Alternative model storage startup

[Erik W.]

For quite some time I had wanted to get in to the self storage industry. My local market seems hot, my nearby facility just expanded and filled the new units quickly. I'm in the process of doing market research.

I am currently trying to find out if this is even feasible for me. I have no debt, low bills and no wife or kids. The main issues are start up capital and experience. I could put out around $20,000, possibly $30,000 towards starting the business, but that's about it. On top of this, I have no experience in the self storage industry. I feel that these challenges can both be overcome, but I am looking for advice.

My primary interest right now is in the storage container style storage facilities. I feel that with my low startup capital this would be a better model for me. I could buy properly zoned land, make any needed modifications required by state or local area, and only purchase a small amount of containers. Then I could scale as I go. There are no existing facilities for sale anywhere near me (I am in the Northern Illinois region).

There is one big city and multiple towns nearby. The city is seeing a population decline so I am hesitant to start anything there. We have a nice community north of us that has a high average income, as well as a high percentage of homeowners. There is a reasonable amount of competition, but nothing crazy.

Once I have more data and feel that this is feasible for me, the next step would be to get a third party feasibility study. Do any of you have any advice for me?

I appreciate it!

[Michael Wagner]

@Erik W.

Your idea certainly has some merit.  Challenges I see might be securing land and getting it "ready" to accept your containers for the modest investment you have on hand.  Earth work and site prep often make up a considerable portion of a typical facility's construction budget.  And if you look to get a loan, the bank will need to see that your project will be above water in a reasonable time period. This gets in the way of your "start small and grow as you can" strategy (though it is a good concept to adhere to).  There is a threshold that you must reach as far as rentable square feet in order to justify the "non-revenue producing" (site work etc.) These are just some things to think about.  They can be overcome but you need to be aware of them.

I know you said there are no facilities for sale near you but I'm guessing that what you really mean is that there are none LISTED FOR SALE.  There's a difference! Have you approached the mom and pop owners in your area to see if they would consider selling?  This can be done by opening doors and walking in, sending letters, or a combination of the two.  Buying an under-performing facility is a great way to make a limited down payment go a long way.  Both the facilities I bought were purchased with $20-$40K out of pocket.  They are now worth $1.0M and $1.8M respectively (obviously there was some refinancing and expansion within the last 5 years).  And one of those was found by cold calling a mom and pop facility 7 miles from my house.  Purchasing existing allows you to have some revenue from day one, eliminates (or delays) the need to spend money on earth work, etc. Just some things to think about.  I wish you all the best as you look to get started in storage.  Check out my blog here on BP "All Things Self Storage" as it might offer you a few more things to think about.  And please don't hesitate to reach out if you have questions.

In Your Service,

Mike