Tips to Help Self-Storage Owners Increase Income, Reduce Expenses and Raise Facility Value
|Copyright 2014 by Virgo Publishing.|
|Posted on: 10/30/2012|
By Jason “Jay” Allen and Carl E. Touhey
Over the past decade, the self-storage industry has undergone significant changes none of us could have predicted. Our business is constantly evolving, and keeping up can be a challenge. What may have worked for you in the past may not be successful today.
Even still, increasing your bottom line, which translates into a greater facility market value, can be very simple. The key is to not treat your self-storage property as if it were a triple-net leased property for which minimal management is involved. This is a management-intensive business, and you must keep a watchful eye on your asset. With a little attention and creativity, your bottom line can grow significantly over time using some of the simple tips below.
When evaluating a self-storage property, today's investors look at several things: location, local market, actual income and market expenses, all of which get them to a true net operating income (NOI). Buyers today are extremely conservative, and lending standards are still strict, which means a property must be bought “right.” If a potential seller is able to increase his income while decreasing some of his expenses prior to a sale, a higher price can be easily achieved.
All of us have seen TV shows on networks like TLC about curb appeal and how improving the look of one’s home can translate into a higher sales price. Although these shows focus on residential real estate, we can easily translate these tips and apply them to our own storage properties.
For example, take the color of your buildings. Have you ever noticed the difference in color between a first-generation facility and a modern one? Brown on brown is just not attractive, especially when you look at the color schemes of newly built properties. Repainting your entire facility may not be in the budget, but how about just painting the trim another color like red or blue? This simple and cost-effective change will be noticed by current tenants and people driving by.
We aren’t saying this will immediately increase the value of your property, but over time, your facility may be more noticeable to drive-by traffic, which should translate into more walk-ins. Another great benefit to doing this is your current tenant base will see you making changes to the property, which can help justify your rent increases. Here are some other curb-appeal tips:
One of the easiest ways to increase your facility value without spending any money is to cut expenses, or “trim the fat." You don't want to get rid of things that are necessary to your operation such as utilities or payroll, but by reviewing your profit-and-loss (P&L) statement each quarter, you may be surprised at what you see and what you can cut or adjust.
Today, one of the biggest elephants in the advertising room is print advertising. Cutting this expense can save you thousands, but how you reinvest these dollars is even more important. Take your website, for example. You have to ask yourself three questions when evaluating your Web presence:
These questions must be answered every month because your online marketing strategy should be constantly evolving. Although it may seem expensive upfront, having a competent and creative marketing team that specializes in this area will keep you on track. Your return on marketing dollars will be incredibly higher than using traditional methods, and your cost per move-in will be dramatically less. Stay on top of your online marketing and the phone will ring. This will not only translate to increased occupancy and revenue but a reduction in your advertising expenses.
Another item that can easily be reduced is merchant fees to credit card processors, which can be incredibly costly. One of the easiest ways to cut this expense is to "shop” your account. All a competing merchant servicer needs is a copy of your P&L, which it will review. You'll typically get a one-page evaluation showing your “true savings” if you were to switch processors. This can easily add up to hundreds of dollars in savings each month and cost you nothing to do.
Here are some additional expense-cutting tips:
Many self-storage owners overpay on their property taxes. When a property sells, it will typically be re-assessed by the county and the new owner will pay the new tax, but you can save thousands each year by protesting your property value today.
The process is simple, but it can take considerable time to complete. Let’s look at a quick example. A facility that was bought at a 6 percent cap rate with an NOI of $250,000 in 2007 would be assessed at $4,200,000, with an annual tax payment due in the amount of $46,000. Cap rates have gone up since 2007, and if we apply a market cap rate of say 8 percent, the new assessed value is now $3,125,000, with an annual tax payment of $34,000. This simple case would translate into more than $14,000 in savings.
Raising Rents and Discounting Vacant Space
Raising rents at your storage facility is probably the simplest and easiest way to increase your income and property value. Although you'll probably get some push-back from your onsite management team, since they're the ones who'll be dealing with a few upset customers, you'll be shocked at how many tenants don’t move out and don’t fight the rate increase. Whenever we raise rents, we always follow a strict set of guidelines:
While raising rents, also consider cutting the board rates on units that aren’t renting. Depending on your market, certain sizes will always be in demand while others will struggle to lease up. To determine which sizes are consistently vacant, run an occupancy report and figure out what these units would bring in monthly if they were 100 percent rented. Since you know the unlikelihood of leasing these units, take that number and cut it in half.
Your goal now is to lease these vacant spaces for half the usual price. If you have 35 5-by-5s with a board rent of $75 per month, you now want to offer these units for $37.50. After all, it's better to make $37.50 per month than no dollars per month. You'll optimize your unit mix by adjusting less-desirable units to a rent that will attract renters.
Although these are just a few examples on how to increase your cash flow while decreasing expenses, the key is to think outside of the box. More important, understanding where every dollar comes from and where it's spent will give you a whole new outlook on running your property.
You'll see the changes that need to be made by paying close attention to your onsite operation while evaluating your income and expense numbers monthly. You can easily make positive changes that will not only put more money in your pocket but help increase your facility market value.
Jason “Jay” Allen and Carl Touhey are co-founders of Performance Self Storage Group. Launched in 2010, the firm specializes in self-storage management, marketing and training. Allen began his real estate career in 1997 performing feasibility studies and evaluations. He’s well-versed in self-storage investment, management, marketing and consulting. Touhey began his real estate career in 1986 and entered the self-storage industry in 1992. He has brokered more than $200 million in self-storage sales, and his family owns and operates eight facilities. For more information, visit www.performanceselfstoragegroup.com.