Day 6: Climate Controlled vs Non-Climate Self Storage: Which Makes You More Money?

All right. Welcome back to day 6 of the 100-Day Storage 100 series. It's really 106 days. I am Joe Downs and I'm with the Self Storage Mastermind. I'll be your host today, just like the previous— what day is this? Day 6. Previous 5 days. I'm already getting stir crazy. All right. Today we're going to tackle one of the biggest questions in self-storage: climate control versus non-climate control. This decision impacts your construction costs, operating expenses, And ultimately, your revenue. We need to understand when the extra investment in climate control is actually worth it. It's not a one-size-fits-all answer, and getting it wrong can cost you a fortune. So, let's dive into the real difference and see how they affect your bottom line. Before we talk about cost though, we need to define what true climate control actually is. It's more than just a fan or a vent or, you know, a temperature, right? It's a controlled environment. True climate means Maintaining a specific temperature range, usually between 55 and 85 degrees Fahrenheit. But the critical component is actually humidity control, keeping it between 30 and 50%. This humidity control is what prevents mold, mildew, rust, and warping of sensitive items. To achieve this, you need a fully insulated building envelope and dedicated HVAC systems. So understanding this distinction is key to knowing what you're actually building and selling. All right, let's take a look at the specialized construction. Or how this specialized construction impacts your budget. So the decision to go climate control immediately raises your construction costs significantly. Standard non-climate unit might cost you $25 to $40 per square foot to build. A climate control unit, however, jumps to $40 to $60 a foot. This increase is due to the added requirements like full insulation, interior hallways, and the HVAC systems themselves. For a typical 40,000 square foot facility, this difference could be an extra $600,000 to $1 million. So you gotta underwrite this massive upfront cost against the potential rent premium you can charge. But construction isn't the only cost that increases. Your operating expenses go up too. So beyond the initial build, operating a climate-controlled facility is significantly more expensive. Your annual operating costs will increase by 50 cents to $1.50 per square foot per year. The bulk of the increase comes from the electricity needed to run the HVAC systems constantly. In extreme climates, whether hot or cold, the electricity cost is going to be at the high end of that range. So you also have a higher maintenance cost for servicing and eventually replacing those HVAC units. So for the same 40,000 square foot facility, you're looking at an extra $20,000 to $60,000 in annual OpEx. This means your rent premium compared to your non-climate control must be higher enough or high enough to cover both the increased debt service and the higher operating costs. So what kind of rent premium can you actually expect to charge? The whole financial model hinges on rent premium you can command for climate control units. So generally you can expect 20 to 40% more than a comparable non-climate unit. So if you have a 10 by 10 that rents for $100, your climate control unit should rent for $120 to $140. The premium is highly dependent on your market's climate and the local competition though. So markets with extreme heat, humidity, or cold will naturally support a higher premium. But your premium shrinks if everyone in your area also offers climate control. So you need to analyze your market carefully to ensure the premium justifies the extra potential million bucks in construction and the higher OpEx along the way. So this is where we decide if climate control is a smart investment or just an expensive feature. The decision framework will rent— will the rent premium cover your extra construction and operating costs? If you're in a hot and humid climate like Florida, Texas, the answer is probably yes. Extreme heat or extreme cold also drives demand for the climate or for climate control, but the market must also support the premium pricing. So you're looking for high-income areas with limited competition. Avoid building all climate and mild climate control in mild climates like the Pacific Northwest or low-income areas though, or if all your competitors already offer climate control, you lose your competitive edge and the premium as well. So use this framework to analyze your market before you commit to to the higher construction costs. Let's look at why offering both types of units is actually a smart strategy though. So we just established where climate control works, but who are the tenants it actually works for? Climate control tenants are fundamentally different from the non-climate control tenants. They tend to stay much longer, often 12 to 24 months or more. They are also higher income and less price sensitive customers because they're storing valuable items like electronics or documents or artwork or, you know, Well, whatever, something valuable. So non-climate tenants are more price sensitive and typically have shorter stays. They're typically storing things like tools, seasonal items, extra vehicles, treasures, also known as garbage. No, it's not garbage. Forget I said that. Kidding. Smart operators realize they need to serve both segments to maximize revenue. So this is why the hybrid approach is so powerful. It reduces your market risk. A typical mix is 40 to 60%. 40 to 60% climate control units and the rest non-climate. This hybrid approach leads us right into the common mistakes we need to avoid, though. We talked about the opportunity. Let's look at the pitfalls that can kill your returns. The number one mistake is building all climate in a market that won't support the premium rent. We see this all the time. You end up with higher costs and rents that are too low to justify the investment. Conversely, you don't want to miss the premium segment entirely by building non-climate in a In a market that has a high demand for climate control, right? You'd be asleep at the wheel on that one. Another major error is underestimating operating costs for climate control. You can't forget to factor in the extra 50 to 100 or 250— 50 cents to $1.50 per square foot for, for annually for utilities in your underwriting. Also, never market temperature control as climate control. They are very different. Temperature control is just ventilation. Climate control is true HVAC, and misleading your customers destroys trust and can lead to legal trouble. Finally, always educate your customers so they choose the right unit type for their needs. Avoid these 5 mistakes and you'll be well on your way to a profitable facility. All right, let's take a look at some action steps and what's coming up next. It is day 6 of 100, and your action step today is to get out there and do some market research. What do I mean by that? Call or preferably go visit 5 facilities in your target market now. This will serve 2 purposes. One, I'll explain to you later. Walk in, pretend you're a customer, or pretend you're, you're thinking about being a customer. Ask them for the price difference between a climate control and a non-climate control for on a 10 by 10. See what that premium difference is, then calculate that as a percentage of what you know the market will bear. So, You know, also research utilities in your market. These are crucial to the operating costs. See if you could put together on a couple different facilities what it costs them to build that facility and whether or not, based on their premium of climate control over non-climate control rent, whether or not they're making money, breaking even, or crushing it. All right. All right. After you like this episode, Please click subscribe and you'll get day 7 tomorrow notified, or you get notified by it. Plus all the reminders for our live sessions, which are roughly every 2 weeks on a Tuesday or Thursday around 8 PM, where I'm gonna go recap the entire section we just did. But I'm also gonna answer any questions you have along the way. Speaking of which, if you have questions or aha moments, drop them in the comments. I will, um, Do my best to answer them in our live, and then if I don't, I'm hoping you'll jump on and ask me a question live. All right. Now for the strategic play to share this video that I promised. You have friends that are interested in storage, but they haven't told you yet. So why not be the first? Share this and help them avoid expensive mistakes like building all climate and the wrong market, for instance. But here's the real play: when you share these videos, you're positioning yourself as the storage expert in your network. Fast forward a few months, you're all going to be finding deals and you're going to need capital partners. So do you want them thinking you just started in self-storage today, yesterday, the day you found the deal? Or do you want them remembering, hey, you know what, you've been posting about this storage thing for months now, and for them it'll feel like years. So and then I promise much later in the series, I'm going to give you another tip on why that's so strategic and what you can do with it. Anyway, sharing equals planting seeds for future dealmaking. So See you tomorrow for day 7, single-story versus multi-story facilities. Again, share. Your friends and your colleagues will thank you later.