Should You Do a Rent Exchange at Your Storage Facility?
Andrea Hewitt |April 03, 2014
Bartering was the first form of currency humans ever used. Although new, innovative ways to pay for goods and services have been introduced, bartering is still a staple of American business practices.
So what if someone approaches you and asks for free or discounted rent in exchange for a service he can provide? You may not want to say yes immediately. Take the time to contemplate whether this is the right move for your storage facility like you would do for any other business transaction.
When Should You Take Advantage of Rental Exchanges?
When it makes financial sense.
You never want to lose money in a transaction so you need to compare the price of the service or good to the cost of your rent. In a perfect scenario, the price of the good or service would be equal to or more than the price you’re losing in rent.
Let’s think of this in real world terms.
Say a lawn service contacts you and says, “Hey, Mr. Smith! I’d like to get free rent on a storage unit for my equipment, and in exchange, I’ll mow your lawn.” First, ask how much he would normally charge to keep up on your lawn. Then make sure to call around to other lawn care companies in the area to see how the prices compare. For these scenarios, let’s assume he charges the national average, $66 per mow, and his competitors are quoting you a similar price.
Scenario 1. Your grass grows pretty fast so you want your lawn mowed three times a month. The total he would charge you with no exchange would be $198.
He has a good amount of equipment and he wants a 10’x30’. You have fifteen 10’x30’ units and one is open. The average you charge for those is $250. That’s not a great deal. If you could fill that unit, which is seems you could because the occupancy rate is high, you’d be losing $52 a month. Since your occupancy rate is so high, you could probably increase your rent, which means you’ll be losing even more each month.
What you might consider is offering him discounted rent. Let him know that you’re actually considering increasing the rent of those units because they are so popular and that you can offer him a 25 percent discount on the current price of the rent for his services.
Scenario 2. You probably only need your grass mowed twice a month. That means the lawn care services would cost $132 per month. The company doesn’t need a huge unit so they ask you to exchange a 10’x10’ unit for their services.
Those aren’t an incredibly popular unit at your facility. Actually, only about 50 percent of your 10’x10’s are filled and, on average, you charge $100 per unit. That’s a great deal. You’re saving $32 a month and giving away rent on a unit you probably couldn’t fill.
Make sure to take a look at the finances of each scenario. If you don’t think it’s a good enough deal, don’t hesitate to negotiate for a discounted rent instead of free. Even if the person proposing the deal is a friend or a long-time tenant, remember this is a business transaction and you need to put your finances before anything else.
When you can get great PR out of it.
Always take advantage of opportunities to make your brand look better if it’s within your means. But make sure you’re really getting something out of the deal.
Let’s say a local food bank is overflowing due to a recent successful drive and they ask if they can use a storage unit for free next month. You have several open and no one on your waiting list so your gut reaction is, “Sure!” Before you let that slip out of your mouth, politely ask if they can do one of these things for you:
- Put something on their website about your generosity. Make sure they’ll link to your site to drive traffic your way.
- If they have successful social media pages (look for high numbers of interaction, likes and followers) ask them to give you a shout-out there with a link.
- Ask to be named as a sponsor of their next drive and include your logo on their marketing materials.
It might seem harsh to negotiate with a charity, but it’s still a business transaction. If they want a unit that you usually charge $100 for, consider it a trade for advertising. Try to get positive marketing out of every scenario you encounter.
When you have a solid relationship already.
If you agree to rent exchanges with anyone off the street, the chances you’ll get burned increase greatly. Make sure you’re only committing to this business agreement with someone you can trust. If it’s a great deal that you don’t want to miss out on, ask for references and call his former clients.
If the arrangement sounds good but you’re still on the fence, a good compromise would be to say something like, “Look. This sounds great, but I’d like to have a business relationship with you before we agree to this. Why don’t you rent a unit from us for three months and then we’ll reevaluate this deal?” That way, you can see if he’s responsible as a tenant.
If he is already a tenant, hopefully you have management software that tracks all your client interactions. Check to see if he pays his bill on time every month, how often you’ve had to call to make him pay or if there are any negative notes about your manager’s interactions with him.
Basically, just make sure you can trust that you’ll get what you’re promised out of this deal. If you aren’t 100 percent sure he will come through, don’t commit.
What are the Tax Implications of Rent Exchanges?
The Internal Revenue Service (IRS) requires you to claim any bartered goods or services on your taxes.
“An example of bartering is a plumber exchanging plumbing services for the dental services of a dentist. You must include in gross income in the year of receipt the fair market value of goods or services received from bartering,” – IRS.gov
I can’t speak to how this would affect all self storage facilities because every facilities’ taxes are different. Make sure to talk to your accountant about what this would mean for your facility and make an informed decision from there.
How Can I Do a Rental Exchange the Proper Way?
I can’t say this enough: This is a business transaction. Treat it like you would a rental agreement. Draw up a contract that specifies exactly what each party is expected to bring to the table (this will also help with taxes).
Have a clause that says if the client doesn’t provide you with the service or good you’ve agreed to, you will automatically start charging him rent. Have both parties sign it before you give him access to the unit. Think about starting off with a shorter contract, say three months, and go from there. That way, if you aren’t happy with the services, you have an out.
If you decide a rental exchange is right for you, remember three things: 1. Make sure it swings to your favor in some way. 2. Don’t be afraid to negotiate if you think you’re getting ripped off. 3. Make sure you’re making a commitment with someone you trust.
If you follow these three rules, you’ll be sure to be in a better position than agreeing to a rental exchange with Joe Schmo off the street.