Three Myths of Self-Storage
DEAR WALDMANS: My brother-in-law recently retired and has a nice nest egg saved for retirement. He has decided that he would like to open a self-storage facility. I feel very honored that he has asked me to be his partner. Actually, the truth is, I feel very scared about the entire idea. Don't misunderstand me-- he has good business sense and has maintained success all of his life.
His plans are to purchase a tract of land in a very high-traffic area. He then proposes to build a large storage facility--at least 110,000 square feet--and hopes of having it rented in the first six months. The plan also includes hiring a wife-and-husband team to be on call from their apartment. He also wants to rent trucks at the facility, with plans to have 10 trucks at the site at all times. His understanding is that when you have trucks on the premises, it is more convenient for the tenant.
I am also very successful in business, but I am having some difficulty with this entire scenario. Still, I certainly don't want my brother-in-law to think I don't trust his business abilities. Do you really believe we can open a facility like I mentioned, employ a couple to manage the site and rent trucks, too? How long will it be before we can expect to show a sizable profit from the business? It sounds like we can just sit back and wait for the profits.
I have told my brother-in-law that I will give him an answer within the next month. He
already has a spot chosen for the building, but I am quite nervous. I really need some
help with my decision.
--Waiting for Your Reply in Boca
DEAR WAITING:Sounds like you have a big decision to make in just a month. I am not sure I would make any business decision this large in that length of time. Starting your own business takes a lot of research, consideration, and most important, you have to feel good about the decision. I think you are having lots of doubts about opening this business. Of course, this is just my opinion, but I hope the following will give you more insight into what you may be getting into.
First of all, there are three myths that I can relate to in your request for help. The first one is that it is feasible to open a large facility and rent it 100 percent in the first six months. That rarely occurs. It generally takes that long just to set up the operation and get things going in the right direction. When starting a facility, it is usually best to build in small increments, rent those units and then expand. By that point you have an idea of the business and profits to be made.
Secondly, a wife-and-husband team is a good choice for managing the facility, but not enough manpower to cover both the facility and the truck-rental business. Renting trucks seems to be an easy way to make money, but that's not always the case. Having 10 trucks requires at least two additional employees. Truck-rental businesses usually pay commissions of approximately 20 percent on truck rentals. Local rentals are not where you make your commissions; the money is usually made on a one-way truck rental. Also, if trucks sit on the lot too long (without any rental business), be prepared to hand the trucks back to the rental companies. If you don't rent, you don't make money. Idle vehicles don't make money for the rental companies either.
Lastly, it takes more than a couple of people sitting in an apartment to make a successful storage facility. You need a designated office with regular working hours. A storage facility, like you mentioned, takes a lot of work and consistency. You can't expect to get rich by placing a couple in an apartment and have them run to the office when a potential customer comes into the facility. Your business has to look professional and be professional. That's how you will rent units and make money.
It would be a great idea for you and your brother-in-law to thoroughly research this proposed facility and create a business plan before committing to this deal. You both should feel comfortable and confident that the business will be a success and make a profit for both of you. There still seems to be a lot of work to do before this deal can be closed. Good luck on your new venture.
| The Waldmans, a father-daughter team, are self-storage owners/operators
and attorneys. In addition, Ms. Waldman holds a Master's degree in Labor and Employment
Law from Georgetown University. The Waldmans are co-authors of the industry's leading
series of books on self-storage operations: Getting Started, Forms, Policies &
Procedures and South Carolina Tools. Another creation of Ask the Waldmans are their
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Views and opinions on legal matters are those of the authors. Professional counsel should be obtained before any determination or positive action is taken.