I get a lot of questions like, “I’m looking at this site,” or, “I’m looking at this facility. How do I know if I should move forward?”

That’s hard to answer because it depends.

Depends on what?

Why you want to get into the self storage business. What is your acquisition strategy?

In this episode, I will cover the guidelines that work for most projects.  These are the answers all the “experts” give. But for each section below I can show you ten projects that aren’t following that guideline and are still performing very well.

We even have some that do.

However, if you follow these guidelines the odds are good that you will have a successful project.  These are the guidelines that many of the larger players follow.  If your exit strategy is to eventually sell to them, these are the policies I would follow.

Population

As a rule, there should be a minimum population of 30,000 in a 3-mile radius of the facility. The benchmark used to be 50,000 and that’s still a great target number.  I’m seeing 30,000 used successfully now, especially in secondary or tier tow markets

I also know people whose model is to build small facilities in smaller markets and they are doing quite well.  But as a rule, the population is critical, especially if you are building 50,000 square feet or more

Target Income

Typically, $50,000 is the target household income for the submarket.

Again, we own very successful projects in areas where the average is below this. But not by much.  Below $50,000 and your collections are usually very high.

If you are going to charge $90 – $100 for a non-climate controlled 10×10, you want a customer base that is able to consistently pay that monthly fee.  That’s not going to happen if they are struggling to buy groceries and pay rent.

Traffic Counts

Self storage is a retail business.

That’s how it has evolved. I would suggest you relate to it as one.

What do retail businesses want?

Visibility

What institutional buyers look for is car counts as a way to measure visibility.

As a general rule, we are looking for retail roads or visibility from expressways.

If your location is a turn off a major retail road, make sure your facility is visible from the main road.

The standard car count number is 25,000 cars a day.

That is a good target number, but again, we have very successful projects that don’t have this.

As this industry matures and more product comes online, I am paying more attention to this than ever before.

Size

If your exit strategy is to sell to an institutional player you want at least 50,000 square feet of storage.

If you want to have a full-time manager on staff, it not economically feasible with less rentable square footage than this.

I know of plenty of projects that are under 50,000 square feet but they are not that profitable if they have a full-time employee.  If they are profitable it’s operating with either a part-time employee or no manager at all.

If your business plan is to build or acquire small facilities and run them without much staff, that’s great.  But you need to be clear who your buyer is going to be when you exit.

Barrier to Entry

Ideally, you want to own in a market or submarket where there is a high barrier of entry.

How will you know?

Usually, your feasibility report will indicate the barrier of entry. You do get feasibility reports, don’t you?

ALWAYS get a feasibility report!

We always do. You will get a lot of good information and it helps with the financing. You can find resources for feasibility reports at the ISS website, SSA website, or my “Resources” page.  

What constitutes a high barrier of entry?

An existing site in a market with very expensive land costs will often show up on a feasibility report as having a high barrier to entry.

An existing site with land for expansion in an area where the regulatory agencies don’t like self storage would also qualify.  Especially if you don’t think any (or few) will get approval near you.

What you don’t want to see is a lot of green space in a market with no zoning or very easy to approve zoning.  If land cost are inexpensive that’s a double whammy.

If that is the case, assume more self storage is coming and make sure the market is large enough to absorb it. If not, pass.

Per Capita

The national average is around 7.5 square feet per capita.

Each state and market has its own average. For example, in Texas, equilibrium is higher than 7 square feet of self storage per person.

Ideally, you want to be in a market with 6 square feet or less. This indicates there is unmet demand. It is not always the case that slightly more means the market is oversaturated, but it will almost never mean there is no demand if the number is 6 or less.

How do you know?

Your feasibility report will tell you for sure.

You could estimate yourself. Get the demographics of the three-mile and five-mile radius of where you are looking. Most of your customers are there. We average 86% of our customers coming from within a four-mile radius or so.

That population is your first number. Then estimate the square feet of supply. That is harder, but you can usually get close.

If you don’t want to do that, you can subscribe to data software programs that will give you this information. They are usually expensive.

If you have a site you’re looking at and I have the information on it, I will give you a report for $350. My data is good for most markets, but not everywhere in the country.

These reports should not be used to make your final decision.  That would be the feasibility report.  But it will give you a good indication if you should proceed with your research in that area.  if I pull a report on a submarket and see 13 square feet534 per capita in a three-mile radius, for example, I will pass and not spend the money on a feasibility report.

Conclusion

These guidelines are not etched in stone or the ultimate guide, but they are accurate most of the time.  They are very important if your exit strategy is to sell to a REIT or an institutional player.

As a general rule, if all these criteria are in place, you will have a successful self storage project. If you have enough great self storage projects, you will have a great career in the best business there is for the small investor. Create true wealth one project at a time following these guidelines.