Many self-storage businesses are small, family-owned companies; and for a lot of facility owners, their first self-storage project is also their first commercial construction project. For this reason, they may be unfamiliar with many stages of the process.
When building a storage facility, budgeting is one of the first critical steps. You want to create a realistic financial plan. Budget too low, and you may jump into an unprofitable investment. Budget too high, and you may pass up a good opportunity. The following will help you find balance and create the ideal budget for your next self-storage project.
Size, phasing and estimates
Before you begin budgeting, you need to determine the size facility you expect to build and if there’s any potential for future expansion. Your first phase may have a higher breakeven point than the overall project if you’re preparing a large site for additional buildings. In the long run, this is wise; but in the short term, it can be challenging. Working up a budget and financial projection for the initial phase as well as the complete build out will give you a better picture of the overall risk and reward.
Early in the development process, when you’re looking at multiple parcels and considering which to purchase, you should be thinking in terms of cost per square foot. If you expect a contractor to provide you with a detailed quote for multiple projects, you may be in for a rude awakening. Creating a detailed bid takes time.
Instead, research the costs for building, electrical installation, foundations and paving, and assign a cost per square foot for each trade. Then you can build up your estimates for multiple locations. This saves time and allows you to focus on the two main variables when comparing possible new sites: land cost and rental rates.
Budget line items
Your budget is going to contain a few large items and many small ones. Major items include the land, driveways, foundations, grading (including storm-water handling) and steel buildings. Smaller items that add up include: electrical, fencing, gates, landscaping, signs and video cameras. If your facility will have an office, plumbing, or architectural finishes on the buildings, you’ll need to add materials and labor for those items as well.
Don’t assume all utilities will be available at your site. If you’re building on the edge of town and require high-speed Internet, check to see if your local provider will require an upfront fee to connect you.
A final budget category that can’t be overlooked is interest expense and operating cash. As your project nears completion, you’ll breathe a sigh of relief. Don’t get too comfortable the feeling is only temporary.
Even when all goes well, the rent-up period can be a great source of anxiety, especially for a first-time developer. Despite best intentions, keeping a project on schedule is a major feat, especially for an owner who’s also serving as his own general contractor. You think you’ll open in June and rent up during the busy summer season? If you can, great! But you might have to open a few months later and withstand a slow winter. Have a financial plan to withstand delays.
In forecasting cash flow, consider your property taxes. Within 12 months of opening, your first tax bill will arrive and it can be a shock.