Next to latrine duty, raising rents ranks as the least appealing chore in self storage.
But experts insist the sour taste comes not from raising rents itself, but how you go about it.
In fact, the good news about delivering the bad news correctly is that your rental increase process can drive many operational improvements that make that rent hike more palatable, even to your thriftiest tenant.
“If you deliver great curb appeal and customer service, it’s a lot easier when people see that to receive a rent increase,” said Andy Kelly, founder and principal of Sierra Self Storage Consulting in Tucson, AZ. “But if you have a rundown facility and bad customer service from Jethro in there chewing straw and watching ‘Oprah,’ those tenants are going to push back.”
Follow these eight steps to keep your revenues up (and your blood pressure down!).
Raise rents regularly
Matt Van Horn, vice president of Cutting Edge Self Storage Management in Port St. Lucie, FL, bumps each tenant’s rent after the first six months, then annually after that.
“With property taxes and insurance rates and energy bills all going up, if you don’t stay up, it’s what I call the piranha effect – everything is going to take a little bite and suddenly you’re down 5 percent on NOI (net operating income),” he explained. “Raise rents automatically and you’ll have a lot fewer problems.”
Keep increases reasonable
Anne Ballard, president of marketing, training and development for Atlanta-based Universal Storage Group, routinely raises rents by 8-12 percent every nine months.
“Customers won’t move out for a few dollars if they’re getting great service for a great price,” she said.
Van Horn says that’s generally in line with what the REITs do.
“Extra Space tested a number of different rental increase scenarios and they were comfortable doing 8 or 9 percent,” Van Horn said.
Massage the message
How do you turn a negative into a positive? Van Horn enlisted his marketing department to do just that with their standard rate increase notice, which he paraphrases here:
“Dear customer: This is one of those letters you don’t like receiving and we hate sending. As you know, the increasing cost of (fill in the blank) lately has significantly increased the cost for us to keep your belongings in a safe and secure environment. While we do everything within our power to keep your rent at a minimum, we are forced to raise your monthly rate to (blank), effective (date).”
“We then go on to explain how they can earn money by referring new customers to us,” Van Horn said.
Show, then tell
“If you have been making property improvements customers can see, they expect a rent increase to follow; they’re on your side,” said Ballard.
“So if you haven’t done a property improvement in a while, fill those potholes and fix that leaking roof, then get those rent increase letters out,” Ballard said, “Customers will be more than glad to pay you a few more dollars.”
Best customer etiquette
You don’t want to risk losing your longtime, multi-unit customers, right? But how much of a break should you give them?
“My philosophy is to take them up to within a few bucks of the asking rate so they feel they’re winning and acknowledged for their business, even though they’re paying a higher rate,” said Kelly at Sierra Self Storage Consulting.
Ballard goes the extra step of sending out a discount reduction letter that effectively says the following: “Mr. Jones, you’ve been receiving a 58 percent discount on that 10×30. Effective Jan. 1, you’re going to be getting an 18 percent discount.”
“You’re not talking dollars with them; they’re just not getting the 58 percent anymore,” Ballard said. “It turns a negative into a positive.”
To phone or not to phone
Face it: bad news is bad news, no matter how you deliver it. But Van Horn would draw the line at telephone notification.
“I wouldn’t want to do it,” he admitted. “I don’t want to have to bring the subject up because once you initiate a phone call, you’re going to have a fight; they’re going to have a discussion about it. I know because I’ve had people call and scream at me.”
Something is better than nothing
If a good customer threatens to move out, Ballard suggests that managers take these three steps in order:
- Offer a modest reduction in their rent increase.
- If they don’t accept that concession, ask them, “What amount do you think is fair?” This shows you value their input.
- If they respond, “Zero,” offer to delay their increase for 60 days, giving them time to reconsider.
Bottom line: Never fear a vacancy that you know you can rent for more than your former tenant paid.