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New Facility Startup - Questions

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  • New Facility Startup - Questions

    I am in the due diligence phase of building a new facility. I have never owned or operated a self storage facility, and I want to make this my primary means of income. I want to own it. I want to run it. It will be my job. I have the fortunate circumstance to own a lot of property in a very good location. I have had a phase I feasibility study done. It came back favorable and we are wanting to move forward. I am confused about the process from here, specifically the order it comes. I have spoken to several people about it and I do have some idea, but I wanted to poll the community and get some thoughts from others who have gone down this road. I have been in contact with a construction company that specializes in facilities like this. They have been immensely helpful and responsive to my questions.

    First off, what exactly is my next step?

    Do I need an architect? I think the architect often takes charge of civil engineers, geotechs and MEP's?

    If I forgo the architect, what do I need to do or who do I need to contact next? Civil engineering? Geotech? Who is going to design it?

    Are there service available to help one get up and running like security, contracts, general day to day operations? As I said, I do NOT want to hand this off to someone else. This is mine and I want to be completely involved, even if it means I have to pay someone to walk me through it.

    Finally, I am concerned with how one services debt on construction of a facility considering it won't be making a single dime for many months. How do you manage that?

    For what it's worth, i do have a day job in Oil and Gas, but I am ready to be in business for myself so I am trying to square this away while working.

  • #2
    Who you need on the team depends a bit on how complex your project is, and how comfortable you are filling certain roles. If you are building a simple site with drive up buildings and no office or a simple office you don't need an architect unless your city starts requiring complex renderings during the approval process.

    At minimum you will need a civil engineer who will help with stormwater and site grading planning, and your building manufacturer should be able to assist you with building layout and design.

    The process can change a little depending on how much risk you are willing to take, as well as what obstacles you will face. Correctly zoned land that does not require conditional use approval is easier. If you are trying to change zoning or must get this by a review board first, you will need to invest more in design work before you have any certainty that it can be built. The more resourced you put in up front generally the faster you can get it going, but also the more risk you take that somewhere along the way you will lose that investment in design.

    Lenders can often build in some extra to cover operating costs during rent up. You can phase a property to minimize the negative cash flow. The first one is hardest - you do need to have money available to get it going. A home equity line of credit is one way to get some liquidity or at least have a back up.

    There's a lot of technology available now to help you with the management. If sites near you all have offices and managers on site though, you probably need one too. But if you are in an area with unmanned sites you can do the same. Many properties also start smaller and add the office (which is one of the big $ items) later as the business expands.

    Steve Hajewski
    Trachte Building Systems
    [email protected]


    • #3
      The good news is that I am not currently in the city limits. As for being manned, I will be manning it every day and have availability 24/7 if need be as I live seconds away. I am going to have an office. As I said, this is a business I intend to run and run properly, gathering as much info and support as needed to make that happen.

      Thanks for the feedback! It helps.


      • #4
        Steve has offered you solid advice. I would definitely "second" everything he said. We used a civil engineer forf storm water preventing plan (SWPP) and site layout. We sub-contracted our whole project ourselves. It was a headache at times, but we only built 107 units with a 20 x 40 office. A bigger project may require more time for you and a general contractor may be beneficial.
        Adam Harris
        Store More Mini Storage
        Rogersville, TN


        • #5
          This is probably obvious but have you worked at a facility? If not I'd shadow a manager of a successful facility to see what's what. Join the state self storage association and talk to people who have done what you're planning to do. Should be good resources there!
          I think it would be exciting to start from scratch. Good luck!
          Even duct-tape can't fix stupid. But it can muffle the noises.

          WA State


          • #6
            I am trying to run some numbers now. Given the size of the facility we need to build, the capital required to start, the break even point being many months in the future, I don't see how anyone does this and makes a living wage. Very discouraging to put numbers to paper. I'm using Trachte basic calculator. It feels like most business, this included, requires one to already be independently wealthy.
            Last edited by agdodge4x4; 14 September 2018, 09:26 AM.


            • #7
              Here is how we got into Self Storage. It takes a lot of hard work and some luck.

              Good luck with your dream.
              Joe Krezdorn
              DAK Self Storage
              Leesport, PA 19533


              • #8
                Originally posted by dakselfstorage View Post
                Here is how we got into Self Storage. It takes a lot of hard work and some luck.

