Self Storage- Failure at 100% Occupancy

[Henry Clark]

My wife and I have been discussing our Retirement life, running 8 Self storage locations in 5 towns and how to relax a little more.  Our major focus has been developing two larger (for us 220/365 units) locations in a larger town and we haven't looked back at our original locations.  Our son just left for Europe for 3 years with the Navy, good excuse to go back and spend more time over there.

We are starting one town at a time streamlining our operation.

A.  Currently all of our older locations have been 100% full for about 3 to 7 years. We have been on a development and buying tack during this time, looking forward versus back.

B.  The first town/location we are looking at has 115 units.

-  Expand:  We can't expand at this location, and I have spent 3 months looking at every potential lot and can't find a space the right size, zoning or price to build on.  Has a market for about 150 more units.

-  Demand- We get tons of calls for people looking in this town and for 40 miles around it and they can't find a spot.  

- Options- increase rates and make more cash/profit.  At all of our locations we have raised our rate for all new renters.  Now we are going back and raising our rents from 45/55/65 to 55/65/75 by size on older rentals.  80 of the 115 units will get a notice for a $10 per month rate increase.  Giving 30 days' notice per our state.  $800 per month for 12 months, $9,600 extra cash and profit for sending some letters out.  Just at this one location.  5 more locations to do this at.

- Autopay-   started with 100% Autopay only at our two new locations.  If we had not done that we could not have grown.  At this location we will move 20 of the 115 to autopay, the rest are already on autopay (debit/credit card/bank echeck).  20 doesn't sound like much but times 5 other locations this will reduce our workload.  This will get rid of any bad (more issues with check or cash customers) customers and will also expedite the collection process, versus "the check is in the Mail" adding a week to our process currently.

-  Risk-   There is very little risk of going backwards by both raising rents and moving people to autopay.  Our demand is too great in this particular town.  Of the 80 units we are adjusting, we would need to permanently not fill about 12 units to be at the same revenue levels.

Why is 100% occupancy a Failure?

1.  The happiest time for me developing locations is when we hit 65% on our first buildings which is normally our Cash flow breakeven point.  The 800-pound gorilla is off our backs.  Everything is profit/positive cashflow after that.

2.  The worst time for me is when we hit 90% occupancy.  This means we need to build or raise rents.  Plus, we will start to lose future customers once we are at 100%.  Yes, it is bad to be at 100% occupancy.  Should have either built or raised rents.

3.  Generally, since we set our initial break even at 65%, our future buildings only require a 35% occupancy to break even.  So, we really messed up, if we didn't build.

Start small and Make Your Big Mistakes Early.  Still making mistakes and learning.

Sometimes you have to tear the roof off the old structure and build new.  And yes, Self-Storage does make money.

[Henry Clark]

Well, we did the above and increased prices.  Only lost probably 5 customers but filled them back up within a month.  

Although you lose some over the summer, but then by fall and winter they refill.  Back to 100% again.  We sold 3 locations since the time above.  Have 388 units at our Class C locations, we plan to increase the rent by $10.  As an example: Originally our 10x20's were $65, then per the above we increased to $75, now we will increase to $85.  

What does $10 per unit mean for 388 units=  $10 x 12 months x 388 units= $46,560 additional revenue with no added cost, other than sending out a notification letter.

So, $46,560 more revenue and pure cash flow. What would be the impact on the business value at say a 7% CAP? $46,560/7%= $665,000. My banker will be happy we have more built-in equity on our LTV.

We will lose a few customers, but even if those units never rented again, we will be farther ahead with the rate increase.  But they will fill.

All of these locations the market is telling us to build more.  At one location we added 28 new 8x20 cargo containers at $65 per month and they all rented within a year.  Some of the other locations, just can't find the land to buy.  Also, in our "C" markets the cost of buildings have gone up to high, so the return isn't there.  I will have to recheck that statement now that we will increase our rents another $10.

Have done a deal analysis on land near an "A" location.  Will move our funds towards that market versus the "C" markets due to building cost increases.  An "A" market for a 10x20 is $130 in our area for a drive-up unit. Lots more revenue for the same cost to build, other than land cost being higher.

Or instead of investing more, take more trips to Sicily to see our son in the Navy and to enjoy some Chianti. Headed to Spain on Monday to San Sebastian, Bilbao, Seville and ????.  Also 3 days of red leg Partridge driven hunts.  Self-Storage business isn't so boring after all.  It's never too late to get into Self Storage.  I have looked over the entire United States talking with people on Bigger Pockets and there is a lot of untapped market demand.

Start small and Make Your Big Mistakes Early.