Raising Rents on Existing Customers: It’s A Must Not An Option!

Posted by Poppy Behrens on Sep 15, 2020 12:00:00 AM

Editor’s Note: This story was written prior to the corona pandemic challenges.

Raising rents. Just those two words can strike fear into many managers. However, experts in the industry say raising rents is not only a necessary, but it should be done on a regular and consistent basis. Not only that, managers should never be timid or ashamed of raising rents.

“It’s very important to raise rents to increase cash flow,” says Jeff Helgeson, principal, 180 Self Storage in Gilbert, Arizona. “If you’re not raising rents and you’re always 80-90 percent occupied, you won’t grow your revenue.”

John George, vice president of operations for Pogoda Companies in Farmington Hills, Michigan, says, “It’s amazing when meeting smaller operators who are always scared to do rate increases. It’s something each operator must learn to do and never miss,” says George. “You are basically training your customer to expect it and not letting them off the hook.”

M. Anne Ballard, president of marking, training and developmental services for Universal Storage Group in Atlanta, Georgia, says if managers are trained and educated properly on rent increases, they will be less hesitant to communicate rent rate increases. Furthermore, managers should convey confidence when doing so. “Managers shouldn’t be ashamed of prices and never apologize for them,” says Ballard. “Most of our stores are 25-20 percent higher than our competition and our managers are proud of that because the properties reflect a higher level.”

Ballard explains the REITS, as well as many of the larger management companies have software they can program for automatic rent increases. “However the bulk of our industry is not made up of those and there is a system that every operator, large or small can follow.

The 1,2,3 System of Rental Increases

Whether your company has software you program to set for rental increases or you are doing it manually, Ballard suggests the “1,2,3 System” of rental increases.

  1. How Rental Increases are Determined

“It really comes down to being local, there really is no national strategy,” says Todd Amsdell, president/CEO of The Amsdell Group of Companies, which operates Compass Self Storage in Cleveland, Ohio.

Amsdell says they typically do not raise rents more than two times per year on each customer, but that is determined varying on the local market. “We look at the average length of stay per customer in that region, commercial customers typically stay longer than residential,” says Amsdell. “But if it is a college town and you have a bunch of college students, it’s going to be different.”

Amsdell says generally, his company will raise rent on the sixth month anniversary and then possibly again at 12 month, but not more than two times per year.

Universal Storage Group uses SiteLink for its operating software. “We can print out a report that tells us how many days it’s been since the last increase,” says Ballard. “We try to raise rents at least every 330 days.”

On the 19th of the month, the company looks at the street (standard) rates, finds all the sizes of units that are 90 percent occupied or higher, or less than three vacancies. “We then raise the street rate on those sizes,” says Ballard. “That creates the perceived discount if we raise the street rates and makes it look cheaper than the street rate to the existing customer who hasn’t had an increase in 300 days.”

Ballard cautions you can’t raise the street rate every month, but it should be considered. “If everything is still the same, we won’t raise the street rate. We look at it at least monthly and we have some properties in Florida where we have to look at it every week,” says Ballard.

George says some operators use the 7-7-7 method, meaning they will send a rate increase letter every seven months. “Others will do a rate increase letter at six months, raise rent on the 7th and 12th months,” says George.

George explains however you choose to do it, you must be consistent and capture as much revenue as possible. “In the industry, the average length of stay is 9-11 months, if you only do a rent increase at one year, you’ve missed out on getting a little more revenue before they move,” says George.

Helgeson says his company will typically do a rent increase at nine months and the average rate increase is 5-7 percent. “We look at it every first of the month,” says Helgeson. “It depends on where it is located geographically, when we see a high demand for storage for a certain size, we may be more aggressive with the increase.”

Helgeson adds there are certain factors that play into the decision, such as how long the customer has been there and how many increases they’ve already received. “we don’t want to do it just because we don’t think the person is paying enough,” says Helgeson.

Korey Hanson, president of Argus Professional Storage Management in Tucson, Arizona, says they raise rents typically in the first quarter. “Typically, the rate can be 10-15 percent on average,” says Hanson.

All the experts agree that they don’t typically see many move outs, as operators fear, after a rent increase. “We typically might lose a handful,” says Hanson. “We believe that our move outs are very small due to rent increases, most that move were going to move either way. They may not just need storage anymore.”

  1. Rent Increase Letters

The second step of Ballard’s 1-2-3 strategy is determining the type of letter the tenant will receive. “Each state has their own laws and the contracts tells us how we must communicate the rental increase to the tenants,” says Ballard. “Most times, if we can get their email and they agree to that, it is free. However, if they want a letter via postal mail, it is an extra $3 per month.”

Hanson says you must watch the state statute and follow that, as you can send an email in certain states, but others require a 30-day notice letter.

Helgeson says 99 percent of his company’s tenants receive communication via email. “We will send an email 45 days prior to the rent increase. If they’re not on email, we will send a letter.”

  1. Discount Reduction Letters to Big Discounted Tenants

What’s important after determining how you will communicate is to determine the type of letter that will be sent. “If you have units that don’t turn over, but the tenant received crazy discounts to get them to rent, instead of sending a rate increase letter, you send a rate discount letter,” says Ballard.

Ballard further explains that the letter will outline the amount of discount they’re still getting from the street rate, rather than how much their rent is increasing. “For example, it might say instead of a 48 percent savings, you are getting a 35 percent savings off the street rate,” says Ballard, once again emphasizing examining those street rates as often as possible to maximize the potential rents.

Dealing with Individual Customers and Customer Complaints

Ballard says the first step in dealing with the small number of customer complaints they typically receive after a rental increase is making sure your managers are trained in outlining what separates your property from your competition. “They have to sell the customer on what makes your property unique, it might be that you have longer hours or better security, or something else,” says Ballard.

Giving your managers discretion on negotiating is also important, say the experts. “If the customer is having a hard time, your managers shouldn’t just drop it to no increase,” says George. “If they received a letter for a 10 percent increase and they say they can’t do that, ask them what they can do.”

The experts all agree the important thing is that the managers understand that rent increases are essential, not just to your bottom line, but theirs as well. “Everything goes up, including property taxes and salaries, if we aren’t doing something to increase revenue, we cannot increase salaries, either,” says Ballard.