I have very limited space and have decided to store my sons clothes by size in totes. I'll just swap them out as he grows into different sizes.
I have bought quite a bit at yard sales, and have been super picky about the quality of the ones I get. I've treated them all and washed them, none of them have stains or anything. I've heard though that they can develop stains over time and to use cedar balls with them since moisture can cause stains. Since I'm neurotic I read how to use the cedar balls but not have them touch the clothes. So I used tissue paper to wrap them in and then taped the little "bag" to the side of the tote.
Anyone have any good storage tips? It seems like baby clothes are almost as difficult as the babies themselves. Just kidding- kind of. 
Re: Storing baby clothes
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I cant say anything about stains but I bought chalkboard labels off etsy for the outside of my bins and I love them. When I change things out of the bins, I am quickly able to erase and re-write with a chalkboard pen. Thought I would give you that tip! So right now I have 0-6 months in drawers/closet and then bins labeled 6-12 months, 12-18 and 18-24. Then I will take out 6-12 and start a newborn bin etc.
Hope that helps!
We're using those vacuum seal bags because I think they save at least a little bit of space. We also labeled the outside with the sizes.
We have received a ridiculous amount of 2nd hand clothing from my coworkers. We didn't store the clothes in any fancy way. We just put them in totes/tubs organized by size (and labeled on the outside).
I recently switched to boxes, so that I could use the totes for something else. All of these things have lived INSIDE of DD's closet. I honestly don't know what I don't with the extra space if we didn't have the 2nd hand clothing.