Buying a storage unit business can be a lucrative investment opportunity in today’s growing self-storage industry.
At Unbroker, we’ve seen firsthand how this sector has expanded rapidly in recent years, driven by increasing urbanization and the need for extra space.
This comprehensive guide will walk you through the essential steps on how to buy a storage unit business, from understanding market trends to closing the deal.
What Drives the Storage Unit Business?
The Self-Storage Landscape
The self-storage industry has become a powerhouse in the real estate sector. It shows steady growth and resilience even during economic downturns. The U.S. leads the global market with over 50,000 storage facilities, which translates into 6 feet of storage space per American. This vast network of storage options ranges from small, locally-owned properties to large, publicly-traded Real Estate Investment Trusts (REITs).
Diverse Storage Solutions
Storage unit businesses offer various forms to meet different needs:
- Traditional drive-up units remain popular for easy access.
- Climate-controlled spaces cater to customers with sensitive items, offering cooling in summer, heating in winter, and year-round humidity control.
- Specialized storage for RVs, boats, and vehicles has gained traction in recent years.
Some facilities offer additional services like packing supplies, moving truck rentals, or even wine storage to diversify their income streams. These value-added services can increase revenue and attract a wider customer base.
Market Trends and Growth Potential
The self-storage sector continues to expand, driven by several factors:
- Urbanization and smaller living spaces in cities create a need for off-site storage.
- The rise of e-commerce has led to increased demand from small businesses for inventory storage.
- Baby boomers downsizing their homes and millennials preferring to rent contribute to the customer base.
According to StorageCafe, the industry added 258.9 million square feet of space from 2017 to 2022, bringing the total to 1.6 billion square feet. This growth shows no signs of slowing, with projections suggesting the market could reach $115.62 billion by 2025 (as reported by Forbes).
Competitive Landscape and Investment Potential
Investors should note that while the industry is growing, it’s also becoming more competitive. Saturation in some markets has led to price pressures, making location and operational efficiency key factors for success. However, the industry’s resilience during economic downturns – as seen during the 2008 financial crisis and the COVID-19 pandemic – makes it an attractive option for those seeking stable investments.
The average profit margin in the self-storage sector ranges from 11% to 41%, depending on various factors. This potential for high profitability, combined with relatively low operational costs, translates to reduced risks for investors.
As we move forward to explore the key factors to consider when buying a storage unit business, it’s important to keep these industry dynamics in mind. The next section will help you navigate the complexities of location, occupancy rates, and other critical elements that can make or break your investment in this thriving sector.
What Makes a Storage Unit Business Profitable?
Location: The Foundation of Success
Location stands as the most important factor in the storage business. Facilities near residential areas, apartment complexes, or business districts typically experience higher demand. Easy access from major roads and highways proves essential, as customers value convenience.
Occupancy Rates: The True Measure of Performance
High occupancy rates prove vital for profitability. The industry average sits around 90%, but this can vary significantly by location. A facility with consistently low occupancy (below 60%) might indicate underlying issues with the property or local market. However, extremely high occupancy (over 95%) could suggest underpricing or untapped expansion potential.
Revenue streams extend beyond unit rentals. Many successful storage businesses offer additional services like truck rentals, packing supplies, or even wine storage. These ancillary services can boost revenue by 10-20% without significantly increasing operational costs.
Facility Condition: Impact on Costs and Customer Satisfaction
The physical condition of the facility directly affects maintenance costs and customer satisfaction. Older properties might require significant upgrades, which can eat into profits. Modern security systems, climate control, and well-maintained units command higher rents and attract quality tenants.
Regular maintenance proves crucial. A well-maintained facility can operate with minimal staff, keeping labor costs low. Some successful storage businesses operate with as few as 2-3 full-time employees per location.
Competitive Landscape: Shaping Your Strategy
Understanding local competition is essential. Oversaturated markets can lead to price wars and lower profits. The Self Storage Association suggests that a 3-5 mile radius is the typical market area for a storage facility. Within this area, analyze competitors’ pricing, occupancy rates, and unique selling points.
