This episode was recorded using CallIn, which gives me the chance to take questions from and talk with listeners live on my podcast.
My mom, dad, and grandfather came to visit us in Athens, GA last week and I was really appreciative of it. It was the first time my grandfather had been here, and a special moment for me to share the time with him as a man that I really look up to for all the hard work he did to make a better life for my family. It was a joy to have the whole family around, playing cards together and catching up.
I had a valuable and interesting discussion on Twitter last week about revenue management and occupancy. It began when I tweeted that 100% occupancy means you are leaving tens of thousands of dollars of cash flow on the table, and millions in sales price, and that rents in self-storage buildings should rise until occupancy is ~93%.
People commented and provided their feedback, a lot of them dragging their feet on this suggestion. But I feel strongly that the #1 mistake among real estate entrepreneurs is improper revenue management. In any town in America, there are hundreds of properties with submarket rent, that spells opportunity.
If you own a small apartment it’s hard to implement strong revenue management, but at scale, it’s a huge advantage when you’re not concerned about losing one or two tenants. You can use data to find out how much you can increase prices and what your anticipated occupancy rate is.
Nobody in these self-storage markets has done the work to find the true market rent, but at Bolt Storage we do. We’ll buy a property that charges $60/month for a 10×10 unit and scale it up to $139. When done at scale this drives significant cash flow and property value. Vacancy is good. If you are out of units, you’re not charging enough money.
Scott Everett talks about this in a podcast episode hosted by Chris Powers and says that once he buys a multi-family residence he immediately aims to get to 85% occupancy. Some people are worried about the costs of unit turnover, but those are marginal compared to the benefits of proper rent management.
The best operators will win in real estate. With better operations, marketing, leasing, etc. you can charge more in rent. The people we compete with in our markets are not the REITs, if we competed with good operators we would lose our competitive advantage. The competitors in our markets have high occupancy, poor operations, and almost no marketing at all. We can run circles around them and charge more for the same unit.
Revenue management is key. Find a business where you can generate more revenue than the current owner.
By operating better you can raise rents, minimize your financial risk, and create a ton of money in cash flow and valuation for your properties.
P.S. If now is the time to start your own journey, the real estate community is for you. I weigh in on almost every post, and there are a lot of people smarter and more accomplished than me.
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