Capital Expenses, What to Include in Your Plan and Budget
Demand for storage and profit potential is certainly a driving force behind the growth of the self storage industry, but there’s another reason everyone wants in on the action: Most self storage facilities have relatively low capital expenditures (capex). Compared to office and retail space, it doesn’t take as much to keep a self storage facility running. Of course, that doesn’t mean capex is non-existent. To stay competitive, owners need to occasionally invest in upgrades, repairs, and expansions. This makes planning (and budgeting) for capex very important.
Your capex budget focuses on the big investments, while your operating budget (opex) is for your regular, recurring expense to run the business. Staying competitive in the long run helps you optimize profits, improve net operating income (NOI), and enhance asset value. That requires effective capex planning that takes into consideration your tax strategy, especially since cost segregation could allow you to expense improvements in one year, as opposed to depreciating them over the lifetime of the capital expense purchase.
In capex planning, you will want to consider
Paving or gravel
Roofing and/or flooring
Think about the life expectancy and condition of all major equipment as well as the facility as a whole. Compare your business to your competition, and think about how you can improve your position relative to competitors.
Perhaps your competition is offering customers no-touch access to their units. REITs are aggressively adding advanced technology to offer smart spaces, enabling tenants to enter the front gate and even enter their units using their smart phone instead of older access technology. You may want to add smart access technology to some of your spaces, either by converting existing spaces or adding new ones where your property permits. That way, you have “smart units” to rent at a higher rate to customers interested in all the features and benefits cutting edge technology can give them.
Climate control is another competitive advantage. If your competition has climate control space and you don’t, you might want to consider adding this feature, again by converting or expanding existing units.
Perhaps parking is a feature you can add, if your competitors do – or if no one near you has it and there is demand for vehicle storage. You’ll want to use a self storage consultant for a feasibility study to evaluate an option this extensive.
The REITs are setting the standard for technology, training the consumer to expect state-of-the-art technology from storage properties. Become experts on what they offer and look for ways to improve upon it with a personal touch, which is the advantage the independent self storage owner/operator has. Anything the REITs are doing is worth considering for your capex budget.
See Storelocal Storage Co-op’s blog on selfstorage.coop for more on capex planning and other topics relevant to self storage owners, operators, and investors.