The value of any investment is derived from the cash flows it generates. With a self storage property, those cash flows are realized when revenue exceeds expenses, creating Net Operating Income (NOI). Any increase in NOI will produce a proportional increase in the value of your storage property. If you wish to maximize the value of your self storage property, you may have several pathways to boost your NOI.
Expanding Your Storage Property
Generally, storage buyers will not give much consideration to empty space. If you have the space, building and filling additional self storage units can greatly increase the value of your property. Additionally, adding temperature controlled units can differentiate you from your competition and open your storage property to more potential tenants whose items require protection from the elements.
However, there are numerous factors to consider when assessing the benefits of a potential expansion, including:
- Supply: How many sophisticated competitors are present in your market? Are any new self storage properties in development? If your market is highly saturated with a myriad of properties for tenants to choose from, an expansion might not be fruitful. On the other hand, if you have little competition, there may be demand for more units.
- Demand: Are you having trouble renting your current units, or does your storage property have consistently high occupancy? If your property is currently 80% occupied with rental rates near the top of your market, an expansion could help you meet demand.
- Demographic Changes: Is the population of your market increasing or decreasing? If an influx of people to your market is increasing demand for self storage, your expansion could help meet that demand for self storage.
- Construction Costs: Do you have a quote on what the expansion will cost? Do you need to obtain financing? An expansion will not be beneficial if the costs are too excessive. Carefully consider whether the cost of the expansion exceeds the benefit of increased value.
- Timeline: How long will it take to build and fill the new storage units? If you have a 40,000 square foot site with high occupancy, a successful 10,000 square foot expansion can increase the value of your property by 25% or more, but this will take a few years.
If market conditions indicate an expansion would be viable, but you do not have the time or do not wish to spend the money, consider obtaining approvals for expansion as a first step. Your property could be worth more to potential self storage buyers if you have obtained approvals from your municipality already. That is one less step a buyer would need to take to build an expansion, and is seen as an added benefit to a storage sale if the demand is present.
Add Parking Spaces
If expansion is too time consuming or costly for you, adding outdoor parking spaces may be a better option. If your lot is already paved and you have the space, your only initial expense will be painting the lines. If you can fill five 8×15 parking spots at $70 per month, you will earn an additional $4,200 in income each year. At a 7% cap rate, this is over $60,000 in additional storage property value. Filling 10 larger spots for RVs or trailers at $100 per month would result in $12,000 of annual income and over $170,000 in additional property value. If you have the land available, but it is not paved, you could consider using gravel and making parking spaces which would replace the need for paving spaces that could be costly.
More Options to Consider
If there is no room for expansion or parking at your self storage property, there are still many ways you can maximize value, including:
- Retail Sales: You can sell locks, boxes, bubble wrap, packing kits and other items that would assist your tenants when moving in and out of your storage units. There are numerous suppliers who cater to the self storage industry, and you can be up and running with a retail store in very little time.
- Tenant Insurance: You can earn a commission from third-party vendors by selling their self storage insurance to your customers.
- Fees: Charging tenants administrative and late fees can add to your income. If you are not already dong this, you need to start.
- Billboards and Cell Towers: Obtaining approvals and adding these to your storage property would give you an additional source of steady income.
- Truck Rentals: You can offer tenants moving in and out of your storage units the ability to use a rental truck for a fee. You can partner with a company like U-Haul or Penske, or you can even purchase your own truck.
- Reducing Delinquency: A large number of delinquent tenants can be unattractive to potential buyers. Diligence in making collection calls and initiating the lien process can help you fill storage units with tenants who pay on time. A delinquency rate below 5% is ideal. The steadier cash flows will increase the value of your self storage property.
- Rent Increases: If your storage facility is well occupied and your rates are below competitors, raising your rates can be a quick and easy way to boost your NOI. You should consider having a schedule of rental increases for at least once per year per customer.
- Tiered Pricing: Consider charging higher prices for your storage units at the front of your property, or first floor units in a multistory facility. Your property manager then has the ability to “up-sell” a customer to a storage unit in a better location that costs more, which in turn increases revenue. Or they can save a rental by offering the storage unit at the back of the property that costs a little less per month. Getting the rental is better than the customer leaving without making the sale at all.
- Revamp Your Unit Mix: If you have too many unfilled small units, removing some partitions to create larger units can increase occupancy and generate more income. The same goes for too many large units, you can convert them into smaller units. Think about your unit mix and how you can optimize your space to meet demand in your market.
- Improve Occupancy: Buyers will carefully examine your occupancy statistics when assessing the value of your storage property. You can increase your occupancy by increasing your web presence, improving search engine optimization (SEO), offering new renter discounts and referral programs.
- Reduce Expenses: At a 7% cap rate, reducing expenses by $1,000 results in over $14,000 in additional value. See if you can renegotiate utilities, appeal property taxes, or reduce onsite management hours.
Both large expansions and small, incremental changes can greatly increase the value of your self storage property over time. There are many avenues to pursue when looking to increase NOI, but your hard work and diligence can pay off with significant added value. If you have questions about how you can take advantage of these tactics to increase the NOI at your self storage property, our team of storage brokers can help! And if you are interested in selling your storage property, you can request a free confidential property valuation to get started.