There are many ways to generate income at your self-storage facilities. Are you using all of them? Some “hidden” revenue streams can be tapped simply by leveraging your existing operational strategies. Following are three areas where you can unlock this profit and maximize its potential.
You have a finite amount of rentable space at your self-storage property, but that doesn’t mean the income generated from that space is limited. One way to create more revenue is to regularly examine and increase the rents of your existing tenants.
When doing this, review occupancy by unit type, not as an aggregate. For example, rather than applying a 5 percent to 10 percent increase across the board, analyze market demand for each individual unit type or size. You may discover that larger unit sizes experience higher demand in your market, or your customers are willing to pay more than you think.
Consider a reoccurring rhythm of every three to six months. Your property-management software can rotate tenants who may be paying suboptimal rates into the queue for review. Exercise discipline, and don’t be afraid to push those rates up. Depending on demand, you may be able to go 10 percent to 15 percent higher than what your immediate competitors are charging.
Tenant Insurance and Protection Plans
After confirming what’s allowed by your state regulations, consider optimizing your revenue with a tenant-insurance or -protection program. When executed effectively, these plans can quickly become the second most profitable revenue stream behind self-storage rent. Set a target of 70 percent penetration at your property. You’ll achieve greater stabilized net operating income and increased equity value, and your customers will have greater peace of mind that their property is covered in the event of an unfortunate circumstance.
If you make this coverage required, you may need to modify your current tenants’ lease to include it. I also recommend that you add verbiage to the rental agreement setting a limit for how much financial liability the self-storage operation is willing to absorb. If the lease states that $5,000 is the owner’s maximum liability, this helps determine the amount of coverage that can be sold to the customer, who can now choose $1,000 to $5,000 of coverage. Both the owner and tenant can proceed with confidence, with the insurance or protection coverage clearly defined at the time of rental.
Once you’ve successfully implemented your tenant-insurance or -protection program, it isn’t uncommon to see a 7 percent to 10 percent increase in monthly cash flow. The name of the game is increasing the number of units covered every month, which will indefinitely increase property value in any market.
Does your self-storage rental agreement clearly state the maximum late fee, pre-lien fee and lien fees that can be charged to delinquent tenants, and do you enforce collection of those fees? You should. When fully optimized, this revenue can be significant.
Limit the authority of staff to waive late fees. Many operators have found success in offering one courtesy late-fee waiver to each new customer, noting in the tenant’s account when it has been used. Thereafter, the tenant pays. Consider placing verbiage in your rental agreement that a one-time courtesy waiver is in place as a customer-service gesture. Ensure that employees diligently explain this policy at lease signing.
In addition to late fees, consider other delinquency-related revenue such as lock-cut and auction-advertising fees. The more diligence you put behind your fee initiatives, the more successfully you can offset the costs associated with managing delinquent accounts.
Some self-storage operators also choose to implement a one-time administrative fee at the time of rental. This practice not only drives revenue, it diminishes liability.
The self-storage industry is evolving. Your competitors are getting smarter, more innovative and more sophisticated every day. Without new ways to increase market share, you’re leaving revenue on the table.
Robert Barge is a partner and vice president of operations for Crescendo Self Storage Management and Consulting, which manages 20 self-storage facilities. In this role, he provides leadership, training and accountability to frontline staff. He has 18 years of experience in the commercial real estate and fitness industries. For more information, e-mail [email protected]; visit https://propertymanagement.storage.