                Good luck with your dream.
                Thank you for the link! I will read it. At first glance, it looks like we are starting out similarly, just with different backgrounds.


                • #9
                  Everyone's story about they got into the business will be different, but mine is that the storage business is my second job, and I had a great partner that made it possible. I work a day job and do not pay self for running my self storage property. If i were not expanding I could take something out of the investment, but right now all profits are going into building more units.

                  And of course, cost of land vs rental income doesn't make sense in every area. If an 90% occupied 70,000 sq ft site doesn't project to generate good cash flow with a full time manager in the expenses, its not a good project. Rising material prices, construction labor, and interest costs will be throwing some cold water on this market. I think you are seeing a lot of projects continue to get built partially because they have been started already.


                  • #10
                    I'm trying to understand the idea that smaller facilities have a higher percentage of operating costs than larger. Is this true? If so, why?


                    • #11
                      The smaller the facility the less supplies you need and the less room you have to store said supplies. The general rule is when you buy in large scale everything you buy should come at less cost. Where a small company may order 50 boxes at a time paying a high rate a large company may order 500 boxes getting them at a substantially smaller per box price. It works that way with many parts of the industry.


                      • #12
                        Originally posted by agdodge4x4 View Post
                        I'm trying to understand the idea that smaller facilities have a higher percentage of operating costs than larger. Is this true? If so, why?
                        Yes and no. It depends on what expense you are talking about. Some like property taxes (which are one of your biggest expenses) will scale proportionally. Employee expense if you have it in an interesting one. A small facility like mine has no employee. At some point you get big enough that you need one. Now, whether you are managing a 200 unit or a 600 unit facility with one employee, that employee cost is the same. But add more unit or truck rental and you probably need to hire more help and now your income to employee cost per unit changes. So as far as manager expense goes some people would say there is a sweet spot in having the largest facility that one person in the office can handle.

                        Some other costs such such as paying your accountant, paying for some software licenses (Iím thinking office 365quickbooks etc) paying for web hosting, might be about the same whether you are 50 or 500 units.

                        the management software btw does scale... I believe most point of sale packages now offer plans that allow small facilities to pay less since they have less units.

                        Your biggest expenses probably in this order: mortgage interest, employees if you have them, property tax, credit card processing fees, insurance, maintenance (plowing and mowing).

                        You mention you are using the Trachte investment calculator (I designed a lot of that tool) so when you look at the expenses which we summarize as a percentage of sales youííll want to double check it by tallying up possible expenses and making sure the number you are getting seems reasonable. Feel free to call me next week if you have questions.

                        Steve hajewski
                        trachte building systems
                        Last edited by Steve_hajewski; 14 September 2018, 09:59 PM.


                        • #13
                          I would very much like to do that. One thing I do not have a handle on is financing. Where can I find out about what I might be eligible for? I may or may not have enough to finance this project, but I do not want to do that because its not financially responsible for me. So, I may need loans for all of the up front work (civil, geotech, architect, etc) and then an actual construction loan. But, how do you even go about figuring that out before you know what the project is going to cost? I find myself in a chicken or egg situation.

                          How does one proceed?


                          • #14
                            Starting off youíll be able to finance at most 90% of project value over 25 years with an SBA 7a backed loan. It will probably be a floating interest loan around 1 to 2% over prime. The value of land if you already own it, or value of the planning/engineering can typically go towards that 10% down.

                            The lender will be most interested in cash flow, and may require additional collateral to be pledged (such as a home assuming you have equity in it).

                            Unfortunately the loan happens after you have invested in design, so yes you very likely would need to invest $10 to $20k in design work out of pocket.

                            If the above items are a deal breaker thatís when you might need to consider a business partner if you are going to make it work. For me it was going to be either that or take out retirement assets and I choose a partner instead. I would love to have been able to do it myself, but in the bright side we are expanding more aggressively than I could have in my own.


                            • #15
                              Originally posted by dakselfstorage View Post
                              Here is how we got into Self Storage. It takes a lot of hard work and some luck.

                              Good luck with your dream.
                              Amazing Story!
                              Mango Technologies, is your in-house I.T. department, outsourced! We manage how your information technology affects your budget and workflow, so you can focus on your business. We focus on the self-storage industry!


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