Day 102: When Does It Make Sense to Expand Your Self Storage Facility? (The Real Numbers)

And welcome to day 102 of the Storage 100 series. I'm Joe Downs with the Storage Moguls. Okay, let's say your facility is doing well. Should you expand? Well, today we're going to answer that question and talk about when adding units makes financial sense and when it doesn't. For expansion analysis tools and feasibility frameworks, you should join Storage Moguls community at storage moguls.ai. It's a Free to join, AI-powered multimodal learning platform that covers or will cover all the storage verticals. You can start for free, you can level up at your own pace, and we're launching in about 4 weeks. So make sure you register so you do not miss the launch. But until then, let's tackle this core question: when does expanding your storage units truly make sense? So today we'll cut through the noise And focus on the math and the risk. And we'll explore strategic thinking that goes into it, financial implications, and how to justify those investments, because you don't want to expand just because you can. So let's start by looking at the different ways we can approach expansion. When we talk about expanding, there are really 3 main scenarios to consider. Each has its own set of advantages and challenges. First, owning extra land is often the easiest path. You're simply adding more buildings on your parcel. Second, building vertically means adding stories to existing structures potentially, which could be more complex and costly. And then finally, repurposing existing space like converting office space or parking or adding parking offers creative way to add units. So understanding these options helps us choose the best fit for our specific situation. So with these scenarios in mind, let's talk about when expansion is actually a good idea. Because it's not just about having a good idea, it's about hitting specific market indicators. We need to see high occupancy consistently, let's say above 85% for at least 6 months. You should also be turning away customers because you simply don't have certain unit sizes available. And it's crucial that competitors are also full because that indicates market-wide demand and not just localized to your facility. Lastly, you need capital available. Now, that's either going to come in the form of financing or cash reserves to fund the project. When these— all these factors align, you might have the green light. All right. Let's take a look at the actual costs involved in building these new units. So understanding the cost of new building units— of building new units is essential for any expansion plan. So the price per square foot varies significantly based on the type of unit. Standard metal units are the most economical, ranging from $45 to $65 a square foot, fully installed. Climate control units are a step up from that. Let's get, say, $65 to $85 a square foot. And then multi-story construction, while efficient with land use, it's the most expensive because we're going vertical, we're adding elevators. That's gonna be $85 to $120 a square foot. The range is gonna be material costs and also the labor costs differ in different parts of the country. For example, 100 new units totaling, let's say, 10,000 square feet could cost anywhere from $450,000 to $550,000 to build. These figures are important for building a solid financial projection. All right. Now let's put it all together with a pro forma that justifies expansion, because this is where we see the financial viability of our investment. So imagine 100 of those 100 new units each renting for $100 a month. In this example, we're 100% occupied. Makes math easier. That's a— that's $10,000 monthly revenue annually, and that translates to $120,000 in revenue. If the build cost for these 100 units is, let's say, $500,000, we can calculate a payback period. So dividing $500,000 by the cost of $120,000 annual revenue gives us a payback period of 4.2 years. And after that, then we're just looking at pure profit. So this kind of clear financial justification is the key to moving forward with that expansion. But it's not always that easy because we haven't dealt with the challenges of permitting and zoning yet. So while the pro forma can justify an expansion, can't get ahead of ourselves just yet. Permitting and zoning challenges are a major factor in any expansion. You'll need building permits, zoning approvals, site plan reviews before you can even break ground. And you need to check your local zoning limits like height restrictions and lot coverage early on. This process is not quick. Expect 3 to 6 months just for approvals, and budget $20,000 to $50,000 for engineering and permit fees. That's part of your overall project, but you might need to spend some of it before you actually get approved and get a loan to do all this. So that's when it makes sense. But how do we know when it doesn't make sense? Well, because we don't want to expand just because we can, like I said in the opening. So building on those permitting challenges here, sometimes expansion just isn't the right move, no matter how good the pro forma looks. So you should probably hit the brakes if, let's say, occupancy is below 80%. You haven't— you have vacant units to fill first. You're not stabilized. A declining market, especially with new competitors, another red flag. Just because you have the land doesn't mean you should do it. And if lenders say no, I wouldn't try to force it unless you've got mentors and coaches telling you otherwise, or the lender missed this or whatever. I wouldn't try to force it just by adding personal funds. You might have missed something. Ask them what they think you missed and maybe you'll thank them. Finally, if the payback period is longer than 7 years, probably not worth the investment. So if expansion isn't the answer, then what are your alternatives? Well, believe it or not, there's some pretty powerful alternatives to boost your business. Optimizing your existing units should always be your first move. Rate optimization alone can add 10 to 15% to your net operating income without any construction. We covered this, I don't know, 20, 30, 40 videos ago, somewhere in there. Improving your marketing fills existing units faster than your channels, or faster through channels like Google and Facebook. And boosting operational efficiency reduces vacancies by providing better service. Remember, expansion should be your last resort, a good one, but a last one. Shouldn't be your first idea. And if you optimize the above first and still think you should expand, well, now your expansion will fill up and be optimized, fill up more quickly and be optimized from day one, thereby reducing your overall expansion risks. Plus, it's a stronger loan and story for the lender. Always take care of your current business first before adding more. All right. To wrap up our discussion here, let's distill this down to a few key takeaways. The trigger for expansion should be consistent occupancy above 85%. You need to prepare for a significant budget, typically $500,000 to $1 million. Depends on how big the expansion is. And your target should be a payback period of 5 years or less. All right, next up is day 103, which means there's only 3 days left after that and 2 of them are lives. Uh, increasing occupancy is what we're going to talk about tomorrow, which is one of the things we should be working on before expansion. All right, please like, subscribe, and share this video. I'm just going to keep that when you do your broadcasting to your networks that You are becoming a storage mogul. This is actually a win-win. Yes, it helps me spread my message, but it also helps you spread yours. And you didn't even have to create the content. I did. It's almost like you get 2 wins out of this. All right. Please remember, expansion is a capital allocation decision, not an ego decision. Run the numbers, check the market, let the data tell you when the time is right. If you still aren't sure but you're a member of the Storage Moguls community that has all the support and resources you need, To help you with that decision, well then you're in good hands already. But if you're not, you should probably think about joining. We've got the tools and support you need, like an expansion feasibility calculator and case studies. So join Storage Muggles for free, storagemuggles.ai. And speaking of expansion, after we finish Storage 100 in three short days, right? Third, fourth, fifth. Yeah, wait. One, two, three, four, five. Four days. Math always gets me. After we finish Storage 100, 4 days, Boat and RV 100 starts immediately. If you thought self-storage was profitable, wait till you see boat and RV storage. It's going to be— it's pretty cool. And remember, folks, self-storage is what brought you here, but it's all the other verticals that make it that much more exciting and will transform you from someone interested in self-storage To a storage mogul. Why do you want to become a storage mogul? You mean besides the fact that it's pretty cool to be one? Because storage moguls live out their dreams. We're doers, not talkers. We're helpers, not loners. And we're the identifiers of our whys who seek to achieve and fulfill them. Folks, mastery is a journey, not a destination. So if you want to join the journey, become a storage mogul and register today at storagemoguls.ai. See you tomorrow.