future?
• What is your timeline for achieving key milestones, such as reaching full occupancy, breaking even, or expanding services?
• How can you reduce risks for your storage unit facility?

Develop a pro forma

Your business plan should also include your financial projections for your storage facility. A pro forma (Latin for “as a matter of form”) is a way to determine financial results based on projections. Consider the following:

• Revenue projections: combine your estimated rent per unit per type, occupancy rates, and revenue from additional services to determine your total monthly and annual revenue.
• Operating expenses: list your planned expenses, such as salaries and wages, utilities, storage facility insurance, and property taxes.
• Net operating income (NOI): calculate your planned total revenue minus operating expenses to determine your net operating income.
• Capital expenditures (CapEx): plan for major equipment purchases, technology investments, and long-term maintenance and improvements.
• Financing: Detail loan amounts and terms like interest rates, equity investment, initial working capital, and debt service coverage ratio (DSCR).

Step 3: Seek financing

Once you have your business plan and general overview of numbers in your pro forma, the next step is financing. Some of the ways to fund a self-storage facility include the following:

• Commercial real estate loan: this financing strategy involves working with a bank to secure a loan for your self-storage facility. Banks will assess the property’s value, your creditworthiness, and your business plan before approving the loan.
• SBA loan: the small business administration provides a couple of loan options. You can use either the SBA 7(a) loan or SBA 504 loan to finance your self-storage facility. These loans have favorable terms and lower down payment requirements, which makes them a great option for many self storage business owners.
• Raise capital: this involves pooling funds from investors or partners to finance the purchase of the property. These could include private investors, venture capital firms, or crowdfunding platforms. Passive investors in a self-storage facility look for equity or a return on investment based on the business’s performance.

Step 4: Complete acquisition

After getting financing, the next step is to finalize your purchase of the property. You’ll need to do the following:

• Negotiate purchase terms: agree on the final purchase price and terms with the seller, including any contingencies, closing costs, and the transaction timeline.
• Due diligence: thoroughly inspect the property. This includes environmental assessments, title searches, and reviewing any existing leases, rent roll, or contracts to make sure everything checks out.
• Secure insurance: buy insurance coverage for the property, including general liability, property insurance, and any specific coverage necessary for self storage facilities.
• Set up and permits: transfer all utilities and services into your name and submit business licenses, zoning permits, and any local requirements.
• Take possession: once everything is signed and sealed, take possession of the property. Start any renovations or preparations to get your self storage facility ready for business.

Step 5: Create marketing strategies

Your marketing strategy helps attract renters to your self-storage business. You can't simply open a property and expect people to sign up automatically. You'll need to put effort into spreading the word about your self-storage facility. The following are some steps you can take to begin marketing:

Website

You'll need a self storage business website that tells potential customers about your property, the types of storage units you have, monthly rent amounts, and how they can start renting out a space.

Partnerships

Partner with businesses, real estate agents, and moving companies to generate leads in your local market. Offer them a commission or incentives for referring clients to your storage facility.

Promotions and discounts

Run special promotions and discounts, especially when you first open. This can attract initial customers and create buzz around your new self-storage facility.

Signage

Make sure your property has clear, attractive signage that is easy to see from the road. Good signage can attract passersby and drive traffic to your facility.

Step 6: property management software

Set up property management applications like Azibo to help optimize your self storage business operations. Azibo's integrated platform helps you with all of the following:

Collect rent

Simplify rent collection with automated payments and reminders. Azibo allows tenants to pay online, reducing the hassle of handling cash or checks. You can set up recurring payments and rent reminders to support timely rent collection, improving your cash flow.

Handle accounting

Keep your books in order with user-friendly accounting tools to streamline financial tracking. Azibo's platform handles everything from recording transactions to generating financial reports. 

Manage finances

Organize your finances with comprehensive management features. Track income and expenses, manage budgets, and forecast financial performance. 

Centralized documents

Keep all your important self storage business documents in one place. The application allows you to store leases, contracts, receipts, and other critical documents securely online. This means you can find what you want quickly, when you need it.

Step 7: Optimize operations

Finding ways to reduce your self storage operating expenses and grow revenue increases your overall return on investment. Areas to review and consider include the following:

• Adding services: expand beyond basic storage. Offer packing supplies, moving services, or business storage perks like package acceptance and document shredding. Look at what your customers need and get creative. These extras can boost your income and make your self-storage facility stand out.
• Implementing technology: introduce new capabilities such as remote monitoring of storage units and self-service options for renting and managing units. These upgrades can streamline operations, boost security, and improve the customer experience.
• Tracking expenses: review your costs regularly and find ways to negotiate better pricing with suppliers. Look for opportunities to reduce utility costs through energy-efficient lighting or better insulation.  
• Increase rent: monitor the competition and see what they're charging. If you're offering better facilities or services, you might be able to justify higher rates.

Start a storage business with no money

What if you don't have the capital or experience to launch a full-scale self-storage company? You can still capitalize on the growing need for storage space by renting out extra space in your home, garage, or driveway. Here's how to get started:

• Assess your space: identify areas in your home, garage, or driveway that you can rent.
• Set rates: research local rates to determine competitive pricing for your space.
• Advertise online: list your space on platforms like Neighbor or Spacer to reach potential renters.
• Screen renters: check potential renters' backgrounds and references for safety.
• Sign an agreement: use a rental agreement to outline terms and conditions.
• Collect rent: use an online platform like Azibo to help you collect monthly rent.

Start a storage business

The self-storage industry continues to grow, driven by urbanization, changing lifestyles, and the ever-present need for extra space. Starting a self-storage business requires significant upfront investment and careful planning, but it can offer steady returns and relatively low ongoing operational costs.

Success in this field isn't just about providing empty units. It's about understanding your local market, leveraging technology for efficiency, and constantly adapting to meet customer needs. Building from the ground up or acquiring an existing facility both require diligence and a clear strategy.

As with any business, there will be challenges. For those willing to put in the work, self storage investing presents a solid opportunity in today's real estate market.

How to start a self-storage business: FAQs

Is a storage company a good investment?

Yes, a storage company is often considered a good investment. It offers steady cash flow, high profit margins, and increasing demand for storage space. Plus, it usually has lower maintenance costs compared to other real estate investments.

Are storage sites profitable?

Yes, storage sites are generally profitable. With low operating costs and high demand, especially in urban areas, many facilities achieve strong profit margins.

What is the margin for a storage business?

The profit margin for a self storage business typically ranges from 30% to 50%, depending on factors like location, occupancy rates, and operational efficiency.