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I've got insufficient space to store my bike inside. I fear however that it will rust away within a few years if I store the bike outside. My question is twofold:
A small shed seems like the best option if you have space–some insulation inside the shed would help stop condensation.
A bike kept outside will rust given enough time, its gears, etc. will also not like being wet all the time. Just as importantly, it is more likely to get stolen if it is just left outside, and I would always rather get on a dry bike than a wet/cold bike.
A tarp that fully covers a bike can provide some insulation and keep out precipitation. Don't buy a "bike cover"; they're overpriced, thin, and non-customizable. For an average-sized bike, an 8' by 10' (2.4 m by 3 m) tarp is enough to just reach to the ground. A weight of around 6 oz per square yard (0.2 kg/m²), or a thickness of around 8 mils (0.2 mm), seems to be ideal (standard tarps are around 3 oz per square yard (0.1 kg/m²) and 5 mils (0.13 mm) thick). In theory, silver colored tarps reflect more infrared than other colors and are better for insulation, but I'm not sure how much of a difference this makes in practice.
One of the most important things to look out for in a tarp is that the grommets are spaced no more than 18 inches (46 cm) apart. You can bunch up all of the grommets along each short end of the tarp and use cable ties to semi-permanently join these grommets. This gives the tarp a fitted shape and makes it fit nicely around the wheels. A good starting point is joining all of the grommets along each short end to a single point. Once you've tried this, you can experiment with tying grommets together in various configurations with cable ties to see if you get a better fit for your bike. You can also tie grommets to a bike rack, which can make it easier to get the bike in and out if you're riding it daily.
The following picture shows a fitted tarp on a bike. On the near side, the four middle grommets are tied together at a point, and the remaining two grommets (at the corners) are tied at a point just below. On the far side, all six grommets are tied together at a point and tied to the bike rack. The long sides of the tarp in the picture are folded in a bit; without folding, they just reach to the ground. With grommets spaced 18 inches (46 cm) apart, you have flexibility to customize the fitting.
In summary, if you get a tarp, get one with the following specs:
and then tie grommets together with cable ties to give it a fitted shape.
EDIT:
As I've been using this for a while, I've noticed that air flow doesn't seem to be much of a problem in practice, so I usually let the sides of the tarp reach to the ground. The tarp is stiff enough that there are always a few small openings where air can get in and out but water can't.
Lube and wax. I know there are bike polishes that probably have wax, but I'd get the paste car wax that comes in a can. Really clean the bike, then use the wax on your frame, seat post, fenders (especially inside where they take a beating from road grime while riding), exposed metal, but NOT your rim braking surfaces. Put good lube on your chain. One guy I know who does a lot of randonneur riding in bad weather (brace yourself, this is a bit extreme) strips his chain of grease and grime, then dips it in melted paraffin. After it cools there are excess chunks of wax, but they drop off quickly. The point is he gets wax inside the pin bushings, which keeps his chain fairly water-resistant. Really lube your cables, or even better get teflon-coated cables. Your might want to put a cover on your saddle and handlebars, just watch out for condensation forming inside the covers which would defeat the purpose.
If the bike has a steel frame, make certain to be extra-vigilant about sealing any nicks or scratches in the paint. Steel will rust when exposed, given long enough.
I use the yardstash bike storage tent. Held up well for a year so far and ventilates to keep my mountain bike dry and rust free,
Tarp sounds a good idea as the ready made covers seem to not have waterproof seams. Critical thing I wanted to mention is this: make sure your bike and cover are both bone dry before putting the cover on. If the bike is wet, a cover will CAUSE corrosion. A bit of moisure on the outside of the cover is ok.
If the bike has an aluminum frame, then the things to worry about are the steel parts: gears, chain, cables, and fasteners (bolts and such). All of these things will readily rust if exposed to constant moisture from being outside. Leaving the bike under an awning will help, but not protect it completely—a shed or other enclosure in the best bet.
I'd go the other way, and suggest that you do store the bike inside. If that means removing something else to make space, so be it.
Other options include a ceiling hoist, where you sway your bike up into otherwise underutilised space below the ceiling. Watch out for air hotspots, and you have to wipe down a wet bike first because of drips. I have also seen these used to store a bike safely over a car's bonnet (hood)
Think three-dimensionally!
I have a similar bike storage issue: I want to keep my bike at the front of my flat (=appartment), so that I can get on it when I go out on to the street, without having to carry it up stairs, or down a muddy lane from the back yard. Weather, rust and theft are concerns, but so is speed and convenience in getting going every morning.
We have a Cycle Hoop bike hanger in our street, which is great for security and weather protection, but it has a rental cost, and takes time to walk to and open and close.
Similar to amcnabb's answer, I tried commercial bike covers, but found them flimsy and hard to store when not in use. I've similarly found a decent solution using tarpaulin.
I have a solid iron fence in front of my flat, and so lock my bicycle to this, and then cover it with a rectangular section of heavy truck tarpaulin (free from a car scrap yard). This works well for weather-proofing, especially if air vents are left, but it is still a hassle to get off the bike in the morning.
By adding 20mm galvanized pipe horizontally, and a handle, lifting this cover becomes much quicker, and run-off water can be directed away from one's clothing. The ends are left open this way: in practice this allows air-flow, thereby reducing condesation, and rain doesn't get much past the tyres: important areas like handlebars, transmission and saddle stay dry. The pipe helps to keep the tarp weighted down. A pocket can be added in the tarp to accommodate the handlebars, jointed using eyelets and stainless bolts or otherwise.
The result provides a decent combination of weather protection and therefore protection from rust and decay; and also convenience. Security comes from hiding the bike from immediate sight, but primarily from a very solid lock (motorcycle chain) left permanently under the cover, but small chain-and-padlock locks can be added at the front and back to lock the wheels - and keep the cover down in case of storms. The cover is easy to leave in place when you use the bike. It depends though on having a fence or similar permanent fixture to mount on or over; and there is still clearly some risk of targeted theft when a bike is regularly left in same place outdoors. I'm happy to store my town (commuting) bike like this, but a more valuable (and less often used) one stays indoors.
The idea and its use is somewhat documented at bikehide.org. Disclaimer: I designed this myself and have produced a few for friends: it isn't commercialized (yet, at least!).
Tidy Tent is a zipped tent which can be secured to floor or wall - I've ordered mine just a couple of days ago... If you search for Tidy Tent you'll get more info. Hope that helps.
I like the idea above about small shed. If you don't have a lot of horizontal space, perhaps a vertical version, hanging the bike inside, could be the solution. An important feature of any shed, is to have a floor, with the entire shed on supports, preventing direct contact with the ground. This will help prevent excessive dampness. If you have the space, and can allow for it in your budget, a small, regular storage shed would be great. This would give you space for other bike stuff, as well as a place for any tools & supplies, or stuffed bunnies[:-)
