So let’s talk about self-storage, shall we? Back in 2015, I partnered up with Dan and embarked on a journey to plan and develop our own self-storage business. It was a long process, taking us a total of 2 years to prepare and open our doors for business in May 2017. We started with 5 outside investors and now, fast forward to today, we have 24 properties with a whopping 4,930 self-storage units spread across Ohio, Pennsylvania, New York, and Connecticut. But we’re not stopping there – our goal is to have 50 units in 30+ states! Self-storage is an “operations heavy business” with monthly leases and a focus on efficiency and low overhead costs. Being in this business means keeping our facilities clean, employing good software systems, and answering phone calls to handle day-to-day operations. And let me tell you, revenue management is a game-changer in self-storage. It allows us to increase rent periodically and generate more profits from the same asset. So, if you’re interested in learning more about how self-storage investing works, join me on The Nick Huber Show as we delve into the world of self-storage and the unique advantages it offers as a real estate investment strategy.
Planning and Development of the Self-Storage Business
Decision to Start a Self-Storage Business
Starting a self-storage business is an exciting venture that requires careful planning and decision-making. The decision to enter this industry is often driven by the potential for profitability and the increasing demand for storage space. In my case, I decided to start a self-storage business with my partner Dan in 2015. We saw the opportunity to create a successful business that could provide a valuable service to our community while generating significant returns on investment.
Partnership Formation and Initial Steps
Once the decision was made to start a self-storage business, the next important step was to form a partnership. Partnering with someone who shares your vision, goals, and work ethic is crucial for long-term success. Dan and I formed a strong partnership based on trust and common values, which allowed us to navigate the challenges of starting a business together.
After forming our partnership, we began taking the initial steps to bring our self-storage business to life. This involved conducting thorough market research to identify potential locations, analyzing the competition, and determining the demand for storage space in our target area. We also started building relationships with professionals in the industry, such as real estate agents and financial advisors, to gain insights and guidance throughout the process.
Timeline and Preparation for Opening
The planning and development phase of a self-storage business can take time, and it is important to allow for adequate preparation before opening the doors to customers. In our case, it took us two years to prepare and set up our business before we were ready to open in May 2017. During this time, we focused on acquiring properties, securing financing, and assembling a team of employees who would help us manage our assets.
Having a clear timeline and set of goals was essential for staying organized and focused during the preparation phase. We created a detailed plan that outlined the specific tasks and milestones we needed to achieve before opening for business. This included obtaining the necessary permits and licenses, conducting market research, preparing the properties for operation, and developing operational systems and processes.
Attracting Outside Investors
Securing financing for a self-storage business can be a significant challenge. In our case, we decided to attract outside investors to help fund our venture. We believed that by bringing in external capital, we would not only have the necessary funds to acquire properties but also benefit from the expertise and network of our investors.
To attract outside investors, we developed a comprehensive business plan that detailed our strategy, financial projections, and the potential return on investment. We also conducted presentations and meetings with potential investors to share our vision, answer questions, and address any concerns they might have had. Building strong relationships and demonstrating our commitment to the success of the business were crucial in attracting investors who believed in our project.
Property Portfolio and Expansion Goals
Overview of Current Property Portfolio
Since opening our doors in 2017, we have been able to build an impressive property portfolio comprising 24 properties. These properties are located in Ohio, Pennsylvania, New York, and Connecticut, providing us with a diversified geographic footprint. The portfolio has grown to include a total of 4,930 self-storage units, totaling 642,000 square feet of rentable space.
The properties in our portfolio vary in size and features, allowing us to cater to a wide range of customers’ needs. We have acquired properties with both climate-controlled and drive-up storage units, providing customers with options for storing their belongings based on their specific requirements. This diversity in our portfolio has allowed us to appeal to a broader customer base and maximize our revenue potential.
Number of Self-Storage Units and Locations
The number of self-storage units in our portfolio has grown steadily since our inception. Our focus on acquiring properties and expanding our reach has allowed us to increase our storage capacity, ensuring that we can accommodate the growing demand for storage space.
