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Drastically raising rents to market value

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  • Drastically raising rents to market value

    I am currently under contract for my first storage facility and was hoping someone could share some insight on rental increases.

    Currently, the facility has many units at less than half of market value and almost 1/3 the price of what is across the street.

    Also, it's a bit of a unique property where there is retail/warehouse space connected to the property but it functions as a self storage facility just with some units being rather large. (The ones paying far below market value are the businesses with multiple units).

    My question is: Do I try to raise the rent incrementally or go for the higher amount all at once?

  • #2
    A. Don't know the climate or state you are in. This will factor in, if your rental season is about to shut down in December. You will have to carry any lost customers and cash flow until spring, if weather/season impact you.

    B. Depends on your market. Call all of the local storage within 3 to 5 miles of you and see if they are full. You don't actually ask them that. You figure out how to ask. If they are all full, then go for it. You won't loose as many.

    C. How full are you. If your 70% full then don't raise the rate on existing customers, just do it on new ones. If 95% full then you can raise it either across the board or by size and in stages. So you get a sense of how many customers you will lose.

    D. Depends on how big an increment your are raising. Currently $50 which above is 1/3 market. Then you are going to $150. That's a big jump. I would think you would lose more than 1/2 your customers if your making that big of a jump. How much cash do you have. You will need to bank roll till you fill up. Also, is your location of lesser quality? Is that why it is less expensive. Then you can't compare against the brand new location, across the street.


    First key, is how much of a loss of revenue can you carry until the Spring rental season, April? If you can take a 50% loss, then go for it. If your rates are 1/3 of your neighbor, you will lose about that many.

    If you can't take the hit at once, then which unit sizes do you have the least 10/15/20. Lets say 10's. Then I would do an across the board on 10's if you can take a 50% hit. If it turns out you only loose 20% and it was okay. Then do the 15 or 20's. Work your way up.






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    • #3
      Weather won't be a factor since it's always summer here. Most of the storage places in the area are near capacity so that's why I'm considering raising.

      Currently, it's about 80% full so I do plan on filling some of those vacancies before going crazy on the rent hikes. I could handle the loss financially of people leaving but that's definitely not the goal to be negative cash flowing on my first place.

      The main ones I am concerned about are the larger sized units which are 25x25. These are the ones going for drastically lower than anywhere I have called at around $275. The place across the street is charging $675 for example. The people in these are also sort of running them as a "business/storage" unit so I am considering putting them on lease terms as well if possible.

      I guess $275 vs $675 is just such a large gap that I am trying to see the best way to get to at least somewhere in the middle.

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      • #4
        Clark asked a lot of good questions that we need to help.

        I have never had units that far off a market rate unless I specifically discounted that unit for a charitable cause. I do have current long time tenants that are below street rates though. I have never taken the practice of raising their in large chunks. Depending on the difference I usually try not to increase more than 10% at a time.

        That being said if they are paying $50 a month, and new tenants off the street are paying $150. If that is true and you are 100% full you may need to take some more drastic measures. Because raising someone 10% to $55 when the new customer is paying $150 isn't going to cut it.

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        • #5
          Originally posted by RandyL View Post
          Clark asked a lot of good questions that we need to help.

          I have never had units that far off a market rate unless I specifically discounted that unit for a charitable cause. I do have current long time tenants that are below street rates though. I have never taken the practice of raising their in large chunks. Depending on the difference I usually try not to increase more than 10% at a time.

          That being said if they are paying $50 a month, and new tenants off the street are paying $150. If that is true and you are 100% full you may need to take some more drastic measures. Because raising someone 10% to $55 when the new customer is paying $150 isn't going to cut it.
          That seems to be the case as well for the smaller units. Some are as low as $50 for a 10x20 because they have been there for the past 10+ years without a single increase. I assume these people will probably pack up and go when I send them the increase letter.

          So I guess the answer is to raise the rents in stages instead of all at once and once those vacancies fill, move onto the next section?

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          • #6
            We went through this a few years back. The owner had not raised rents in many years. We raised all current rents 1/2 way to the normal rate. Then we set all new tenants to regular rates. You will lose some tenants. However not as many as you would expect. As far as the business tenants are concerned they should understand. That is my opinion based on experience,

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            • #7
              Owners1
              On your commercial, they should be paying $.85 to $1.00 per square foot. They will gladly pay it. They can't buy, build or locate a small commercial location for that much. I would not be worried about them leaving.

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              • #8
                I agree with Bighank and would do half now and then half again of what is left over. By that I mean 1/2 now, 1/4 and then 1/4 again, and the 1/4 raises about 8-9 months apart. Do the full increase for all new rentals moving forward. If they balk, they can pay several months in advance to lock in for a period of time that you both agree on.
                "Never let the inmates run the asylum!"

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                • #9
                  I would bring the empty units up the new rate right out of the gate and raise the other rates slowly but surely.

                  We are exploring a property right now where the rates are off by 50% of what could be charged. It amazes me to hear these people say I haven't raised the rent in years, bobby sue hasn't paid their bill 3 years, and I can't afford my medicine in the same sentence. It boggles my mind!

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                  • #10
                    Thanks for the replies guys, going to implement these strategies moving forward

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                    • #11
                      I wouldn't worry too much about them leaving. They have been getting a great deal for a long time and they will realize that when they start shopping around for the same size and price. If they are businesses they know that they are getting a great deal and prices go up, just a fact of businesses...they do the same thing in their business. Good luck.
                      The future depends on what you do in the present.

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                      • #12
                        In 2001 we bought a facility that was built about 10 years prior. They had to be using it as a tax write off (Home Builder).

                        I had people in from day one at $35.00 for a 10x20. We were getting $85.00 for them
                        We decided to split the difference with them. Only 1 person balked and moved out of 1 of her 2 units.
                        A month latter she needed the second unit again. Well maybe she should have stayed. New price was $85.00 plus tax.
                        Joe Krezdorn
                        DAK Self Storage
                        Leesport, PA 19533
                        www.dakselfstorage.com

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                        • #13
                          We've had a couple drastic rent increases (about 25% max) and never more than a handful of people move out. People are LAZY LAZY LAZY. The rent increases have always been far and above any lost rent from people moving out. As long as you price your empty units where the market is, you will it back up with someone paying more anyways.

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