10 Things to Consider When Raising Self-Storage Rent
By James Webb
In response to a recent thread on Self-Storage Talk about the logistics of raising self-storage rent, SST member James Webb posted these 10 tips.
No. 1: The longer tenants stay with you, the more sensitive they become to rent increases. When the tenancy is new, they believe they need the storage space. The longer they store, the more they tend to reevaluate their need and, eventually, they realize they’ve paid more than the property is worth in rent. Raise everyone, every year, regardless of when they move in and their current rent rate, either above or below standard.
No. 2: Though many customers will complain about rent increases, few actually move out. This is due to the tenants’ perceived "move-out" cost. In other words, they must rent a truck, hire help, take time off or use their precious weekend time, etc. The average cost to move out is about $150. Therefore, one can raise a tenant to 20 percent above current market rates before it makes real economic sense to leave one facility for another. Of course, there are exceptions to this, but it’s a general rule and has proven to be true for me. If customers do not complain, you didn’t raise the rent enough.
No. 3: Customers do not move out as a result of a rent increase. They move out because they no longer really need the space or have been planning to move out for months, and the rent increase has caused them to execute their decision based on their recent reevaluation about their need for the storage space. The longer tenants are with you, the more likely they’re to move out through this process. Don’t worry about rent increase move-outs. I’ve never seen a mass exodus as a result of rent increases. Most apprehension about this is unwarranted.
No. 4: Tenants in large units tolerate rent increases better than tenants in smaller spaces. Tenants in small units will tolerate larger percentage increases in rents than large-space tenants. For example, if your 10-by-30 units rent for $250 per month, a 5 percent increase is $12.50. If your 5-by-10 units are only $60 per month, the same percentage would be a $3 increase.
The reality is that you could raise the 5-by-10 tenant 10 percent or $6 and still be met with little resistance. If you don't believe this, think about the fact that tenants will routinely pay you a late fee of $10 every month, yet will complain about a rent increase. One could almost raise the rent by $10 and let them be late every month. In small unit increases, look at the dollar amount, not the percentage as a guide.
No. 5: Occupancy has no effect on your ability to raise rents. Do your tenants know what your occupancy is at any given time? Would they care? I’ve raised rents at facilities during leaseup and at facilities where the occupancy was down. My competitors believe that if your occupancy is down you should not raise rents. I’ve found every facility I’ve managed has had about the same turnover rate, 1.2 turns per year, regardless of occupancy.
If you wait for the economy to turn around, you may be waiting 5 to 10 years to boost your income. You should raise rents every year to keep up with inflation and maximize income at your property.
No. 6: Upstairs and indoor tenants will tolerate rent increases better than downstairs and drive-up tenants. This is due to the hassle of moving into upstairs and indoor units. Raise rents on these units at a higher rate than downstairs or drive-up tenants.
No. 7: Tenants who are chronically late will tolerate rent increases better than ones that pay on time or who are automatically charge via a credit card. Delinquent tenants are always "a day late and a dollar short.” Delinquent tenants pay much higher rents through fees than any normal renter would ever tolerate! Raise chronically delinquent tenants at a higher rate than good paying customers.
No. 8: If you make any noticeable improvement at the facility—new asphalt, paint unit doors, a new gate system, cameras, etc.—you should always initiate a small rent increase. When tenants see what they’re getting for the money, they’re less resistant to rent increases. As a matter of fact, they expect it. Do a modest rent increase when you make obvious improvements.
No. 9: Tenants who receive specials are always more sensitive to increases than tenants who pay full price. Hey, they chose you because of price, so of course they’ve been trained to focus on it. Tenants who move in on specials must be "ratcheted up.” In other words, you must increase them in several increments to reach full price.
No. 10: Raising rents is wrought with fear. Fear is simply False Evidence Appearing Real. I used to fear I would have droves of tenants moving out if I raised rents any time! I now realize that tenants complain about everything. Some tenants would complain if you lowered their rents. Some would move out simply because you reminded them they’re storing junk they should throw out. After all these years, I’ve never had a mass move out. Just a little complaining and a lot more money.
James Webb is a facility manager in Stockton, Calif. He’s been in the industry for 14 years. He’s a Self-Storage Talk member, and was recently featured as a Star of Self-Storage Talk.
- Self-Storage Operator Midland Storage Buys A Storage Inn in St. Louis
- Self-Storage REIT Extra Space Acquires Treasure Island Storage in Cherry Hill, NJ
- Reliant Real Estate Management to Convert Former Kmart to Self-Storage in Greenville, SC
- Rezoning Approved for Self-Storage Facility in Springfield, Ohio
- Commercial Real Estate Brokerage NAI Horizon Hires Self-Storage Veteran as Principal, Senior VP