“How could you buy that facility that was listed at a 5.2% CAP Rate?”

“I didn’t” I say.

“But look at what you paid. That is much closer to their list price than I could ever pay.”

“OK, but it wasn’t a 5.2% CAP rate on my income stream! In fact I think I got a fair deal. I can fufill on my business strategy at that price! I can generate more money”.

Ok, we’ve been talking about ways to generate more money from a self storage facility, so let’s look at it.

What would that really look like?

One of the first things we always look at is truck rental. (“Would you like fries with that?”)

Many of the facilities we look at do not have truck rental, or if they do, it’s very under utilized. (“Would you like to super-size that?”)

More often than not, they had it at one time early on. It was hard or people complained about something, so they dropped it because “…I’m in the storage rental business not the truck rental business. My customers were upset about something the truck rental company did, and they were mad at me.”

I hear that at least once month if not more.

I just nod and agree.

Then I put in truck rental if we purchase it.

Truck rental is not easy. It does take some work. Sometimes people are upset.  (“Did I ask for fries with that!?!”)

So what? It generates money and it goes straight to the bottom line. We also often use it as a way to hire someone else and/or give bonuses to our manager, thus allowing us to employ a better manager than any of our competition.

Let’s take as look. I have facilities generating anywhere from $66,000 per year in truck rental income to $6,200 per year.

It usually takes a while to get it established and growing, but in my opinion it is well worth it.

We use U-Haul, but this works with any truck rental company. Let’s say that the truck rental company estimates that this facility should easily do at least $15,000 per year in commissions.

What does that mean?

At an 8% CAP rate, (I know that is higher than anything is listed for now days, but that won’t last and in the future 8% is s realistic number), that $15,000 income stream adds $187,500 worth of value to the facility.

     The math: $15,000 (truck rental commissions) divided by .08 (CAP rate) = $187,500

Then if we can generate $250 in retail sales (boxes locks, etc.), that’s an additional $3,000 per year.

By the way, if the Manger can’t do retail sales, they WILL be replaced by one who can. Selling disk locks isn’t hard when someone moves in. I’d sell TV’s if they’d buy them. It’s very easy to sell retail goods. Again, I have one store (we call our facilities stores) that regularly sells over $600 a month in boxes alone. Expressway exposure doesn’t hurt either.

But as an owner, you realize that $3,000 is really $37,500. That is the value at an 8% CAP of that income stream.

     The math: $3,000 (retail sales) divided by .08 (CAP rate) =$37,500

Now let’s talk about some more low hanging fruit.

Here is my favorite. The facility is 90% occupied! Owner and agent are proud.

But it is it really? What is the economic occupancy.  I looked at one yesterday where the facility was 12% behind physical occupancy.

I love that.

Easy money there.

How can you tell?

Well just look at the daily close and/or monthly P & L (profit & loss statement) next to any daily close statement from the storage operating system.

The daily close will show you the “gross potential” income from the rented units, and just look at what they collect. “Gross potential” is what would go in the bank if everyone who rented paid, and what actually went in the bank is the “economic occupancy”.

In out facilities, gross potential and economic occupancy usually runs 3% to 4.5% apart. If it’s ever more than 5%, our managers know we’re going to have a conversation. This is one item we keep our eye on at all times. I know the monthly rhythm of this variance for every facility.

Anyway, for the facility I was looking at with the 12% variance; it was generating $9.35 psf income (low as well) and if I close that gap lets say 7% – or for this facility 4,690 square feet (67,000 sq. ft. facility times .07), that’s $43,851 per year in income.

     The math: 4,690 (sq. ft.) x $9.35 (psf) =$43,851.50.

Yes, you guessed it.  That $43,851 isn’t really $43,851…with an 8% CAP Rate it’s really $548,144 .

     The math: $43,851 divided by .08=$548,144

So there you have it. A facility that has no retail sales (or very little) and no truck rentals with a gap between economic and physical occupancy of 12%. How many of those have you seen in the last six months?

Plenty, I’m sure.

Well as I look at that facility here is what I see:

• $187,500 Value of truck rental
• $ 37,500 Value of added retail sales
• $548,144 Value of improved management

Total:  $773,144 additional value I think I can add to increase my profitability.

Now, I won’t pay dollar for dollar of that $773,144, but I will pay something for it. It depends on the facility, my mood, and what I can pay to fulfill on my business plan.

I made this situation up, but I see it all the time. In fact, next week I will show you a facility I’m currently looking at and we’ll go through the numbers.

But that’s what I see when I look at a facility.

That’s why I just nod and agree with the owner who doesn’t like truck rental.