Legal and Zoning Considerations: Potential Deal-Breakers
Zoning laws and local regulations can significantly impact a storage business. Some areas have strict rules about new storage facility construction or expansion of existing ones. For instance, New York City implemented a special permit requirement for new self-storage facilities in certain zones in 2017, dramatically affecting the local market.
Environmental regulations (particularly for properties with a history of industrial use) can lead to unexpected costs. Always conduct thorough due diligence on any potential environmental liabilities.
When evaluating these factors, expert guidance proves invaluable. While many business brokers charge high fees for their services, Unbroker offers a modern, cost-effective platform for buying and selling businesses, including storage facilities. Our transparent pricing model and AI-driven processes ensure you get the support you need without breaking the bank.
As you consider these key factors, the next step involves understanding the specific steps to purchase a storage unit business. Let’s explore the process of researching potential businesses, conducting due diligence, and securing financing options.
How to Buy a Storage Unit Business
Finding the Right Business
Start your search for available storage businesses in your target area. Use online platforms like BizBuySell and LoopNet to find listed storage facilities. Local real estate agents who specialize in commercial properties can provide valuable insights. Don’t overlook off-market opportunities – some of the best deals come from direct outreach to facility owners who haven’t officially listed their properties.
Conducting Due Diligence
After you identify a potential acquisition, perform thorough due diligence. This process involves examining every aspect of the business:
- Financial records: Analyze at least three years of profit and loss statements, tax returns, and occupancy reports.
- Physical inspection: Assess the condition of units, security systems, and overall property maintenance.
- Legal compliance: Verify zoning laws, permits, and any outstanding legal issues.
- Market analysis: Study local demographics, competition, and growth projections.
Consider hiring a professional inspector and accountant during this phase to uncover potential issues you might miss.
Valuing the Business
Determine the fair market value of a storage facility using several methods:
- Income approach: Base this on the business’s cash flow and potential for future earnings.
- Comparison approach: Evaluate recent sales of similar storage businesses in the area.
- Cost approach: Consider the cost to replace the facility, minus depreciation.
The capitalization rate (cap rate) is an important metric in the storage industry. Capitalization rates for self storage reached an all-time low of 5% in the fourth quarter of 2022.
Securing Financing
Storage unit businesses often qualify for traditional bank loans due to their stable cash flow. The Small Business Administration (SBA) offers attractive loan options. The 504 loan program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation.
Commercial mortgage-backed securities (CMBS) loans are another popular choice, offering non-recourse terms and typically lower interest rates for loans over $2 million.
Lenders usually require a down payment of 10% to 30% of the purchase price.
Negotiating and Closing the Deal
Use your due diligence findings and financing options to negotiate. Key points to address include:
- Purchase price and payment terms
- Inventory and equipment included in the sale
- Non-compete agreements
- Training and transition support from the current owner
Work with a lawyer to draft and review the purchase agreement. This document should clearly outline all terms of the sale, including assets being transferred, any assumed liabilities, representations and warranties from the seller, and conditions for closing.
After all parties sign and funds transfer, handle the transfer of licenses, permits, and utility accounts. Notify existing tenants of the ownership change and introduce yourself as the new owner.
While this process can be complex, platforms like Unbroker offer support and resources to streamline your business acquisition journey. Their transparent pricing model and AI-driven processes can help you avoid the high fees typically associated with business brokers.
Final Thoughts
Buying a storage unit business requires careful planning, thorough research, and strategic decision-making. The self-storage industry offers promising opportunities for investors, driven by urbanization, e-commerce growth, and changing lifestyle preferences. However, potential buyers must consider challenges such as market saturation in certain areas and the need for ongoing operational efficiency to maintain profitability.
A well-situated facility with high occupancy rates and diverse revenue streams can provide a stable, long-term investment. Buyers should stay attuned to local market conditions, competitive landscapes, and evolving customer needs to position their business for success. Success in the storage unit industry often comes down to attention to detail, customer service, and strategic planning.
Platforms like Unbroker can simplify the process of how to buy a storage unit business. Their modern approach to business transactions offers transparent, cost-effective solutions that eliminate high brokerage fees while providing essential support and resources. With the right preparation and mindset, you’ll navigate the complexities of acquiring a storage unit business and turn it into a profitable enterprise.
