Why self-storage? Numerous investors ask this particular question all the time. Well, there are a lot of reasons to love this type of investment. But it isn’t smooth sailing all through as there are a couple of financial aspects inherent in this industry.
Taking a self-storage financial analysis is one of the first steps every willing investor looking to stake a claim on this market needs to take. Why? It’s simple! Having an estimate on expenses is essential to effectively run a self-storage facility seamlessly while looking for ways to cut costs. You will also get to know about the Self-Storage Facility Value.
In this article, we will give an insight into self-storage facilities and the expenses associated with them. It promises to be an exciting read for those looking to make either active or passive income through this industry.
Table of Contents
What is a Self-Storage Facility?
Simply put, a self-storage facility is a structure or building used to store things like raw materials, manufactured products, and equipment.
These facilities typically feature rooms, containers, or lockers, usually known as storage units. Although investors can use a self-storage facility for personal purposes, tenants generally rent spaces on a short-term basis.
At self-storage facilities, security is taken head-on by the tenant, unlike warehouses where employees have unfettered access to that space’s contents. A self-storage facility can only take possession of the space when a tenant defaults on rent or when a particular unit is left unlocked.
Design-wise, self-storage facilities globally follow similar trends. These trends include height increase of storage space, support columns placed far apart, load bearings, and enclosings that are light, such as roofs made from aluminum and sheet-shaped steel for panels. The use of all these structures and facilities in mine excavation areas can effectively reduce capital investment.
Expenses Associated With Self-Storage Facilities
If there was ever a time to invest in self-storage, it’s now. Why? Storage units are classified as the most recession-proof asset class, featuring profits at a 60% occupancy rate. What’s more? Investors can manage it from the calm scenery of their home office. All these facts beg the question, “what is the cost of running a self-storage facility?.”
Self-storage facilities come with an array of expenses. Here, while some are fixed, others, dependent on certain factors, fluctuate. Month after month, these expenses are practically the same, except there’s a sudden change in workload or regimen. Therefore, adhering strictly to schedules and work hours is crucial.
Variable costs can include snow plowing and janitorial supplies. These costs fluctuate and can change over a certain period. To anticipate expenses of this nature, take a closer look at the amounts spent on these items over the past few years. Doing this gives an estimate of how costs might vary in the years to come.
As humans, we can’t accurately predict the future, but it’s essential to get your budget right to avoid overspending.
Here are some self-storage operating expenses to expect. They include;
- Repairs and maintenance
- On-site management
- Off-site management
Real estate taxes account for real property taxes and direct assessments. A proven way to model taxes is by adjusting evaluation to 70% of the purchase value to the tax rate unless prescribed differently by state law.
Using comparable tax data, the tax liability when there’s a sale can be effectively measured. Real estate taxes are typically 1% of property value.
Insurances here are expenses inherent in building and liability. However, with specific blanket policies, investors can achieve a lower rate. Due to tenants’ insurance costs, insurance expenses of the facility may rise.
Repairs and Maintenance
Here, expenses are all self-storage maintenance such as; pest control, rubbish removal, landscaping, gate repairs, and other facility maintenance.
In competitive environments, a long-run view is crucial to achieving reasonable forecasts. For proper budgeting, the value, age, quality, and condition of the property should reflect.
Administrative expenses are relative to office functions like the telephone, bank charges, credit reports, postage, professional fees, legal services, data processing, and other costs incurred by running self-storage properly.
Expenses here account for full-time management needs that include relief managers and all payroll-related costs. Quality on-site management is crucial to any self-storage facility’s success, indicative of customer service, merchandise, and tenant insurance sales.
These expenses are typically management fees for outside management and individual overhead costs. It’s considered one of the numerous self-storage expense ratios for practical gross income calculations in self-storage properties.
With different designs on display at various self-storage facilities, utility expenses might vary. For example, self-storage properties with climate-control and several levels are sure to increase operational costs such as; electricity, water, sewer service, trash pick-up, and natural gas.
To reduce overhead expenses, some operators make use of solar energy. The market estimates a 15-20% rental increase for facilities fitted with climate-control than those that aren’t.
Advertising as an expense element is crucial for the smooth running of any self-storage property, especially the ones in the up and coming phase. Expenses here include website creation costs, social media campaigns, and other promotions.
Strong advertising campaigns can lead up to 50% of customers to find a self-storage facility that accentuates their needs online.
The miscellaneous category accounts for variables absent in other expenses categories. A significant characteristic of miscellaneous expenses is the fact that they’re usually small and inconsequential most times.
Regardless of what self-storage facility you invest in, having a solid business plan can never be overemphasized.
For investors new to this industry, perusing through the various self-storage expense guidebook PDFs available online is sure to give them a solid foundation on costs associated with self-storage and ways to reduce them effectively.