Self Storage Part 6 – Cost and Operating Expenses

This is Part 6 of a multi-part series on investing in Self Storage assets.

In previous posts, I have written about the competitive environment and the rental rates, including how well they have held up during the pandemic recession.

In this post, I’ll describe the costs and operating expenses you will experience investing in this type of asset.

Building costs and operating costs will vary from facility to facility. National averages show that operating costs can range from around 25% up to 40% of the actual stabilized rental income. Below are examples of the types of expense a typical self storage facility will have.

There will be maintenance of the building, elevators, doors, security equipment, etc. Along with maintenance on the hard items, there will also be supplies that get used in the business, pest control, landscaping and other potential contract services.

As with other types of real estate there will be property taxes and insurance. Insurance is needed for any type of property damage, potential liability since people will come onto the property, employee dishonesty, legal liability and other types of general business insurance.

Although energy use is generally lower than other types of real estate, there will be utilities for electric, gas, telephone, security services, water, sewer and garbage fees.

There will be administrative expenses for ongoing accounting and legal fees, office supplies, postage, printing, computer software and computer supplies.

In order to keep customers coming to your facility, there will have to be marketing and advertising expenses.

There are other operating costs related to truck operations, equipment rental, mileage and the cost of auctioning tenants goods when they default on their monthly rent. Keep in mind that as an owner-operator, you do effectively have your customers goods as collateral if they default on rent. When a tenant stops paying rent, the owner-operator has the right to take anything stored in the unit and sell it off or dispose of. The common practice is to hire an auction company to sell off the goods.

Periodically there will be capital improvements such as pavement repairs, new roofs and other major expenses. Owners usually keep certain funds in reserve to handle these capital improvements.

Come back for more information on self storage, or set up a call with me to discuss how you can invest alongside me. Set up your call here.