Self-storage may look like a sure-fire cash cow to curious investors; but with land prices, insurance costs and real estate taxes skyrocketing, understanding the finely tuned operational needs of this real estate investment is key to a successful project.
Using an experienced management company from the beginning of your journey into the world of self-storage can help avoid costly mistakes and make the path to success shorter. Why? Below are 10 reasons worth major consideration.
1. Storage is unique. It has an operating structure different from real estate and retail. Its an unusual blend with its own rules and conventions. Unpredictable nuances atypical of other business ventures may add or subtract from your profitability as well as your legal liability.
A management company can help you understand the specifics of the business and how certain items affect outcomes positively and negatively. Dealing with auction procedures, delinquencies, death or bankruptcies of tenants are all delicate issues; handled incorrectly, they can give you a world of trouble.
2. Optimize investments. Perhaps youve conducted a feasibility study on your development land, or started due diligence work on an acquisition and are moving forward with your storage site. A management company can assist with developing an operating budget for the first few years of your investment as well as advise you on realistic expectations.
Consultants review the site, layout, rental prices and trends in the market, competition and many other factors. experience has taught them how to evaluate feasibility and due diligence projects and envision the future.
Remember, its generally many months between the feasibility study/due diligence period and the opening of your site. Many factors in the marketplace may have changed during that time. Youll need current information to implement rates, specials and other decisions critical to the first several months and long-term success of the business. Experienced management companies have worked with other sites and can use their know-how to spot trends and trouble spots that may trip you up.
3. Create or evaluate operating procedures. Whether your property is a new site or an acquisition, many questions must be answered before a grand opening. Will you rent units on a first of month or renewal rental period? While it sounds like a simple question, each answer leads to a myriad of others.
Will you prorate, refund, take a deposit? In what order will you will apply payments? Rent first, fees first, oldest first? What difference does it all make in the long run? how will it affect accounting? Wholl do the accounting? how will you account for checks and balances, making sure your investments will be protected?
4. Establish brand image and marketing. Its easy for people to assume all storage companies are the same, but we know better. how you present your company to the public differentiates you from competitors. Thats branding. Its easy to imitate the facility down the street, but it takes a bold step in marketing or a logo to make an impression with the neighbors.
A management company can help you stand out in the crowd. It can offer a bushel of marketing ideas and let you know what works before you spend your money. Sometimes changing a simple word or layout in an ad or flier can change your results entirely.
5. Quick answers. Management companies have relationships with other experts in the businessfrom construction to Yellow Pages to insurance, boxes and locks. Theyve worked with many industry vendors. If they dont know the answer to something, theyll get it for you quickly.
6. Reduce expenditures. Some lenders require a first-time investor in self-storage to use a management company as a condition of the loan. Others may not, but theyll shave a little bit off your interest rate if you do. Ask your lender.
7. Consider site changes and upgrades. existing sites sometimes consider upgrades to create more of a splash with customers. Some big-ticket improvements can indeed add value and others wont do as much as you think.
Management companies can help decide whether its worth the investment to add that flashy time-and-temperature marquee sign for $25,000, or if there are better ways to improve rentals. They review returns on investments through breakeven analysis, providing hard numbers and perspective to make an educated decision.
8. Staff issues. Personnel issues are the bane of most storage operators. hiring, disciplinary actions, termination, training, dealing with schedules, payroll, requested time off, teams that dont get along, finding and keeping reliable relief managers are all part of the day-to-day operations of any site.
If the staff isnt happy, tenants sense negativity. Unsatisfied staffs can lead to poor reputation, low occupancy, reduced posted rates, inability to raise tenant rates and, in short, bad times.
Let someone else deal with employment issues. Management companies strive to make sites operate as profitably as possible. Theyre always in the cycle of training staff for better productivity. Goals and expectations are clearly defined and performances are evaluated. When the results are measured and tracked, sites perform better.
9. Unit mix and pricing. At some point in time youll likely find your unit mix is askew. Youll sell out on one size, but have too many of another. This seems to plague all owners.
Management companies worth their weight will know what steps to take. Does the situation call for conversions? If so, what is the most efficient conversion plan? how long will it take for converted units to fill and recoup construction costs? how long until a profit is realized? Does the cost of construction make sound financial sense? What other alternatives aside from conversions can be considered?
10. The blueprints. Often, a little tweak here and there in construction plans can make a vast difference in profitability later on. To change plans after finishing construction is difficult and costly.
A management company can look at your plans and offer suggestions to increase the value of your site and enhance operations. examples are well-positioned electrical outlets so site staff can efficiently cut locks with a drill or grinder when needed; a music system to give your facility a friendlier feel; intercoms to give tenants an easy way to reach the manager; and recessed fire extinguishers to limit theft and damage.
It may sound funny, but as a new investor to storage, you dont know what you dont know. Learning the hard way is expensive, frustrating and time-consuming. Let a management company guide you to prosperity.
Linnea Appleby is president of PDQ Management Solutions Inc., a Sarasota, Fla.-based company providing full-service facility management, consulting, start-up services, auditing, management training and more. For more information, call 941.377.3151; visit www.pdqmanagementsolutions.com.