Can You Buy a Storage Unit Instead of Renting?

Many individuals and businesses consider storage units for additional space. While renting is common, purchasing a unit is also an option. This involves understanding different ownership models and their financial and operational aspects.

Understanding Storage Unit Ownership

Purchasing a storage unit can take a few different forms, ranging from acquiring an individual space to owning an entire facility. One common approach is buying a “storage condo” or “storage bay,” which is an individual storage unit within a larger complex. Similar to a residential condominium, the owner receives a deed to their specific unit, granting them direct ownership and more control over the space. These units often come with shared amenities, and owners typically pay monthly dues to a homeowners’ association (HOA) for maintenance of common areas.

Alternatively, individuals or entities can acquire an entire self-storage facility, which involves purchasing the land, buildings, and often the existing business operations, including current tenants. This type of acquisition represents a commercial real estate investment. For those new to the self-storage industry, buying an existing facility is often a more accessible entry point than building one from the ground up, as it provides an immediate income stream.

Financial Considerations of Ownership

Owning a storage unit or facility involves various financial outlays, starting with the initial purchase price. For individual storage condos, costs can range from $55,000 to $200,000, or about $125 to $150 per square foot, depending on location, size, and features. Acquiring an entire self-storage facility represents a much larger investment, with average startup costs ranging from $1.5 million to $2.4 million, encompassing land acquisition, construction, security systems, and legal fees.

Beyond the purchase price, buyers incur closing costs, which typically range from 3% to 5% of the property’s total value for commercial properties. These costs can include appraisal fees and title insurance to protect against ownership disputes. Legal fees are also common.

Ongoing expenses are a financial consideration for storage unit owners. Property taxes are a regular obligation, and for storage condos, monthly maintenance fees of $30 or more are common for shared amenities. For facility owners, operating costs include property taxes, insurance premiums, and utilities like electricity and water, which can average around $10,000 to $15,000 monthly for a facility. Maintenance and repairs can also add significant costs, potentially ranging from $5,000 to $10,000 monthly for a facility, depending on its age and usage.

Tax implications are also a factor in storage unit ownership, particularly for investment properties. Commercial real estate, including self-storage facilities, is generally depreciated over 39 years for tax purposes. However, a cost segregation study can reclassify certain components of the property, such as security systems, lighting, and fencing, to shorter depreciation schedules of 5, 7, or 15 years, allowing for accelerated deductions. This acceleration can reduce taxable income and increase cash flow in the early years of ownership.

Steps to Acquire a Storage Unit

The acquisition process for a storage unit or facility begins with thorough market research to assess demand, local economic conditions, and existing competition in the target area. This initial phase helps determine the viability of the investment and identify suitable locations. Identifying available properties can involve working with real estate agents specializing in commercial properties or searching online listings.

Once a potential property is identified, conducting comprehensive due diligence is an important step. This involves an investigation of the property’s physical condition, including structural integrity, electrical systems, and plumbing. Financial records, such as income and expense statements, tax records, and existing tenant leases, must be reviewed to understand the property’s financial health. Verifying zoning laws and environmental reports is also essential to ensure the property’s intended use is permissible and to uncover potential hazards.

Securing financing involves options such as traditional mortgages, commercial loans, or potentially seller financing for larger acquisitions. Lenders will evaluate the financial viability of the investment, requiring detailed business plans. The closing process finalizes the transaction, involving the signing of various legal documents and the transfer of ownership.

Managing Your Owned Storage Unit

Managing an owned storage unit, whether an individual condo or an entire facility, involves ongoing responsibilities. For individual storage condo owners, maintenance of the unit itself and ensuring its security are concerns. Owners also need to be aware of and adhere to any Homeowners’ Association (HOA) rules, which may govern exterior modifications or unit uses.

For owners of entire self-storage facilities, management responsibilities are more extensive. Property maintenance involves routine inspections, cleaning of units, and upkeep of common areas like landscaping and security systems. Tenant management is another area, requiring the administration of lease agreements, rent collection, and addressing tenant inquiries or issues. Security measures for a storage facility involve surveillance systems, access control, and on-site personnel. Marketing strategies are necessary to attract new renters and maintain high occupancy rates.