June 14, 2022 • Steve Hajewski
If you are a current self-storage owner, you have probably noticed your phone has started ringing more. No, I’m not talking about rental customers, I’m talking about brokers, buyers, and investors. Nearly every day, often multiple times, I’m asked if I would consider selling my self-storage properties. The requests come via phone, email, text, mass produced letters designed to look like they were handwritten, and even through LinkedIn and Facebook.
So why all the interest in purchasing existing self-storage properties? It comes down to this – it has become increasingly difficult and time consuming to build a new one, and independent owners often leave a lot of income potential on the table. The self-storage market has been changing rapidly, and even well-run sites have opportunity for improvement.
In this article I will share some of the strategies a new buyer would explore to maximize the financial value of your property.
They will raise rates
Mom and pop operators are notorious for having a “set it and forget it” mentality regarding rental rates. Savvy operators will focus on maximizing income instead of occupancy. A 90% full property with properly managed rates will yield better returns than a full site with static rates.
They will improve marketing
Some storage owners don’t pay much attention to their online search listings. The listings might not exist, or they might contain outdated information and photos. Customers depend on their smartphones to find you, so if you aren’t putting your best foot forward in the digital realm, you can miss opportunities. New owners will immediately claim listings and social media pages for the business, and they may hire a professional photographer to showcase the property in the best possible light. And when you have more leads and rentals coming in, you can raise your rates.
They will use the latest technology
Modern management software includes several features designed to help you maximize rental income in less time. Automatic credit card billing, online rentals, rate management, collections tools, and more help to keep the property rented at maximum revenue and provide detailed reporting to help a new owner make decisions. When a site is sold to a savvy investor, a move to a modern software platform will be among the first tasks. If you have not done so already, they will implement online move ins, and they will hire a professional maintenance to take over day-to-day cleaning. A call center will likely handle incoming calls.
They will tidy up
If you’ve owned a property for a while, there may be some maintenance that you’ve neglected. Cracks in pavement, peeling paint, a dead bush, faded bollards, a few non-functioning lights – the new owner will likely address all these little things, and that will result in better curb appeal. And better curb appeal leads to higher rates.
They will make bigger improvements (invest in the property?)
If bigger improvements are overdue, a new owner will likely roll the cost into the financing of the purchase. Improvements such as new lighting, driveway replacement, whole site door replacement, access control, and roofs can be costly but are important factors in keeping a site secure and attractive for new clients.
They will add on
If your property has additional land available, a new buyer will develop it, or possibly rent it for RV/Boat parking. They might add portable buildings along easements or other areas where permanent buildings are not allowable.
They will look for new revenue streams
Does your site sell insurance? Do you sell moving supplies? Do you have a move-in fee? Do you waive too many late fees? A new owner will maximize all potential sources of income.
They will reign in delinquent tenants
Tenants over 30 days late are a problem. If you are not conducting regular online auctions, a new owner will likely switch to them. Online auctions are easy to do – even for one unit at a time. By scheduling auctions promptly, delinquent tenants will be more likely to pay before their balance balloons out of control.
They will have cash or borrow at low rates
If you developed ten or twenty years ago, you made a good decision. Today, self-storage is well known and sought after by large real estate investment groups due to its stability and resilience in downturns (and pandemics). This is fueling interest and investment. It’s quicker to build a storage portfolio through acquisitions than it is from new construction. For those that are borrowing funds to buy existing properties, rates are rising but still in the acceptable range, and SBA programs make it very easy to borrow with minimal down payments (and owning storage is a great hedge against inflation).
They will do cost segregation
Self-storage owners can use cost segregation to depreciate certain portions of their investment more quickly. The larger the site, the more potential for tax benefit.
In short, existing properties provide excellent opportunities to maximize income…for you or a potential buyer. If you are ready to relax and enjoy the fruits of your labor, selling in this market is certainly a great option. Consider some of the tips above to increase the value of your site before you sell – your goal should be to increase rental income prior to selling. Site value is largely dependent on income.
If you are not ready to part with your storage property but see an opportunity to increase the income and overall value of your business, consider refinancing. You can extract some value while retaining the income stream of your appreciating asset. You can use those proceeds to make improvements to your business or reward yourself. If your motivation to sell is to step away from the day-to-day operations, consider making an investment in technology and automation, and possibly hiring a manager or management firm. This will provide more freedom while maintaining the benefits of ownership.