Sometimes I am a hypocrite.
I have harped on this in the book, “Creating Wealth Through Self Storage”. If I am coaching someone I almost get in their face about it. It is easy for me to lecture others about it, but I caught myself being reluctant last month to having another price increase in a facility that had over 98.6% occupancy.
Pin a bull’s-eye on my backside and have a practice round. Even though it may be scary to have price increases, do it, or turn your company into a not for profit charity. Perhaps a little strong, but really, as a business owner, you owe it to your business, to your family, to everyone who is a stakeholder in your business to maximize its value.
Nothing, absolutely nothing creates wealth in this business like steady price increases. They can be small. In fact, small is good. I was fretting over a 3% price increase, a unit going from $125 per month to $129 per month. At 98.7% occupancy, if someone moves out because of $4.00, what are the odds that someone else may move in and pay the additional $4.00?
When I heard myself say that, I was shocked. I shut up and let the manager go on with what they were suggesting to my other partner.
Self Storage is the absolute best, and I mean the best type of real estate to own, and this one of the main reasons. You can have income increases whenever you want and whenever the market lets you. Do not let the “market” letting you statement cause you to sit on your tail and not raise rents. If you are over 90% occupied, the market is telling you that they think what you have is a bargain, they are buying it, and you are leaving money on the table.
In our business strategy, we have a minimum of 3% price increase per year. We also anticipate a 2.5% increase in operating expenses. Therein lies one of the main business strategies of our wealth building strategy. The half a percent net growth compounds as time passes. It is an amazing thing to see on paper, and even more exciting in real life, if it is your facility. In reality, since 2008, we have been averaging a 2.1% net increase between price increases and expense increases. It works great on a half a percent, so the 2 plus percent has been awesome. I am not sure how long that will last, but it does not matter. I know no matter what happens in the market, I can manage a half a percent increase period.
Compounding also works the other way. If your expenses are rising a half a percent over your income every year (which is what can happen if you do not have price increases at least yearly), this net drop in net revenue compounds over time and your facility is actually going down in value.
Office buildings, retail, even apartments are extremely difficult if not impossible to do this with. A Walgreens lease has the rent locked in for 20 plus years. In self-storage, you can raise rents within thirty days when you decide to.
So why do most owners go years between raising rents? Fear. You may tell yourself it is the prudent thing to do to stay full. I am here to tell you that it is an excuse so you can hide behind your fear. Get support or whatever you need to begin to handle your business in a way that generates the wealth you deserve.
Of all the things I talk about, I have had more “thank yous” for this than anything I have mentioned. Many of the emails and letters I have received have told me that the Owners just didn’t have their attention on this aspect of owning a facility.
Nothing, absolutely nothing, creates wealth faster and more reliably than this. This is one of the best benefits of owning self-storage. This ability to year after year increase the value of your facility.
If you are still not convinced, call me, I would love to buy your facility.
