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Evaluating Self Storage Third-Party Management

August 7, 2018

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3 min

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.

However, the idea of passing the reigns of your storage investment can be daunting.

There are no guarantees and third-party management fees between 5 and 15% of monthly earnings, along with fixed costs and minimums that must be met.

Despite the cost, the goal of the management company is to increase your returns in spite of the upfront cost of their services.

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Knowing When It's Right

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 sound terrible? If so, perhaps you do not need a third party management company.

There are some management 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 do not need third-party management.

The best use-cases for third-party management is 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.

Lastly, 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.

Advantages

A third-party management company will take over the operations of a facility. Taking advantage of proven methods can add a lot of certainty to a self storage facility.

Allowing a third-party to take over leaves you as an owner more time to spend on other businesses, or anything else. Further, there is less stress involved with the pressure of daily operations on the management.

The most significant advantage is in the results. According to SBOA,

[Third-party management] can assure owners of their company’s financial performance is being maximized by lowering expenses and strengthening Internet marketing.

Costs

A third-party company is paid based on a percent of your gross revenue. They also will have different fee schedules. The fees can vary and sometimes there is an upfront fee.

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.

For an example of cost, Extra Space takes 6% of gross revenue before tenant insurance and 100% of the tenant insurance revenue.

Therefore, the cost depends because of the many different variables. You should understand each fee and cost before contracting with the third-party.

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.

You may consider a performance-based contract giving your third-party incentive to increase revenues.

Finding a Third-Party Manager

Third-party managers are not all the same and they do not all offer the same services or pricing.

A company should be able to tell you exactly what they are doing to increase your profits. Do your due diligence in your search.

You want a partner that will help you achieve your goals for the property. You research some of the properties they manage. Ask to see a “before” and “after” of similar properties that they manage.

Look at the finances of those properties. They need to have a vested interest in maximizing your profits. They need to justify the fee they charge.

Try talking to the owners of the properties to see how they like the third-party operator. Be clear about your expectations and discuss with them the risks.

Conclusion

Not all management companies are alike - some are nationwide, 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.

Again, do your due diligence and ask many questions about all the aspects of your businesses that they will be taking over.

To read more about my favorite StoragePug features, take a look at:

StoragePug is a modern marketing company for self storage. We create intelligent marketing websites that allow you to rent units take payments through your facilities’ website.

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