In addition to the number of units, the locations of our properties are strategically chosen to maximize their potential. We have selected areas with high population density, strong economic growth, and little competition to ensure that our properties have a steady flow of customers. Our goal is to provide convenient access to storage solutions for individuals and businesses in these areas.
Expansion Goals and Target States
As we continue to grow our business, our expansion goals are ambitious yet achievable. We aim to have a total of 50 self-storage properties in 30+ states. This expansion will allow us to establish a stronger presence in different regions, diversify our revenue streams, and increase our overall profitability.
To achieve these goals, we have already started making offers on self-storage facilities in states such as Georgia, Kentucky, and Indiana. By expanding geographically, we can tap into new markets and leverage our operational expertise and systems to drive success in these regions. Our team of acquisition employees plays a vital role in identifying potential acquisition targets and conducting thorough due diligence to ensure the viability of each investment.
Self-Storage Business Operations
High-Touch Nature of Self-Storage
Operating a self-storage business requires a high level of customer interaction and attention to detail. Unlike some other real estate asset classes, self-storage is a high-touch business that involves constant communication with tenants and addressing their needs promptly. This high-touch nature stems from the fact that most self-storage customers rent on a month-to-month basis, requiring ongoing communication and management.
To excel in this industry, it is essential to prioritize customer service and create systems and processes that allow for efficient and effective tenant management. By providing exceptional customer experiences, we can build strong relationships with our tenants, increase customer loyalty, and drive positive word-of-mouth referrals.
Importance of Operational Systems and Employees
In the self-storage business, operational systems and well-trained employees are crucial for success. Developing robust operational systems is essential for streamlining processes, minimizing errors, and maximizing efficiency. These systems encompass various aspects of the business, including tenant leasing, inventory management, payment processing, security, and maintenance. Implementing technology solutions and software platforms can significantly enhance operational efficiency and improve the overall customer experience.
Additionally, having a team of dedicated and knowledgeable employees is instrumental in running a self-storage business smoothly. From property managers to maintenance staff, each employee plays a vital role in ensuring that day-to-day operations are executed seamlessly. Investing in employee training, creating a positive work culture, and providing opportunities for growth and development are key strategies for attracting and retaining top talent.
Cost Basis and Employee Management
Managing costs is a critical aspect of running a profitable self-storage business. Our cost basis for the entire portfolio is $34 million, including property acquisition costs, operational expenses, and employee salaries. Monitoring costs closely, negotiating favorable vendor contracts, and implementing cost-saving measures are essential for maintaining healthy profit margins.
When it comes to employee management, finding the right balance between cost and expertise is crucial. Hiring and training employees who possess the necessary skills and knowledge to excel in their roles is key. Additionally, developing fair compensation and benefits packages and providing opportunities for professional growth and advancement can foster employee loyalty and productivity.
Advantages of Revenue Management
One unique advantage of self-storage business is revenue management. Unlike other types of real estate investments, self-storage facilities have the ability to increase rents periodically, generating more revenue from the same asset. Larger self-storage companies have mastered the art of revenue management by implementing predetermined rent increases at set intervals throughout the lease term.
In our model at Bolt Storage, revenue management is a fundamental part of our strategy. Since all tenants are on a monthly lease, we have the flexibility to raise rents with proper notice. By consistently evaluating the market demand and adjusting rents accordingly, we can optimize our revenue and maximize the profitability of our properties.
Comparison of Different Self-Storage Types
The self-storage industry offers different types of facilities, each with its own advantages and target markets. On one end of the spectrum, we have large-scale, multi-level, climate-controlled facilities owned by major companies. These facilities are suitable for urban areas and cater to a diverse range of customers, including businesses and individuals.
On the other end, smaller drive-up facilities, such as the ones operated by Bolt Storage, offer a more localized and personalized experience. These facilities tend to be located in smaller towns and rural areas, serving customers who prioritize convenience and cost-effectiveness. By focusing on smaller communities, we can establish a presence in underserved markets and provide a valuable service to local residents and businesses.
