Step 4: Ask Experts for Help
Who knows your property better than you? Your property manager! Include your manager in the budgeting process. Ask what he would do differently if he owned the property. Managers often have great ideas for improving the property and bottom line but are hesitant to say something to owners because they’re afraid of insulting them. Your manager should also be able to provide you with his expectations for growth in occupancy and rental rates for next year.
If you know other self-storage owners in your area, give them a call. In this industry, people are generally friendly and eager to help one another. Share your thoughts on the market and expectations, and then ask for their opinions. Maybe they’ve heard rumors of a potential new competitor you didn’t know about. Other storage investors can be a great source for information on the industry and your market.
Step 5: Analyze Trends
Analyzing trends in key areas at your property over the last couple of years can help you make a more accurate prediction for the next 15 months. If you have some experience with Microsoft Excel, Word or PowerPoint, creating quick line charts is a piece of cake. If you haven’t done it before, you can use the help tool within the program itself or search online for tutorials.
I recommend plotting these six line items on individual charts by month for the last two to three years:
- Total revenue
- Total discounts given
- Total expense
- Square-foot occupancy
Look for seasonal and long- and short-term trends. Does occupancy usually peak in August? Do move-ins spike in May due to local college students leaving for summer break? Do you have to give more discounts in the summer months or in the winter? Knowing this information can help you plan accordingly.
Step 6: Make Projections
Now the fun really starts! To predict rental income, start with last month’s rent, add in the expected rent from move-ins next month at your average street rate per unit, and subtract the expected move-outs at your average rate-per-occupied unit. If you’re increasing existing tenant rates on a regular schedule, add an appropriate amount on a monthly basis for those increases. Lastly, subtract the amount expected for discounts and bad-debt write-offs.
Remember to add other revenue line items to your budget. For example, it's easy to predict items such as administration fees and merchandise sales by using an average cost per move-in. Looking at the last six months, on average, what were your merchandise sales divided by the number of move-ins? Use that number to predict next year’s merchandise income. Insurance premiums, truck-rental income and rent from any other sources (cell towers, office space, etc.) should be factored into your budget as well.
For expenses, review the amount you’ve spent for each line item over the last couple of years. For many categories, you can just assume an annual growth rate, such as 3 percent. For marketing, decide if you want to spend more or less next year. How did the investments you made for advertising work last year?
For items like credit card processing and management fees, calculate the percentage of revenue you paid last year, and then apply that percentage to your 2013 revenue projection to calculate your budget for next year. Use the contracts you gathered and maintenance list you created earlier to predict your repairs and maintenance budget.