Ep 108: Management Fees and Building a Sustainable Management Company

The other day I was looking at drive-by traffic near our facilities. I have been doing an analysis of our self-storage portfolio, how things are leasing, profitability metrics, etc. and overall things are going really well, but some facilities are real standouts because of their location. If you can see a facility from a busy road, those units are crushing it, plain and simple. There isn’t a single high-traffic facility we have that sees 5K+ cars a day drive by that’s doing poorly.

I’ve spoken a lot about the need to maintain a strong operational arm in your real estate business, and a lot of that comes down to charging sufficient fees. Management fees, how much you charge a month to manage your property, is a critical piece. For Bolt Storage, the all-in fee is somewhere between 12% and 15% of gross revenue, and that’s what we charge to do all the work to manage the facility.

Compared to other firms, our management fees are high. But you just can’t make sustainable money long-term if you don’t charge enough. All the big players in the self-storage space charge 12-15% management fees, and that includes all their on-site management that we are able to handle remotely. My management company has about $1M in overhead on management, and our revenue is $1.2M. That means we have a 20% profit margin on fees that are much higher than other operators. Charging less would be bordering on unsustainable, yet that’s what so many businesses do.

When business is good, GPs make money on acquisition fees, refinancing fees, etc. which can make up for an unprofitable management arm. But when times are tough, you are forced to sit and hold and operate real estate for a long time. Our business is set up so we can do that, but a lot of other folks can’t. When times get tough, they will hemorrhage money. There’s a ton of money needed to effectively operate a facility from collections to property improvement to contractors and customer service. There’s a ton that goes on inside Bolt Storage to operate these facilities, and every employee is fully utilized. If you’re not charging enough in fees, you simply can’t afford to operate.

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I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.