Over one-fifth of renters in the U.S. are using self-storage, according to an analysis by RentCafe. That’s a massive market that’s only getting bigger.
In addition, investing in storage units yields unique benefits that other rental investments can’t offer.
So, is investing in a storage business right for you? In the guide below, we’ll lay out the pros and cons of owning storage units to help you decide.
Pros of Owning Storage Units
First, let’s talk about all the reasons why you should consider starting a self-storage business.
Owning storage units comes with lots of advantages, from a growing market to a relatively simple and easy-to-streamline business model.
These are the pros of owning storage units:
Pro #1: Flexible Hours
A rarely mentioned benefit: If your goal is to run your own self-storage business, you’ll be happy to hear that you can essentially set your own hours.
Want to open at 10 A.M. Monday? Or 12 P.M. on Wednesdays and Thursdays? You can do that.
But before you do, you’ll want to confirm that these operating hours are a convenient time for your customers to access their storage. Remember, when and how often you’re open may impact your customer acquisition strategy.
Some customers may be looking for 24/7 access. If you limit your storage facility to standard business hours, for example, you may lose out on customers shopping for storage with late-night access.
Pro #2: Great Lifetime Value
Easily, one of the biggest pros of claiming a stake in the storage industry is the high LTV, also known as the “lifetime value.”
The average customer rents a storage unit for a span of 10 months, according to one report, with roughly half of self-storage customers renting for more than one year.
That means massive lifetime value and the chance for incredible margins, with the typical customer paying you for roughly a year (on average).
Pro #3: High (and Growing) Demand
In addition to high LTV, there’s also incredibly high demand for storage.
Earlier, we touched on how one in five renters are using self-storage. The industry has far from plateaued, however.
Over the course of the next decade, the industry is expected to grow massively, with 2024 alone seeing an expected 7.5% growth in market size.
Pro #4: Convenience Is the Future (and Customers Will Pay)
Amazon, grocery delivery, Uber. Today’s marketplace is built partly on convenience.
The more convenience you can provide to the consumer’s day-to-day life, the more valuable your product or service is in their eyes and the more future-proof the business will be.
Personal storage is an especially attractive option, as you’ll be able to provide flexibility to customers who need storage during a temporary move (such as a military deployment) or office relocation (for businesses in the process of downsizing).
Pro #5: Additional Revenue Opportunities
You’ll notice some crossover between a storage business’s target customer and a moving service’s target customer, presenting a unique opportunity to collaborate with businesses outside of your industry–creating more opportunities for additional revenue.
For example, a family that needs to downsize to a smaller home may need both your self-storage facility’s services (to store the items they can’t fit in their new home), along with a moving company’s services–all within the same, short span of time.
Study your local market and make a list of local businesses you think would be interested in advertising with you. Reach out directly to those businesses and offer advertising space in your facility or newsletters for a small fee.
This will allow you to generate a small but consistent stream of additional revenue beyond your rental revenue.
What types of businesses should you be looking to partner with? The most ideal partnerships will include businesses with some type of alignment with self-storage, as we talked about above:
- Local moving companies such as U-Haul
- Apartment complexes
- A vehicle storage provider (if you don’t offer vehicle storage yourself)
Pro #6: Recession-Resistant Asset Class
We talked about the high lifetime value and demand earlier. However, those aren’t the only financial benefits.
Owning storage units can be classified as a recession-resistant asset class.
While not completely recession-proof, self-storage is something that consumers have a specific need for (in both good markets and bad).
In good markets, stuff builds up (as households have more dispensable income to spend on non-essentials). However, these same customers with more disposable income often have the extra cash– but not the extra space for storage.
While some families will move to bigger homes (to accommodate for their growing collection of belongings), for many, even in a good market, that’s not an option. It’s harder to purchase a new home than ever before, so the next best option is simply to pay a few dollars per month for some extra storage.
In a bad market, customers are often forced to downsize and need a place to put their extra belongings that don’t fit in their new home.
Pro #7: An Opportunity to Capitalize on the Baby Boomer Retirement Wave
By 2030, all Baby Boomers will have turned 65 and reached retirement age.
