A small rental-rate increase of just 3 percent for all your self-storage tenants can make a huge difference to your facility's profit margin. The author offers a detailed example of the direct relationship between rental rates and business value.

Guest

June 5, 2014

A Guest Installment by Jim Chiswell, Owner, Chiswell & Associates LLC

A just-released report from apartment-research firm Axiometrics revealed the national average rental rate for apartments in the United States is \$1,137. The report points out this is an increase of 3.4 percent since January of this year! It’s also the highest percentage increase in a January-to-April period since 2009.

This got me thinking about what we’re doing as an industry, not just with the rates for new self-storage tenants, but all of our existing customers. I realize from a manager’s perspective, “a no-rent increase of current tenants” policy may seem like a good idea. However, it’s not. As an owner, you didn’t sign a personal guarantee on your mortgage loan just to change dollars and make a few friends. The goal of everyone on the management team needs to be a profit-driven one.

The greatest statement I’ve ever received from one of my managers was, “Jim, I think it’s time to raise our rents on our 10-by-10 units.” She knew before I did that we needed to raise rents. She also realized an increase of a few dollars a month was not significant enough to drive folks away.

The math speaks for itself in the direct relationship between rental rates and business value. A raise of just 3 percent on current customers translates like this: Assume a 35,000 net square foot facility with average annualized rental rate of say \$10 per foot. At a 90 percent occupancy (31,500 square feet) gross income would be \$315,000. An increase in rent all goes to the bottom line. So a 3 percent increase of just \$9,450 at a 7.5 percent capitalization rate would increase the over-all value of the business by \$126,000.

It’s time to examine what you’re doing with rental rates. Just to tease you, a 5 percent increase in rents equals a \$210,000 increase in business value using the same criteria. Take a cue from the apartment industry and examine your rental rates today.

Jim Chiswell is an industry veteran and owner of Chiswell & Associates LLC. Since 1990, his firm has provided feasibility studies, acquisition due diligence, coaching and customized manager training. He has served for a number of years on the Inside Self-Storage Editorial Advisory Board, is a moderator on the SelfStorageTalk.com interactive online community and is a faculty member of the Self-Storage Training Institute. He can be reached at [email protected] or www.selfstorageconsulting.com.

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