I am in the process of purchasing a small self-storage facility with existing tenants (no contracts), and everyone seems to pay different amounts for the same size units. Some have been there for 10+ years, and some don't pay on time on a regular basis.
I am debating whether I should come in and change all rents to set rates based on size of unit right away, to standardize things, or whether I should just give it a few months to get some income before increasing/standardizing rents?
E.G. for a 10x10, tenants pay between $30-45 a month and I would like to get everyone on $45/month. The unit across the street (though it does have a security gate and an office on site) charges $77 for the same size, so $45 is still competitive with my competition.
So: would you come in and standardize right away, or just make sure everyone is paying on time first and then increase in a few months?
With our apartment communities we like to implement our new starting rents as soon as possible after closing. Also standardizing leases, rents and any other areas that need this will greatly help grow your business and help the future sales/marketing and daily operating process, especially if you have employees.
When a new owner buys a property residents/tenants expect a rent increase, especially if you are making improvements.
Some will leave, but give them full disclosure on what you are doing and they will understand.
You need to boost your predictability of revenue and standardizing will help immensely.
Update us on how it goes.
@brandon m benefits for ripping the bandaid off quickly is you'll get all units up to market rent (assuming it is market rent based on your competition). The disadvantage is you could lose customers. Some questions I would find answers to before making your decision:
- can I support the property if all the customers move out who get a rent increase?
- does my property justify that rental increase?
- can I implement the rent increases in phases based on how below market rent they are? (this is something I did with a large community and it worked well)
- can I do staggered rent increases over time instead of all at once
- can I make the place a better one for my customers before increasing rent that way they get the benefit of the added value I've provided before I increase rent?
I feel like I will lose less clients than I would if I were buying an apartment complex because it is a storage unit. Most people leave their stuff in a unit until they move, leave it and forget it mentality. That is what I am banking on. Not to mention even at the new rate/standardized rate I will still be the cheapest rate in the area, so I am betting that not many people will want to move their stuff somewhere else.
In terms of providing improvements to justify rent increases, there isn't much that can be done, it is a simple building with 4 walls. No security gate, no office, nothing. Just a storage building.
I just wanted to follow up on this and get some more feedback. It seems like most people, whether you are buying an apartment complex or a self storage facility, would increase/standardize all rents as soon as you purchase the property.
Since I am closing on 11/14 I will likely just implement the changes starting on January 1. I will just require that rent is still due on 12/1 at the old rate (the sellers didn't really enforce on time/late payments too much, they owned the building outright so anything they received was a plus).
I would say right away as well. Give Public Storage or Cube Smart a call as a "potential customer" and see what deals they have and how often they raise their rates. Those 2 are the biggest in the industry. I would also try to find one that is closest to you and go take a look in person. Why be the cheapest around?
Work on your marketing and your customer service, try to offer deals to new customers as well as the existing ones and keep your rates competitive but not too low.
You may have some disgruntled customers, because no one likes their rates raised, but they have to understand that there's new ownership/management. You can't go in being scared of losing customers. Be confident that you will do whatever it takes to keep them happy and in your units.
I definitely don't have a property that would compete with one of those two big guys, my building is literally just a rectangular building with 21 garage doors on either side. No security gate, no office on site, doesn't even have electric or water on the building (one of the appealing features). No recurring expenses other than taxes and insurance.
As a result of the quality of the property, I likely will have to be the cheapest around. That is fine, I can still make money being the cheapest storage around, because it will also be low maintenance as well.
Another idea here would be to consider a staged approach, You could increase the $30 to $40 and see how many move out. Fill up any vacancies at $45. Then raise the $35 to $45 and see how many move out, fill vacancies. Then go back to folks that you raised to $40 and up them to $45. This way you minimize empty units at any one time. An empty unit is your biggest expense in the storage world. Then every 4-6 months, you should up the rate $2-4 dollars. Don't just stop at $45 because you think it is a good price. Keep raising until the market tells you you are at the right price.
Follow the standard procedure. All you have to do is talk to them and explain that you have to follow the right procedure in renting. Before you increase rents you should:
Give at least 30 days in advance notice if the rent increase is 10 percent (or less) of the rent charged at any time during the 12 months before the rent increase takes effect.
If you have a month-to-month (or shorter) periodic rental agreement, you must give you at least 30 days' advance written notice of a rent increase.
60 days' advance notice if the rent increase is greater than 10 percent of the rent charged at any time during the 12 months before the rent increase takes effect.
You can address the subject of raising the rent with the tenant in a conventional or LPA Lease agreement. By having a plan for scheduled rent increases, you'll get the equivalent of a raise in salary very year.
Explain the reasons of the increase. And usually the raise of rent depends on the Rental Market, the quality of your tenant and how much you want him or her to stay and the availability of new qualified tenants.
Had not thought about the staged increase approach. I am definitely going to be aggressive in leasing up the vacant units at the new price.
@Joseph Chen - the issue with explaining the increase to the tenant is that I will have 30-35 tenants so that will be hard to reach each of them to explain the reasons for an increase.
How about sending them notices, stating the situation, the problem and the changes that you want to make in the rent? At the end of the letter, put your contact number and email so they can contact you and ask questions anytime.
If you want to make it personal, invite them all in a short meeting/conference. In this way, you can have a chance to receive quick responses from them and address their concerns.
I prefer these ways rather than text messaging which can possibly create misunderstanding.
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