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:
- Only raise the rent of tenants who have been at the facility for at least a year.
- Execute a 5 percent to 7 percent increase, maybe higher on the more desirable units.
- Typically do not raise rents on tenants with multiple units.
- Raise rents on July 1 and Jan.1, as tenants are preoccupied with the 4th of July and New Year's Eve holidays.
- If tenants complain and they are in a size with a lot of vacancy, we reverse the rent increase.
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.