Raising rents to increase self-storage income is a common business practice. Yes, we can keep a close eye on operating expenses and look for deals on supplies and services, but that alone won’t be enough to improve net income.
To keep pace with cost increases, we have to raise rents regularly—more often than yearly or even every six months. Let’s look at some numbers to see how this works and the impact on the bottom line.
Assume we have 500 units and our unit mix is as follows:
If we raise rents by 5 percent for existing and new customers, our monthly income potentially increases thus:
Over a year, the rate hike yields an additional $29,670, possibly more if remaining units are rented. Consider how regular rent increases can significantly enhance this number. Let’s say we raise rents for existing and new customers and the latter aren’t resisting the price after a three- or four-month period. Should we raise the “board” or “asking” price again? Of course; we should continue to push the rates as long as new customers show no resistance, asking ourselves each month if we can increase them again.
Rate Hikes for Existing Renters
Raising rents gets sticky when dealing with existing tenants. How often could or should we do it? Is once a year reasonable, or can we push rates and raise them every six or nine months? The answer isn’t always clear. Ask yourself these questions:
1. Are we at or above our competition?
2. Do we turn over our property every year? In other words, in a 500-unit facility, do we have 500 or more new customers each year?
3. Are we willing to risk losing existing tenants over a rent increase, knowing we’ll probably get new renters at the higher rate over a reasonable length of time?
4. Are expenses increasing faster than rental rates?
5. Do we tend to become too personal with customers?
If you answered yes to any of the above questions, you should be regularly increasing rents. Most owners would like the onsite management team to create more revenue by following such a policy. Managers have a hard time presenting higher prices to existing tenants because they’ve become friendly with them and don’t want to make their buddies unhappy. It’s OK to be sociable, but don’t forget the goal of business is to make money.
In most cases, managers are willing to raise board rates for new tenants. Do this first; if you don’t get price resistance from potential customers, slowly implement increases for existing tenants too. For example, increase 5-by-10 units first and see how tenants react. If only a few move out because of the price hike, raise rates on another size. Remember, it’s typical to have a few incensed customers vacate when prices go up. Remind yourself the next person signing a contract will be paying the higher rate.
Putting a Policy in Place
My company-wide policy is this: If we are at least 95 percent full in any unit size for three consecutive months, we raise the board rate. We’ve raised board rates three or four times in one year at some facilities but maintained a high occupancy. We also raise rates with existing customers if they’ve been under contract for nine months or longer and our occupancy rate exceeds 95 percent. This way, income increases steadily; we never have too many customers getting rate increases at any one time; and we can back off price hikes if we encounter any resistance.
Self-storage managers take pride in building and maintaining occupancy. Although 100 percent occupancy sounds good, it means the unit mix is too low and you’re missing out on potential income. It’s better to have a facility 92 percent occupied with rent increases three or four times a year than a full-up site with lesser rates. Usually, a business with a lower occupancy rate will make more money than one that is 100 percent occupied. After all, the objective is to bring in dollars.
Raising rates is always work. Managers may not be comfortable increasing rents, but if you have a policy in place like the one described above, it can become a matter of business practice. And, like anything else, practice makes perfect. Moreover, the rewards of a higher-income property will always pay off in the long run.
Mel Holsinger is president of Professional Self Storage Management LLC, based in Tucson, Ariz. Professional Self Storage Management offers facility management, consulting and development services to the self-storage industry. For more information, call 520.319.2164; visit www.proselfstorage.com.