And while retirement doesn’t lead to the guaranteed-pension “golden years” that it once did, the next decade will still see many boomers either downgrading their lifestyle or traveling, all in the name of retirement.
So, what does that mean for self-storage? A potential market boom.
Downsizing retirees need storage space for the extra stuff they can’t fit in their new home. Similarly, traveling retirees need cheap storage space, as they’re likely selling their residences to fund their retirement travels (and, therefore, will need somewhere to keep their possessions).
In both cases, self-storage offers a potential low-cost solution to a key problem.
Pro #8: High Revenue Growth
High lifetime value, demand, and a recession-resistant asset. Those are some major benefits. However, there’s one final financial-related benefit of owning storage units.
The storage industry is now well over $40 billion USD, having grown by 50% since 2010, and is expected to continue to grow well into 2030. That makes it one of the fastest-growing sections in the U.S.
Chart source: Neighbor’s Self Storage Industry Statistics (2022)
While growing demand is great, it doesn’t necessarily mean greater revenue. But rest assured, the numbers point to not only increasing demand but similarly increasing revenue, as well.
Pro #9: Streamlining Pays Dividends
It’s no surprise that efficiency leads to greater revenue and profits in business, and that’s just as true in the storage industry.
For example, if you invest in a self-service system that allows customers to easily and safely enter and exit the premises and get to their storage unit (without the intervention of an on-staff team member), you’ve saved money on personnel.
And because a self-storage facility has no recurring cost other than payroll, rent, and security to deliver the service, improvements that reduce the need for human input can translate to potentially massive profits.
Pro #10: Fewer Hassles Compared to Owning Rentals
If you own any other type of property, you know how much of a hassle managing them can be.
With storage units, you do have a lot of responsibility, but much less hassle.
There are no toilets to repair constantly, no carpet to clean, and no lengthy or difficult evictions to deal with. All you’ll need to do is keep your tenants and their belongings safe.
Cons of Owning Storage Units
Next, let’s talk about the negatives of starting a storage business.
While there are many advantages, there are several cons– some of which could be deal breakers depending on your prior experience and goals.
For example, if you’re hoping to launch a business (that you personally manage), running a self-storage facility could be a great fit with huge upsides. It could also be a great addition to your portfolio if you’re looking for something more passive, but that all depends on your preferences (more on that in a bit).
These are the cons of owning storage units:
Con #1: Picking the Wrong Location Can Kill Your Business Before It Starts
When it comes to a storage business, location is as important as any brick and mortar.
Not only because there are more storage facilities in the U.S. than fast food chains, but also because some markets are more likely to use self-storage than others.
Chart source: Neighbor’s Self Storage Industry Statistics (2022)
Pick the wrong location, such as a higher-end area where families have more than enough space, and you’re not likely to attract enough customers to maintain maximum occupancy.
The sweet spot is middle-income families in your state of operation. Families at that level generally don’t have the financial resources to move from their current residence if they’re tight on space, but they do have enough to spend a little on storage.
Before deciding where to purchase land (or acquire an existing facility), find out:
- How close are the nearest storage facilities?
- Who are they primarily serving?
- Can you find out their occupancy rate?
Keep in mind that having lots of storage facilities in the same market isn’t necessarily a bad thing. In fact, it most likely means that there is high demand for storage.
Con #2: Need to Maintain Occupancy Rate
If you’re new to rental investing, occupancy rate refers to the number of units that are occupied at any given time.
So, if you have 100 storage units and 90 of them are occupied by paying customers, your occupancy rate would be 90%.
A 90% occupancy rate is great and achievable. However, it can take a lot of work to maintain that occupancy rate.
Even if your storage facility is located on prime real estate, you’ll still need to invest in some amount of local advertising to keep occupancy rates up. You can market your vacant units on Facebook, Google Ads, or a billboard on a major street in your area.
However, for those used to running a brick-and-mortar business or rental units, it’s business as usual.
Pro #3: High Entry Cost
The cost to build a storage unit business is about what you’d expect from a brick-and-mortar business.