Profitability and Advantages of Self-Storage Investments
Popularity and Profitability of Self-Storage
Self-storage has gained popularity as a real estate investment strategy due to its profitability and relatively low risk. The demand for storage space continues to grow, driven by factors such as urbanization, downsizing, and the need for temporary storage during life transition periods. This sustained demand contributes to the long-term profitability of self-storage facilities.
The profitability of self-storage investments lies in the ability to generate consistent rental income from a diverse base of tenants. With the high turnover nature of the business, self-storage facilities can maintain high occupancy rates and mitigate the risk of prolonged vacancy periods. Additionally, the relatively low operating costs and minimal tenant improvements required make self-storage an attractive investment option.
Growth and Increased Value of Self-Storage Investments
In recent years, self-storage as an asset class has experienced significant growth and increased value. From 2016 onwards, the industry has seen a surge in investor interest, leading to a rise in property values and capital allocation. This growth trajectory indicates the continued profitability and potential for substantial returns on investment in the self-storage sector.
As the demand for storage space continues to rise, the value of self-storage investments is expected to appreciate further. By capitalizing on this trend and expanding our portfolio strategically, we can take advantage of the increasing value of our assets and maximize our long-term returns.
Operating in Smaller Towns and Focus on Efficiency
One key aspect of our business model is to operate in smaller towns and rural areas. By focusing on these underserved markets, we can tap into a customer base that seeks convenient and cost-effective storage solutions. The reduced competition in these areas allows us to establish a strong presence and capture a significant market share.
Operating in smaller towns also offers advantages in terms of operational efficiency and lower overhead costs. With fewer properties and a smaller geographic footprint, we can streamline our operations, reduce travel time and costs, and provide more personalized service to our customers. This focus on efficiency allows us to maximize our resources and increase overall profitability.
Expense Ratio and Operational Efficiency
Managing expenses is a critical factor in the profitability of self-storage facilities. The expense ratio, which includes property taxes, utilities, maintenance, marketing, and employee salaries, typically ranges from 30% to 40% of revenue in the self-storage industry. This ratio reflects the costs associated with operating and maintaining the facilities.
One of the advantages of our business model is that as we grow and increase our storage capacity, our expense ratio decreases. This is because we can spread our fixed costs over a larger portfolio, resulting in increased operational efficiency and cost savings. By continually monitoring expenses and identifying areas for improvement, we can further optimize our expense ratio and enhance our overall profitability.
High Rental Rate per Square Foot
Another advantage of self-storage investments is the high rental rate per square foot compared to other asset classes, such as residential apartments. The rental rate per square foot in the self-storage industry is generally higher, reflecting the value customers place on secure and convenient storage space.
This higher rental rate enables self-storage facilities to generate more income from a smaller footprint. By maximizing the use of space, properly pricing rentals, and continuously evaluating market demand, we can increase our rental income and achieve higher returns on investment.
Operational Side of Self-Storage
Running a self-storage facility involves various operational tasks and responsibilities. From ensuring the cleanliness and maintenance of the facility to managing tenant leases and providing exceptional customer service, each aspect is crucial to the success of the business.
To maintain smooth operations, we have implemented efficient systems and processes. These include automated rent collection and payment systems, robust security measures, and regular property inspections. By investing in technology solutions and software platforms, such as Easy Storage Solutions, we can streamline our operations and enhance the overall customer experience.
Software Solutions for Self-Storage Operations
In today’s digital age, software solutions play a vital role in effectively managing self-storage operations. These software platforms provide comprehensive tools for tasks such as tenant management, inventory tracking, financial reporting, and marketing automation.
One commonly used software platform in the self-storage industry is Easy Storage Solutions. This software offers features that facilitate smooth operations and enhance the customer experience. With functionalities such as online rental reservations, automated payment processing, and tenant communication tools, these software solutions enable us to streamline tasks, improve efficiency, and provide convenient services to our customers.
