February 8, 2023
Ancillary income can help boost revenue for your storage property and thereby increase the market value. For instance, if you purchase a property that brings $100K in annual revenue with 35% operating expense ratio, the NOI is $65,000. At a 7% cap rate the value of that property is about $930,000.00.
If you add a few new revenue streams such as tenant protection, admin fees and lates fee, increasing the revenue by at least 7%, the annual revenue becomes $107,000. Now the value is $993,000.00. You just saw an equity increase of over $60,000 just from adding a few extra revenue streams!
Let’s look at a few of the options a new owner can add to their property to increase ancillary income on day one.
Retail – Allowing your store manager or call center to sell items that assist a new customer in their move is a great idea to increase revenue. Traditional items such as locks, boxes, tape and packing material are popular for choices for new customers. Training your call center or manager to up sell is crucial but can be done if they remember to ask pointed questions that lead them to presenting the offer to purchase these materials.
Fees – Adding various fees such as convenience fees, late fees, lien fees, lockout fees, etc. is great way to increase revenue and help encourage tenants to pay on time.
Truck Rental – This can be hit and miss. I have heard many negative stories from store owners that end up dropping this option due to too many tenants getting upset at their store manager because their was an issue with the third party truck they rented through the store. Also, if the truck is owned by the store costs such as repairs & maintenance, insurance, gas etc. become a burden that can drastically reduce or eliminate any revenue brought in. A truck is a nice convenience for the customer, but the owner needs to weigh the potential cost/benefits of this option.
Tenant Protection/Insurance – A tenant’s belongings are not covered by the owner’s property insurance in case of loss. Offering protection for their goods is appealing for those customers that will be storing valuable items in the facility. Utilizing this revenue stream can increase revenue by 5-6% if consistently offered to new customers.
Baillargeon, Michael. “Unlocking the Potential of Profit Centers: Meeting Customer Needs, Generating Extra Income.” Inside Self Storage, Vol. 32, Num. 2, 2/2023, 16-17
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