However, if you only have experience with smaller-scale rental investing, this high entry cost might catch you off-guard.
That’s partly because the average storage facility is much larger than the average single-family home.
In addition to this, greater demand for security is a major cost not associated with the average rental property.
Con #4: Competition Is High
As we spoke about earlier, self-storage is in high demand. However, it’s important to keep in mind that competition is also high.
That means you’ll need to be very careful about where you select your location (as we touched on earlier), as you’ll have stiff competition if you set up shop next to multiple competitors– especially if they’re large chain locations.
It’s important to be aware of the storage industry’s saturation, as it could impact your advertising cost. After all, the greater the number of companies competing for a term on digital platforms such as Google Ads, the more the cost of advertising increases.
Fortunately, this is balanced somewhat by the low overhead cost.
Con #5: Self-Management
One of the lesser-known facts about owning storage units is that outsourcing management isn’t very effective.
If you come from a rental investing background, you may have had the thought that you’ll simply hire a management company, pocket the difference, and you’re golden.
The issue is that there are far fewer management companies that specialize in self-storage, making finding a good management company hard.
That isn’t to say that you won’t be able to, just know going into it that if you’re not ready to manage the business yourself, it may not be a good fit for you.
Con #6: Security Is Costly
You’re storing the personal belongings of hundreds of different customers within a single facility.
Because of this, you need to make sure that you’re investing in the latest security technology from top to bottom, such as electronic access and an alarmed perimeter for after-hours.
What types of security you’ll need depends mostly on your:
- Location: How close to a major commercial street is it? This increases exposure and the need for security.
- And facility structure: Are they all enclosed, self-storage units, or do you have an open area for vehicle storage as well? If the latter, then you might need an alarmed perimeter.
However you outfit your facility, it needs to ensure the safety of your customer’s items. So, this isn’t something where you can cut costs.
Con #7: Build Right or Risk Performance
There are a few choices you’ll need to make if you’re building a facility from the ground up.
Some of those choices– namely, how your customers access their storage– can affect the performance of your storage business and are hard to fix after construction.
These choices have to do with the blueprint (i.e. layout) of your facility, so structuring it in a way that is inconvenient to your customers and offers them the experience they expect is key.
Run market research by surveying the nearby storage facilities to get an idea of how each facility is structured.
For example, are the best-performing facilities offering easy self-access via a touch keypad? Or are these successful facilities offering walk-in facilities with teams behind the counter that direct their customers to their assigned storage units?
Find out what kind of experience your nearby storage competitors are offering so that you can structure your facility to offer a similar experience (or better).
Con #8: Customer Issues
While managing a storage business, oftentimes, you’ll have to deal with late payments and disgruntled customers–as a result of break-ins and other security threats.
Chasing customers down for payment– and customer service in general– is never fun. However, it’s part of the reality of owning storage units that you’ll need to be aware of, especially if this is your first rental investment.
With that said, if you’ve been in the rental game for a while, you know what it’s like managing tenants and will likely feel right at home.
Is Owning Storage Units Right for You?
The pros and cons of owning storage units is a long list, but one that certainly weighs more heavily on the pros (especially the financial benefits).
The key is to make sure you’re managing it properly and providing the kind of experience that customers in your area are expecting. In the best-case scenario, you won’t just meet customer’s expectations but exceed them.
The occupancy rate, in particular, is something you’ll need to keep a close eye on constantly, as the higher your occupancy rate, the higher your revenue (and vice versa).
With a peer-to-peer storage marketplace like Neighbor, you can more reliably fill your storage units by posting your available units.
That means more revenue for you and less worrying about filling your units.
If running a full-fledged storage business isn’t for you, opt for a micro-storage business–which involves far fewer cons. Staring a micro storage business is as simple as signing up with Neighbor and listing your existing property (i.e., an empty garage, unused RV pad, or vacant driveway) as storage space, meaning you won’t have to staff a facility or perform market research on the top-performing locations for self-storage.
Become a Neighbor host to find out more about how it works.
