Thoughts on Renting Out Storage Space (Part 1)

A while ago, I was listening to this interview with Gretchen Rubin, and she made some comment about how, if she had money to invest, she’d want to invest in the self-storage industry. My reaction is ‘I am involved in the storage business, and that’s not where I’d put money if I had a lot of money to invest.’

That’s not to say that the storage business is bad. It’s been a great side hustle for my mother for decades. But I also know that renting space to people for storage isn’t all rainbows and unicorns.

When I say we are in the storage business, I mean that my mother rents out much of the basement, including the garage, to outsiders (and in recent years I’ve been helping her). When I wrote about the ‘storage room’ in this post, I was being a bit misleading. The reason that room was empty was that it was available for rent. It has since been rented, and currently is full of the tenant’s stuff.

When my mother bought this building, she needed a mortgage. The only mortgage she could get came with an 18% interest rate. That means paying almost 1/5 of the outstanding balance of the loan every year. It was a time of high inflation, but it was still a steep interest rate. On top of that, because the house wasn’t inhabitable when she bought it, she also have to pay for a renovation, which ended up costing ten times more than the initial estimated cost. Suffice to say, she was under a lot of financial pressure. Of course she got roommates who paid rent as soon as she could, but she also wanted to make money off the basement to help pay the mortgage. Thus, she started renting out the garages and some of the rooms, and has been doing it ever since. The only room in the basement which has never been rented out, other than the basement corridor, is the furnace room.

So what are the costs of renting out basement space as storage?

Well, just today (when I wrote the first draft, not when this post is published), as my father went down to do some exercises, he discovered that one of the tenants had left a bunch of stuff in the place where he does his is exercises, which is OUTSIDE the room that the tenant has rented (we assume that it was that tenant because he’s one of the few people who has access, and who the heck else would want to leave random stuff at our place?). My mother is going to contact the tenant and ask him to either move the stuff to his room or out of our building. Granted, this is a minor cost, but it’s the kind of thing which can happen at any time. (Update: the tenant promptly moved the stuff after being contacted).

The biggest cost, in my opinion, is security risk. It means giving more people access to our building (though the tenants don’t have keys to the part of the house where we live). We do things to mitigate the risks – we ask that tenants restrict who they give keys to, and that anyone who gets a key must get a face-to-face introduction with us so that we won’t mistake them for intruders. We say in the contract that hazardous materials, flammable materials, etc. are not allowed. We screen potential tenants. But there is a limit to how much mitigation can be done.

And it’s not just security risk to us, it’s also security risk to the tenants. We are obligated to take every reasonable action to protect the tenants’ property. Sometimes, I’ll notice something suspicious in the basement, and 99% of the time it turns out to be something that’s not a big deal, but I still have to check. My mother rarely leaves home, and even when she does leave, either my dad or I are at home, so it’s rare for the house to have nobody inside – and this is part of our marketing pitch to prospective tenants. We basically are security guards who are on call 24/7. Since we live here, it’s okay, we’d want to protect this place anyway, but it’s an extra level of responsibility in our lives.

My mother suspects that some people who have responded to her ads were wannabe burglars who wanted to case our building. It’s not something we can prove one way or another. We hope that all of the things we do to assure prospective tenants that their stuff is safe in our basement also deters wannabe burglars.

Getting new tenants (and supervising tenants who are moving out) also takes time and effort. This is partially because we screen our tenants a bit more rigorously than some other people renting out storage space. And because potential tenants can have surprising usages/concerns/requests, we sometimes find ourselves in type of negotiation we’ve never experienced before. For example, we had that one prospective tenant who wanted to store perishables in big freezers, so we had to think about the risk of having freezers (if there was a blackout and all the stuff spoiled, who would be responsible for dealing with the mess?), as well as how we could assign the electricity costs (since the typical basement tenant doesn’t use much electricity, we don’t charge them for it) (and no, we did not rent to freezer guy).

I cannot overstate how much experience plays a role in negotiating with prospective tenants. I’ve learned a lot by observing how my mother does this. There is a dance between highlighting all of the benefits of our space and trying to figure out whether this is a prospective tenant we want to attract or not. There is also a dance between being honest about the disadvantages of our space (for 1) ethics and 2) giving prospective tenants realistic expectations) and not emphasizing the disadvantages so much that it pushes prospective tenants away.

Here’s an example – most of the time, the garage is completely dry, but during very rainy weather, the floor gets wet, especially near the door. I remember one time we were showing the garage during a very rainy part of the rainy season, and the way I spun it was “this is the perfect time to see our garage, because you get to see it at its wettest. It never gets more water than this.” My point was that, yes, a little water gets in during especially rainy weather, but as far as I know, the garage has never flooded. Demonstrating that it can get wet near the door is good because it allows the prospective tenant to act accordingly, but it’s also good to point out that our garage is NOT prone to flooding.

I have noticed that experienced tenants (i.e. ones who have rented storage spaces before) negotiate a bit differently than people who have never rented a storage space before (for example, experienced tenants ask better questions, such as questions about the risk of water damage). Also, many prospective and actual tenants are neighbors, so if there is a problem, we have to find a way to communicate it in such a way that it does minimal damage to our relationship as neighbors. Granted, it’s different for us, a mom-and-pop self-storage business (actually, it’s just mom – my dad has little to do with it) than for the big brand self-storage businesses, but I’m sure the people who work big-brand storage businesses also use a lot of people skills on the job.

There is only so much rent we can charge. There have been times when my mother asked for too much rent. We know, because nobody rented. My mother taught me that you can rent anything if the price is right, and if a space stays vacant for too long, it means that the rent is too high. (One the other hand, if the rent falls below a certain level, it will no longer be worth it for us to rent out space in the basement). This principle has helped me sell stuff online – if a certain amount of time has passed and nobody has bought my stuff, it means I need to lower the price. Thanks to this principle, I have NEVER failed to sell something which I put up for sale on the internet.

Some of you might be wondering why I’m not listing opportunity cost as a cost of renting out storage space. Technically, yes, there is an opportunity cost, since spaces we rent out to outsiders cannot put to our own personal use. But I think it’s actually a positive that we don’t have that space available to us.

If my mother had had all of that space available to her for decades (as well as my dad and myself), she/we would have filled it all up with stuff that we are better off not having. By saying this, I’m not claiming that my mother is special, or that my dad or myself are special; in my observation most people who have a physical storage space continuously available over a period of decades will fill it up with stuff. It’s the people who can keep an available space empty for a long period of time who are the exception. I’m certain that the money she gets from renting the basement rooms is worth way more than whatever she/we would have stored there.

Thoughts on Renting Out Storage Space (Part 2)To be continued…