was an enlightening year. Coming on the heels of some of the best years in the admittedly short history of self-storage, it taught us a lot. These are 12 of the lessons I learned.
My Scottish ancestors would revolt if they thought I was throwing money away, but it’s true. We can look at professional sports for confirmation. The lowest payroll teams in the major leagues include:
- 2023 Oakland A’s: 50-112
- 2022 to 2023 Indiana Pacers: 35-47
- 2022 Chicago Bears: 3-14
- 2022 to 2023 Anaheim Ducks: 23-47-12
The lesson is that sometimes we have to spend some money to make some money. Taking the cheapest option often results in underperforming assets. Buy the better-quality security system instead of something cheap online. Hire the better management company instead of the cheapest one. Invest in performance, not in cheap.
Advertising is a specific expense. Every marketing company can help you budget for Google Ads or social media clicks. But marketing is adjustable. Deciding to buy doughnuts for local brokers or cookies for police departments is flexible. Sending a pizza to the manager of a local motorhome park is flexible. Do that with the hope that it leads to a referral.
Marketing storage units is hard. There’s no right answer. What works in one location may not in another. Don’t overthink it. Adjust and move on. Always move on. Because even if it works today, there is no guarantee that it will work tomorrow.
New owners to our industry almost always ask me about auctions, maintenance, and past dues, when those things shouldn’t matter to them. If you don’t prioritize and spend the time (and money) on marketing, nothing else matters. Nothing. Who cares if you have nobody past due if your occupancy is 40 percent? Not me. Fill the facility first, and then you can worry about secondary priorities. If you’re not full, then work on that and that alone.
The American worker has no fear or accountability. If they don’t show up for work and get fired, how long will it take them to get a new job? Assuming they want one, probably a day or two. Why should they give two weeks’ notice? It’s not like they need a good reference to get their next job. Pay them more. How? Does that make a difference anyway?
I would assume that everyone understands the impact of team turnover. The energy spent recruiting, hiring, and training is enormous. As an employer, it forces us to look at alternative options. Technology such as kiosks can be a big part of replacing labor. Websites allow tenants to complete the rental process on their schedule instead of during our office hours. Call centers can answer the phone at all hours. And none of those options require an owner to schmooze a prospective employee.
I recently looked at on-market properties in four states. I found the following data regarding real estate taxes and revenue:
- California = 17 percent of projected gross revenue
- Illinois = 15 percent of projected gross revenue
- North Carolina = 7 percent of projected gross revenue
- Mississippi = 7 percent of gross projected revenue
This was not a scientifically performed study, but it compared multiple similar properties in those states. Is the data 100 percent accurate? No. Is it indicative of the market in each state? Yes.
Given these numbers, why aren’t more investors looking at this when buying property? Maybe they are. Why would you buy in California or Illinois when an identical property in North Carolina or Mississippi has a significantly better return? I think this is becoming a conversation in some states, but politicians are addicted to spending. I don’t see changes being made to their tax structures. In the meantime, it’s one more significant factor to evaluate when looking to invest in self-storage.
Not too long ago, it was our goal to keep spending at a mature facility to less than 35 percent. That is becoming much harder to do given today’s challenges. Many of those challenges have been listed here. Real estate taxes, property insurance, labor, and marketing all require more money than they did a few years ago. It’s also because self-storage has left its “simple” phase behind.
In the 1970s, a family was lucky to have one vacuum. Now the typical household has a house vacuum, a shop vac, a Roomba, and a hand-held battery vacuum. It’s no longer simple. Self-storage is similar. In the old days, there was one avenue for a tenant to rent. Now we must maintain an office, a kiosk, and a website so we can meet the tenant on their terms. Gates and security systems have become necessary at most locations. None of that is simple, and all of it increases the operating costs of a facility.
Many of these items are simple in nature and we learned them without trying, but some will challenge our way of thinking for years to come. 2023 wasn’t a great year, but it was certainly an experience. Maybe if we apply these lessons, 2024 will be less challenging.