Costs to build self storage?

Question

I am looking to build a mini storage, but I'm trying to estimate costs to build. Does anyone have any tips on estimation on 3 acres?

Josh Collins · Answer

@Brian H. - I'm with both @Michael Wagner and @Scott Krone on this one.  I would highly recommend buying one already in business.  You can cut your teeth on the business side of things without much risk (if you lose a renter or two, it's not the end of the world).  The trouble with development is that you don't get to make any money for 3-6 months (maybe more) while you build up the property.  Remember, you also have to pay for things like pavement (or gravel) driveways, fences, gates, security, accounting software, website, lights, property taxes, insurance, and other things that don't make you any money while you work on renting it up.  This is not for the faint of heart.  If you have a deepish bankroll and want to give it a go, you could probably do it.  At the end of the day, this isn't brain surgery, but remember, banks and investors want track record.  The good news is that with buying a facility already in business, that serves as a track record.

I would recommend going the SBA financing route.  It allows for a lot less money down (10-15%) and it reduces the banks obligation on the loan to about 50% of the property so they are a lot more interested in lending.  They pretty much don't have any risk if they hold the first mortgage on 50% of the property value.  There are more closing costs and a few stipulations but it also allows you to get 25 year amortization and the SBA portion of the loan (Bank funds 50%, SBA funds 40% and you fund 10%) is at a fixed rate.  This is good news in a rising rate environment.

So, with that said, I think one of the best opportunities in Real Estate right now is buying mom and pop self storage facilities, getting them running efficiently and flipping them (or holding them).

You balked a little bit at the price of a facility near you ($600k).  I will say that price, size, location (well location a little bit), nothing, matters as much as income to a facility's value.  You almost can't do a seat of the pants with a facility because it varies so much.  As long as the market supports it, I would say 85% is a pretty solid occupancy rate.  I think many people use 7 SF/capita in a 3 mile radius as to whether more storage is needed in an area or not.  Remember, that is an average for NY City as well as Green Bay, WI so you have to use some judgement with that number too.

I want to leave on this note: if you have the land already and you are looking to put up storage, I think this is a slam dunk (assuming the area needs it).  You can put up buildings pretty cheaply and start small.  But once you get into grading out a property to build a facility (I've done two 6 acre parcels now and it's cost me over $200k each just for dirt work and another $250K for paving) the up front pricing can get a little wild.  With that said, if you have the property and you want to put up a bunch of storage, spend the money to talk with an engineer.  They will be able to design the facility in phases and they will also be able to make sure you can handle the rain (and snow).  This should not be taken lightly.  It really needs to be thought through.

Good luck and feel free to private message me if you have additional questions.

Michael Wagner · Answer

@Alexandra Richardson

Price to build will vary but assuming you have just raw land to build on with no utilities in place you are looking at right around $30-35 per square all in.  This would include a small office and non-climate controlled storage units with all the basic ammenities like security, proper signage, etc.  If you already had the land excavated and and were talking about the cost of just a simple metal storage unit building, you can do that for right around $18 per square foot.  I don't think an architect is necessary at all given that there are plenty of building providers who have turn key buiilding systems that will also creaet a site plan for you if you send them a survey map of your property. I am always happy to discuss storage as it is an area of passion for me.  Feel free to reach out.

Mike

PS-Check this out for some helpful basic information on storage:

http://www.biggerpockets.com/blogs/3915-all-things-self-storage

Michael Wagner · Answer

You are wise to be cautious!  You don't want to advertise to many specifics on a potential deal until you have it under contract.   None of thie things you mentioned about the property(ies) near you would scare me.  CHeap to add barbed wire (if allowed) or add security cameras.  Bad reveiws and low occupancy are huge indicators that you could have some great value add potential.  It would all depend on if the market can support the amount of storage you (and your competitors) are trying to fill.  Think about it from a house flipping standpoint.  Did you buy the prettiest house on the block in hopes of making it better and selling for a profit...or did you buy a house with a bunch of probelms that you knew you could fix?  Same with storage if you are playing the value add strategy.    Getting funding will depend on value.  If the property is half full and truly worth 600K as it sits but you could get it to $1MM if 90% full, then you may very well find people who want to fund that for you.  I bought my last property with $5K down (raised the other 495K).  That was back in april and its worth $800-900K as we speak.  Granted i was able to rely on a track record that you don't yet have but I didnt have it when I bought my first one either.  Persevere my friend.  If you find a deal good enough, you'll find the money!

Jeff Morgan · Answer

I would suggest a few things:

Get someone who builds these to come out, meet with you and look at the property.  3 Acres is a small site for self storage depending on the lay of the land.  They don't charge for that and it's a good first step to see if it is worth it.   There are others, look in the buyers guide link that Jeff Gorden Posted

Next, if it looks like you can build on the site, you may want to invest in a feasibility study.  Most metal building companies can do a limited study but they are also trying to sell you  a building.  Ask for someone that can do an independent study.

Finally, Listen to people in the industry.  Just like Jeff Gordon and Michael Wagner in the above post, they gave you good advise and are willing to help.  The self storage industry is very helpful, they have some great associations like the SSA and the ISS.  You even have a great State association that can be found at arssa.org

I have been in the self storage industry for 25 years and willing to help.    Please contact me if you need any additional information.

