You’ve done your research. The feasibility study says this property has potential.
But before you get the keys, you need to have a plan in place for running your new business.
Are you going to learn everything about self storage and run it yourself? Or are you going to hire a third-party management company?
Many self storage investors rely on third parties for improved profitability, faster time to market, competitive advantage, and decreased time spent on day-to-day operations.
The idea of passing the reigns of your storage investment can be daunting.
There’s no guarantee that your third-party management company will be a good fit, and fees can be between 5 and 15% of your business’s monthly earnings. You’ll be paying fixed costs and minimums on top of that, so hiring a third-party management company isn’t ever going to be cheap.
However, the right management company can increase your returns in spite of the upfront cost of their services.
Third-party property management refers to bringing in a business that isn’t you (the operator) or your customers (tenants) to work between the two parties. This new group is the third party to your business transaction.
In self storage, third-party management teams take over the day-to-day operation of your facility.
That means they take your place behind the counter. They take payments, they talk to customers, they perform maintenance, they run your marketing, etc., etc.
Different third-party management companies will have different policies. Some are happy for you to be as involved in the decision-making as you’d like. Others may want you to be hands-off, except when it comes time to cash checks.
Many operators prefer to use third-party management because it takes the headache out of running a business. In exchange for a share of the profits, they’ll deal with almost all of the problems!
They’ve also got the expertise that you might not have. If you’re new to the business, a third-party management team is probably going to have several advantages over trying to run it yourself.
But even if you’re a seasoned pro, third-party property management can be a huge benefit.
The main benefit of hiring a third-party property management company is obvious: they’ll do most of the work required to run your self storage business!
Not every third-party management company offers every service, but here are a few things your management company may be able to offer.
In each of these facets, the third-party management company brings its expertise. Every step listed above takes a ton of knowledge to accomplish well.
If you already have that knowledge or are interested in acquiring it, then third-party management may have more costs than benefits. If, on the other hand, you’re not interested in mastering the storage world personally, the cost of a third-party property management company could be well worth it.
There are two big drawbacks to hiring a third-party storage management company.
The first is losing control over the day-to-day. If you’re the type to want granular input over each decision, then third-party management isn’t for you.
The second is the cost.
A self storage management company will get a percentage of your gross revenue. They also will have different fee schedules, so there’s a minimum you’ll pay even if you don’t make any money.
The fees can vary and sometimes there’s an upfront cost to get started.
The exact balance of percentage vs fees will vary depending on the company you choose.
For an example of cost, Extra Space takes 6% of gross revenue before tenant insurance and 100% of the tenant insurance revenue.
The price can also fluctuate depending on how much work the third-party needs to do to bring your property up to its standards. This may include renovations, signage, and re-branding.
In the case of a smaller facility, you would not have the economies of scale and the third party would take a more substantial portion of revenue, so it may not be ideal.
Extra Space does not work with facilities having less than 400 units, and other companies will have comparable requirements. They don’t want to spend a ton of energy on your facility if they don’t stand to make a good profit.
The exact details will vary greatly between companies.
Here are a few companies to consider before making a choice:
Who Should Use Third-Party Property Management?
There are many positives to hiring a third-party management company, but it may not be for you. It depends on what type of storage owner you are.
Does the thought of not controlling the operations of your facility make you itchy? Probably don’t go for a third-party management company! But even if you like to manage every detail, some third-party companies could still be beneficial.
There are some companies, such as Storage Asset Management, that allow you as the owner to be involved. Their website says, "you can be involved in the day-to-day operations as much or as little as you choose. We are flexible in our partnership with owners."
Additionally, if you've mastered rate management, your employee turnover is low and manageable, and your marketing is successful, you may not need third-party management!
You would simply be giving up a chunk of profit to have someone else do what you’re already doing.
Alternatively, third-party management is great for investors looking at the big picture over operations. They can focus on development and acquisition, then leave the work to management companies to keep the operation prosperous.
These "turnkey" operations leave little to no burden on the investors. If you’re looking to invest in real estate and turn a profit, third-party property management is great.
If you’re looking to make storage your career, or continue the family business, you may not need the help.
But, managing a facility is not easy! Perhaps you're at a point in life where handing over the reigns of your self storage operation appeals to you.
There's no shame in sitting back and enjoying the returns of your facility while an experienced management company grows it for you.
Third-party managers are not all the same and they don’t all offer the same services or pricing.
Some may charge higher fees while others charge higher percentages of your revenue. If your facility is small, the property management company is likely to lean more toward fees, so your revenue won’t be as high.
Perform a thorough search. A company should be able to tell you exactly what they will do to increase your profits, how they plan on maintaining your business, and how involved you’re going to be.
You want a partner that will help you achieve your goals for the property. Research some of the properties they manage. Ask to see a “before” and “after” of properties similar to yours.
Look at the finances of those properties. If they’ve been growing the profits, that’s a great sign. The property management team needs to justify the fees they charge.
Try talking to the owners of the properties to see how they like the third-party operator. See how easy they are to work with and how well they can match your expectations.
Not all management companies are alike - some are nationwide, while others concentrate their services by region.
Some offer a full range of services, from hiring managers to overseeing marketing, while others allow owners to pick and choose the services they need.
You can even find specific services like third-party call centers that can aid your business without requiring the same level of control.
Again, do your due diligence and ask as many questions as you can about all the aspects of your businesses that they will be taking over.
You’re trusting someone else to run your business - it’s scary, but can be well worth the stress.
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