If you do it right in your self storage facility, you can create a lot of additional income and value for yourself by having the right additional sources of revenue.
Even in managerless, automated projects, one can create a high percentage of additional revenue.
But every facility is different.
Even in our company’s heyday, when we were at our peak of properties (most have been recently sold to REITs and funds), every project had different percentages of what I will show you.
But in deciding what additional add-on revenues to offer, they all started in the same place.
The Population Profile and Demographic of the Trade Area
All decision of what the add-on revenues are to be start here, with the demographic profile.
What is the average income, disposable income, what is the average length of stay, are they renters, are they homeowners, what is the average education level, etc.
Many of the additional add-ons I read about only work in higher-income areas.
Items such as:
- Wine Storage
- Pack-And-Ship-Services
- Photo reproduction services
- Package lockers
All of these are good, but the reality is I have never implemented them.
I don’t know many who have, although I am sure some of you have seen or read this. I would be interested in your input on these items.
As we contemplate developing an upscale boat and RV parking facility, we are creating some high-end add-ons such as concierge cleaning services for expensive boats and RVs, winterizing, dumping stations, etc.
In this instance, the demographic profile of our typical customer is hardly the same as our typical self storage customers.
So what are the real add-on revenue sources of income for a typical self storage facility for a small investor?
Let me show you a year-end income portion of a profit and loss statement for a project we sold recently. I chose this because, even though it was a large facility, the percentages of additional add-on revenue as a percentage were lower than most of our facilities. Still, it recently added a lot of value I can share on a sale.
The demographic profile income for the trade area was average. Not low at all, but certainly not one of the higher areas of our market.
The facility had good exposure but was built from 2000 through 2001, so not a new and shiny multi-story project.
Here is a screenshot of the 2019 income portion of the P & L.
Fees
Don’t overlook fees.
Even managerless facilities can really benefit from fees.
As you can see, we only had about 2% of our total income in fees, but it accounted here for $24,150 worth of income.
Buyers and appraisers will value that cash flow the same as rental income.
When we sold the facility in late 2020, the buyers used this figure and the rolling 12 months to determine revenue.
We received $482,997 worth of cash in the sale for the fee portion alone in the sales price.
As you can see, none of our fees were off the charts. We usually charge a small admin fee; our facilities range from $10 to $25 per move-in.
Late fees as per what the state regulations allow.
You can see our late fees were a low percentage of total revenue because we don’t have payment plans, our managers stay on top of collections, and we quickly auction so fees don’t rack up and we can get units back into rental.
Just don’t overlook charging appropriate fees. In the long run, they can add a lot of value. Some of our fees are:
- Administrative Fees
- Late Fees (we included lien fees here)
- Reservation Fees
- Cut Lock Fees
- Bounced check fees
As you can see, in this case, less than 2% of fee income added almost half a million when we sold.
Retail Sales
I would sell TVs if customers bought them.
Primarily, we just sell locks and other moving and storage-related retail items. If you read my management small e-book on the KPIs we measure you can see how we measure and our relationship to retail sales. In episode 345, I recently demonstrated how we use lock sales to enhance retail sales.
In this facility, retail sales were 1.1% of our total revenue. As a percentage, it was lower than most of our facilities, but it accounted for around $15,000 of income. We usually have about a 57% profit on average.
Besides the cash profit each year, on the sale, the retail sales portion accounted for approximately $171,000 of the sales price.
Tenant Insurance
In episode 342, I discussed how tenant insurance could add value and cash flow to your project.
We will not own a project today where we do not make insurance mandatory.
At the time of this P & L, we were making it mandatory at the facility. We didn’t have full integration yet. But you can see we had a little over $10,000 income from tenant insurance that year. We now make that much per year on small facilities.
However, the tenant insurance added $200,000 of value to the sale in this instance.
One can easily make tenant insurance mandatory in automated, managerless facilities. I would always do that.
Truck rentak
I have been preaching about truck rental since I learned about the self storage business.
Here is why.
Yes, it takes more energy to rent trucks. Yes, it is a pain sometimes for the managers. Yes, some people are upset about truck-related issues, and we are in the self storage business.
But look at the revenue here.
It accounted for 4% of our total revenue.
This facility has great exposure, so this is higher than most, but that year we generated over $53,500 in income. Straight to the bottom line.
We used some of this to bonus the employees who worked it, but this is real money in most of our facilities.
Buyers and appraisers do not discount it in valuing the facility. In this instance, we received about $1,070,000 of cash for this revenue add-on in the sales price.
Would that be worth the hassle?
If you have employees or you can do the work, do not overlook truck rentals. We rent U-Haul because they account for about 50% of the market for truck rentals, and they are the least expensive for the customer. The equipment is not always the best, but for us, it works.
Also, at that facility that year, U-Haul customers accounted for 5.57% of our total move-ins.
We like truck rental.
Record Storage
I have offered record storage, but I didn’t like it and don’t recommend it unless you really want to specialize.
It is a profitable business, but it is a separate business from self storage. I really don’t consider it an add-on as much as I consider it a totally different business.
Record storage is a business-to-business endeavor, whereas self storage is a business-to-customer one.
It requires more labor to pull files, deliver files, pick them up, etc. We ended up owning delivery vans, had a separate operating system specific to that industry and so on.
And when a recession hit, unlike self storage, it was much less recession resistant because it was a B-to-B business.
Yes, it can be profitable, but at least for me, it took a lot of my bandwidth that I’d rather use to grow my self storage company. I ended up selling that business.
That was just my experience, so if you are interested in exploring this business, I am not a good resource for you.
Conclusion
My goal was to show you in real life how much the right add-on revenues can really be worth.
In this case, with average to low add-on revenue percentages on a large project, they added about $2,063,164 worth of value on the sale of the project, slightly over 15% of the total sales price.
So really think through your fee structure and the add-on revenue streams you are going to have.
It can be well worth the effort.
