Bartering (exchanging good or services for other goods or services without using any money) has been used for centuries and predates the use of money.
In the self storage industry, bartering (also known as rent exchange) usually involves trading a storage unit for goods and services.
Here are examples of some ways that self storage facilities barter:
In all of these examples, the self storage facility provides storage space in exchange for a good or service that is useful to the facility.
However, deciding to enter a bartering agreement with another company/individual requires planning and forethought to make it worthwhile.
By following the guidelines outlined below, you’ll ensure that bartering results in a win-win situation.
You don’t want to lose money in a bartering transaction. Therefore, you need to compare the price of the goods/services you’ll receive with the cost of the rental unit you are providing.
When doing this, be sure to factor in the desirability of the unit you are bartering as well as the actual rental cost. You really should come out ahead (One exception is described below).
If the goods/services provided by the other party cost less than what you would charge to rent a unit, consider offering a discounted rate instead of a full rent exchange.
See the example below for how to determine if a bartering agreement makes financial sense.
Example:Suppose you are bartering with a landscaping service to mow the grass at your facility. Ask the landscaper what the cost of the services would be if you paid for them. Let’s suppose you need the grass mowed twice a month and the landscaper would charge you $120 per month for that service.
Now assume they are requesting a ground floor 10’ x 20’ unit for storing their equipment, and the rent for that unit is $150 per month. In this situation, you are potentially losing out on $30 per month of rental income so it might not make sense to enter into this bartering agreement.
Another option is to offer the landscaping company a discounted rate of $30 per month.
However, you also need to factor in whether the type of unit they are requesting is one that is in high demand. Suppose most of your 10’ x 20’ ground floor units are usually not rented. In this case, the bartering agreement might make more sense.
One of the few times where you might enter a bartering agreement in which the money doesn’t balance out evenly is if you are bartering with a nonprofit or charity. However, never give anything away for free.
If you provide a rental unit to a charity, be sure to ask for promotional consideration. Perhaps they can list your facility as a supporter in their marketing pieces or website.
You don’t want to enter into a bartering agreement with just anyone.
If you don’t already know the business or person you are considering bartering with, check references and get a sense of how the company/individual does business.
If you uncover any red flags, the bartering agreement might not make sense.
Also be sure to limit the initial bartering agreement to a shorter term (e.g., three months) to ensure that each party does what they say they are going to do and has a chance to assess whether the exchange is working for them.
Such a contract should include the full names and addresses of both parties, a detailed description of the goods/services being exchanged, the fair market value of the goods/services being traded, the timeframe of the agreement, and what happens if one of the parties is in breach of contract.
Not only do you need an agreement to protect yourself in the case of an incident, but you also need written information on the costs of the goods/services being exchanged for accounting purposes.
Here is a link to templates for several types of bartering agreement contracts. You may also want to have legal counsel review such contracts.
The IRS states: “The fair market value of property or services received through a barter is taxable income. Both parties must report as income the value of the goods and services received in the exchange.”
This is why a bartering agreement contract that outlines the fair market value of the goods/services exchanged is critical.
Also talk to your accountant before entering into a bartering agreement to ensure that you fully understand the tax implications and how to deal with the bartering from an accounting perspective.
Has your self storage facility entered into a bartering or rent exchange agreement with other businesses? If so, let us know about it in the comments.
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