There aren’t very many jobs where you can guarantee yourself a $10,800 raise next year without exerting any extra energy. Self-storage investing just happens to be one such field. We’ve discussed the topic of raising rental rates at various times in the past but never directly worked through the numbers to show how you can give yourself a raise whenever you want. Next month if you like, though we like to reserve raises for January when people are expecting them. Keep in mind that you can’t be too greedy about. If you jack up rates multiple times a year there’s a good chance you’ll start losing tenants.
But don’t be afraid to raise that rent. They might not like it but most tenants with at least a tangential grasp of reality realize that the cost of living always goes up – never-down – and self-storage rental units are not immune.
Here we go.
Let’s assume you are the proud owner of a storage facility boasting 300 units which each rent for $60 per month. For the purposes of this example, assume that you have 0% vacancy at all times. Nice idea, huh? Multiplying your rental rate out yields a gross income of $18,000 per month. The basic idea is that you should raise your unit rental rates every year. The federal government issues what it calls a Cost Of Living Adjustment (COLA) every January that applies to recipients of Social Security payments. Although stingy in recent years about increasing check amounts, it used to be that retirees could expect an annual 3% to 4% bump in income due to the yearly rise in prices of goods.
So even though the government hasn’t handed out COLA increases in a while, we think it is fair to assume that inflation causes at least a 5% jump in prices each year. The real number is likely to be double that but even a 5% increase in rental rates, spread across 300 units, will bump your income considerably.
5% of $60 equals three dollars, so now you’re going to be getting $63 per month for each unit. Work the math however you want but the end result is the same – $900 additional dollars each month for a grand total of $10,800 for the year. The trick is to not get complacent about raising your rates every January. You might lose a few tenants but most will pay it. After all, who wants to move all their junk out over a lousy three bucks?
January will be here before you know it. Make plans now to use your self-storage investing business to give yourself a healthy raise.
The Commercial Investing Center Team
(Flickr / jollyUK)