Raising Rental RatesIs it time?
By Pamela Alton
Raising rental rates is probably one of the least enjoyable aspects of a self-storage manager's job. No one likes to field those calls from tenants threatening to vacate because they received a $5-per-month rental increase. How do you handle them? When do you raise rental rates and whose rates do you raise?
Obviously, researching the rental rates in your market area is a must before you raise your own rates to existing tenants and new move-ins. At least every three months or so, you should contact the other managers in your area and trade information on rental rates, changes in office or gate hours, administration fees or deposits, etc. Most managers are cooperative with each other; however, like anything in life, there are exceptions to the rule. Some companies, for one reason or another, refuse to exchange rental-rate information with those they consider to be their "competition." If that is the case in your area, you could be forced to play the "rental-rate game," placing a mystery call as a tenant inquiring about a unit. But how you get the information is not as important as having it.
You want to be competitive--not too high or too low. One way to "test the waters" on rental increases is to change your walk-in rates to be slightly higher than what your existing tenants are already paying. If you find you can easily rent them at a higher rate, then consider increasing the rates of your existing tenants as well. Similarly, when someone vacates a unit and you are otherwise full in that unit size, try putting a higher rate on that unit. If you can easily fetch a higher price, you can consider a rate increase across the board.
There are times of the year when rental-rate increases are expected and usually considered part of doing business. Winter months around the holidays or early spring are good times for increasing rates. Most tenants expect a rate increase around the first of the year. Just before the holidays is a good time to send out your rental-increase notices indicating a January or February change. Most tenants are busy with the holidays and don't have the time or desire to move even in the event of an increase. The weather could also act as a deterrant, encouraging renters to stay in their units until spring. Spring is also a great time to increase your marketing efforts, allowing you to make up vacancies with new rentals.
A word on notices: Some rental agreements say you can change rates, office hours, etc., with only a seven-day notice. I personally give my tenants at least a 30-day notice, if not slightly longer. Seven days is not enough time, regardless of what your agreement states.
You might choose to implement an annual rental increase across the board on the first of the year to all tenants, regardless of how long they have occupied a unit. This is fairly easy to calculate. It is a little more difficult to selectively increase certain tenants or unit sizes. In this case, you will have to print several computerized site records, such as rental history, discounted units, past-due accounts, etc. You will use these reports to determine who will receive a rental increase.
Tenants who pay below the standard rate because of a discount or other special are good candidates for an increase. Similarly, those tenants who often pay late are good candidates. Those who pay late and receive discounts should be at the top of your list! Make certain you tell each new tenant who moves in under a discount program that the discount could be changed or removed at the end of X number of months. Tenants who have been with you for more than a year and have never received a rental increase should see a raise.
Handling Those Irate Calls
Once you have sent out your rental-increase notices, be prepared to field the calls and tenant inquiries. A vast majority of tenants will accept the increase as part of doing business. However, when you get an irate tenant, kindly explain that it's your job to do as the owner or management company requests, and that rental increases are standard. Let your tenants know you have enjoyed having them as renters, and remind them of any discounts they have received, or what the current "walk-in" rate for their unit now is.
If the tenant rants and raves about the increase and threatens to vacate, your response could be something along these lines: "The rental rates at local facilities are all within a few dollars of each other. We would hate to lose you as a tenant, however, if you feel you can get a better deal--a cleaner facility, better location, longer access hours, more security features, etc.--then you owe it to yourself to go elsewhere. " Then remind them of your vacate policy and wish them well.
The facility owner or management company should rely on the input of the onsite manager when considering rental increases. I love it when one of my managers calls me to ask if he can raise his rates. It shows he is looking to bring in as much income as possible. Some managers think in terms of occupancy levels, bragging, "I have been 100 percent full for the last three years." I say, then your rental rates are too low and the owner is not making the income he should be. And you are not making the salary you should be making! Ask yourself: Is it better to be 100 percent occupied with an income of $40,000 per month, or 92 percent occupied with income of $42,000 per month? Which numbers do you think an owner would like to see?
Rental increases are a necessary evil for the onsite manager. How you select tenants or unit sizes for increases or handle objections shows the type of professional manager you are (or aren't). As spring and summer approach, be prepared with additional postage, paper and envelopes; research those rental rates and get those letters out--at least 30 days before your changes go into effect.
Pamela Alton is the owner of Mini-Management®, a nationwide manager-placement service. Mini-Management also offers full-service and "operations-only" facility management, training manuals, inspections and audits, feasibility studies, consulting and training seminars. For more information, call 800.646.4648.