Revenue Management and Competitive Advantage
Implementing Revenue Management
One of the unique advantages of self-storage is revenue management. This concept involves periodically raising rents to increase profitability. While larger self-storage companies have mastered revenue management, smaller facilities often overlook this opportunity to maximize revenue.
At Bolt Storage, we recognize the importance of revenue management and have integrated it into our business model. By utilizing revenue management strategies, we can increase rental rates with proper notice, effectively leveraging our assets’ income-generating potential. This approach allows us to adapt to market conditions, adjust prices based on demand, and capitalize on profit opportunities.
Challenges of Below Market Rents
Smaller self-storage facilities, especially those operated by inexperienced owners, often have below-market rents. This can result from a lack of understanding of the market, fear of losing tenants, or a failure to implement revenue management practices.
While these below-market rents may attract tenants in the short term, they can hinder long-term profitability. By keeping rents below market value, owners limit their revenue potential and undervalue their assets. Implementing revenue management strategies, even in small towns, can help overcome these challenges and increase profitability.
Competitive Advantage in Small Towns
Operating self-storage facilities in small towns provides a unique competitive advantage. In these areas, there is often limited competition, allowing us to establish ourselves as the go-to storage solution provider. By offering a high level of service, competitive pricing, and convenient access, we can attract and retain loyal customers.
Additionally, our focus on efficiency and low overhead costs in small towns gives us a competitive edge. By leveraging technology, optimizing operations, and providing personalized service, we can deliver a superior customer experience while maintaining healthy profit margins.
Challenges in the Self-Storage Industry
Deal Structuring, Financing, and Finding Deals
Like any business, the self-storage industry presents its fair share of challenges. One of the significant challenges is deal structuring, financing, and finding profitable investment opportunities. Acquiring self-storage facilities requires careful evaluation of properties, negotiation of purchase terms, and securing financing.
To overcome these challenges, we leverage the expertise of our team and our network of industry professionals. Conducting thorough due diligence on potential deals, building relationships with lenders, and staying informed about market trends are essential for identifying and capitalizing on attractive investment opportunities.
Tax Advantages and Financing Options
While the self-storage industry presents challenges, it also offers unique advantages. One such advantage is the availability of tax benefits, such as bonus depreciation, which can significantly impact the financial health of a self-storage business. Utilizing these tax advantages requires careful planning and consultation with tax professionals.
Additionally, financing options are available specifically for self-storage acquisitions. Senior loans from local banks are commonly used in the industry, providing access to the capital necessary for acquiring and developing self-storage facilities. Collaborating with experienced financial advisors and lenders can help navigate the complexities of financing and ensure favorable terms for successful acquisitions.
Critical Aspects of Operations
Managing the day-to-day operations of a self-storage business requires careful attention to detail and efficient execution of tasks. From marketing and leasing to property maintenance and security, each aspect plays a critical role in delivering an exceptional customer experience and maximizing profitability.
Failing to address any of these critical aspects of operations can jeopardize the success of a self-storage business. Therefore, implementing robust operational systems, investing in employee training and development, and utilizing technology solutions are vital for streamlining operations and ensuring that all aspects of the business run smoothly.
Challenges in Acquiring Self-Storage Facilities
Lastly, one of the biggest challenges in the self-storage industry is finding and acquiring suitable facilities. As the popularity and profitability of self-storage grow, competition for prime properties increases. Finding deals that align with our investment criteria and offer potential for significant returns requires persistence, market knowledge, and a well-developed network.
To overcome this challenge, we have hired a team of acquisition employees dedicated to sourcing and evaluating deals. They conduct thorough market research, build relationships with brokers and property owners, and negotiate deals on our behalf. This proactive approach allows us to identify attractive investment opportunities and expand our portfolio strategically.
In conclusion, planning and developing a self-storage business involves careful decision-making, partnership formation, and extensive preparation. However, the potential for profitability, the advantages of self-storage investments, and the ability to overcome challenges make this industry an attractive investment option. By focusing on operational excellence, implementing revenue management strategies, and capitalizing on market trends, we can continue to grow our business and achieve long-term success in the self-storage industry.