Storage Unit Loan
Whether you want to purchase a storage unit for your own use or to rent out to others, a storage unit loan will help you achieve your dream.
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Australia may have a tiny population relative to its land mass, but Australians seem to be struggling to find enough room to store their many possessions. Recent property trends show that Australians are increasingly preferring one- and two-bedroom homes over larger size dwellings, and are taking advantage of an ample supply of storage units to store their excess possessions.
It's a similar story for businesses. Commercial office loans can be hard to secure, leaving business owners choosing to lease or buy minimal office space and taking advantage of off-site storage units to store excess equipment, stock, files and records.
Storage units can range in size between 20m² and 60m² of floor space with clearance heights of up to 6m, but one thing remains the same for almost all storage units: demand for self-storage continues to increase, and there is no indication that it will let up any time soon.
Australia's storage unit industry
Costs and profitability
When it comes to glamorous and exciting commercial real estate, self-storage units don't exactly come high on the list. But they can certainly be profitable, and are a low maintenance commercial asset almost guaranteed to bring in ongoing reliable rental returns.
For example, a 30m² storage unit in Sydney could cost around $210,000 to purchase, and can reasonably be expected to bring in consistent annual returns of up to $12,000. Average figures around Australia show an estimated return of at least 4% per annum and up to 7% in areas of high demand.
Costs to maintain a storage unit are low compared to other commercial real estate. As a guide, annual strata levies tend to be around $30 per square metre or $900 a year for a 30m² storage unit.
Why do you want to buy a storage unit?
Buying a storage unit for personal use
There are several advantages to purchasing a storage unit for your own personal use. Many families are in the habit of using a spare room in their home solely for storage purposes. If this is the case, it is worthwhile considering whether it is financially viable to purchase a storage unit instead. For example, if you are moving, you can potentially save $150,000 or more by purchasing a home with one less bedroom. Similarly, if you are looking to increase the value of your home, you could consider turning that spare bedroom into a second bathroom. Housing sales figures consistently show that houses with two bedrooms and two bathrooms fetch higher prices than similar houses with three bedrooms and one bathroom.
Buying a storage unit as an investment
A storage unit can potentially be a low-cost investment that consistently brings in stable rental income over the long term. The major risk associated with buying a storage unit for investment purposes is low demand for storage units in the area. Otherwise, storage units are relatively risk-free, with their simple industrial structure resistant to damage or wear and tear.
Business loans you can apply for
Choosing a storage unit
Understanding your target market
The primary considerations to make when choosing a storage unit is the make-up of the local population and the overall demand for self-storage in the area. When analysing the local population, keep in mind that a tenant could either be an individual or a business.
Individuals often gravitate towards self-storage units after a major life event such as a death or divorce. Other individuals use self-storage to store seasonal items like sporting goods and Christmas decorations, while others will fill up a storage unit when renting out their home before embarking on a long-term overseas stint, relocating for work or going on an extended caravan trip. Then there are more affluent individuals who use self-storage units to store luxury cars, boats, jet skis or caravans.
Home-based business owners can avoid having their business take over their family life by storing stock and business records in a self-storage unit, while larger businesses can create additional office space or move into smaller premises by taking advantage of off-site storage.
Whatever the situation, take an in-depth look at the make-up of the local population – individuals and businesses – before choosing a storage unit to gauge who your target market might be. Enquire with other storage unit owners and operators in the area to get an idea of average occupancy rates year-round.
Finding finance for a storage unit
How willing are lenders to extend finance for a storage unit?
Storage units are about as basic as commercial property can get, yet they are still generally considered specialised commercial property from the point of view of lenders. This is because storage units cannot be further developed or used for any purpose other than self-storage. This represents a risk to lenders, who may not be able to easily sell the property to recover their funds should you default on the loan.
Standard loan terms
The commercial lending industry is notoriously unregulated, and a businsess loan offer from one lender can vary significantly to that of another. However, as a guide, you can expect the following loan terms when purchasing a storage unit:
- Loan amount of up to 70% of the value of the storage unit, or potentially as high as 100% if the business loan is also secured by residential property.
- Maximum loan term of up to 30 years if secured by residential property, or shorter if solely secured by the storage unit itself.
- Interest rates can vary significantly and will be affected by the strength of your application, the value of the storage unit and the strength of the assets being offered as security for the loan.
New storage unit developments can be much harder to finance, with lenders reluctant to lend higher than 50% of the estimated value of the development.
Preparing a solid finance application
When preparing your storage unit loan application, consider the following:
- If you intend to rent out the storage unit, you will need to prepare a business plan to show how you intend to profit from the purchase of the storage unit. Include cash flow forecasting in your business plan, and seek the assistance of an accountant or financial planner to present the best possible case.
- The lender will undertake an analysis of the strengths and weaknesses of the purchase. Mitigate any concerns in advance by undertaking this analysis yourself and presenting your findings in the business plan.
- You will need to provide personal financial documents for at least the last two years to accompany your finance application.
- If you run your own business, you will also need to provide full audited financial documents, including profit and loss statements, for at least the last two years.
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