Rob Young · Answer

A good friend of mine is making a nice 20% ROI on his.  He picked it up for 100k.  Not exactly helpful to your question, but not a bad side business for him with minimal effort. Good luck!

Rob

Scott Krone · Answer

@Brian H.  - I read through the post.  Most of the chain is from 5 years ago, and I was not on Bigger Pockets at that time.  Nevertheless, during the past 5 years we have built or are actively building self storage facilities.  A few items that I believe were omitted in the previous conversation.

Before you build, you truly must consider:

1.  Zoning for the land.  Does the current entitlements permit self storage.  If not, what is necessary to obtain the zoning.  We had to re-zone (3) of our properties.  In your case, will the municipality allow multiple uses on the property or is a sub-division of the lot required, or can you stage your development.

2.  Feasibility - what are the current demographics with regard to the population as well as the # of square feet of lockers per capita within 1, 3 and 5 miles.  The feasibility will also look at the projected incomes.  $1.00 / sf annually is now low.

3.  Class of facility.  Class A or Class C.  Class A is typically a climate controlled facility with interior lockers and REIT quality.  Class C are your classic garage drive up facilities.

4.  Definitely hire professionals to land plan, and obtain necessary permits.

5.  Consider the soft costs (operational and carrying costs).  These must be factored in  as well.

The answer to your question as to the projected costs pertains to the area under construction.  That being said there is a significant difference in cost between a Class A and Class C facility (and will also impact your rental incomes).

With regard to obtaining a loan, if you have never done one, the bank will look at your net worth and the team you have assembled to determine the level of risk associated with doing a new development.  When we did our first self storage, we had been in development for 20 years, and our product included multi-family.  To build an apartment without toilets and sinks was easier to convince a bank we could build lockers.  Which goes back to my point #4.

Feel free to reach out if you have other questions.

Scott Krone

Michael Wagner · Answer

The industry typically uses 85% as a stabilized occupancy number.  SO if everyone in market is above 90%, my initial guess is that there may be room for your project.   $1 per foot per month is also a very strong rental rate.  That being said, you also need to look at supply of storage (in square feet) per person within the market.  And compare that number to projected demand to see if your project will push supply over the demand equilibrium.

As for the part of town you are in, that is of critical importance.  Would you be closer to or farther from the "population center"...few customers will drive past one facility to get to another one unless you give them a real good reason to.  And since you don't want to enter a situation where you have to compete on price, having a strategic geographic location is critical. Also, is the market growing?  ANd if so, it it growing in the area right around your proposed site or con "the other side" of your market?

Traffic counts need to be considered but you can make up for low vehicular traffic with high website traffic so don't let that scare you.  If the site is not close to the highest populated areas AND it has low traffic, then you might look elsewhere.

Hope that helps some!

Mike

Brian H. · Answer

@Michael Wagner @Scott Krone

Thank you guys for your responses. Sooooo much goes into this! Which is good! I am a very thorough person. Just amazing when you first just kind of think "Hell... I could put up some steel building and rent out the units easy!" haha.

I have looked at a few facilities for sale near me but the lowest priced one is around $600k, and based on the business' reviews I feel that is probably a bit high. I am still in the process of selling my first ever flip, so I am assuming no lenders would even consider me at that amount.

It seems to be in an area where people have had problems with units being broken into and the reviews talk about lack of security cameras or adequate fencing. I see only chain link fence around the property maybe 5' - 6' high, so I am not surprised. They have a keypad operated gate... but when people can just hop the fence, what purpose does that serve? So, my thoughts are that it probably has a pretty high vacancy at this point and could be a value-add property. I also get scared to share a property or business I am interested in because what if someone else with better access to funding sees what I share and steals it? Not you guys, per se... but even people just reading this.  Is that just paranoia or something to actually be cautious about?

Michael Wagner · Answer

HI Brian , the $30-35 is construction cost exclusive of the land so you will need to add that cost to get your total.  As for getting lenders to play ball on a ground up development, I may not be the guy to ask.  I've looked into development but always find it a better fit to purchase existing and then expand.  It just meets my objectives better (not to mention, has a lower barrier to entry/funding is easier!)  That said, its always tough to get past the "no experience" objection from lenders even with a purchase. It can be done though!.  Its probably more than I can fit in here but a couple ideas are to lean on other experience you have in other realms and be able to answer the objection by explaining how your past experience will serve you in this new venture.  For example if you have experience in residential rentals you can tie that in, explain the similarities, acknowledge the differences and then explain how income/expense ratios in storage are 30% instead of 50% like they are in multi-family and that SS default less often than any other asset backed RE, etc. And then of course have a bullet proof business plan to impress the heck out of them so that you can counter anything that they are scared of.  You have to prove that you've done your homework which may or may not involve taking some sort of formal training/education.  Additionally, you can partner with someone who has the experience you lack.  And you may need to get creative; private money, seller financing (again this works better on an existing facility as the seller can finance it all. If you are talking about land, the seller's ability to hold paper is limited and you've still got to find the build out money)....Wish I had more definitive answers but I Hope some of that helps.

@Brian H.

Costs to build self storage?

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