Below grade units/storage?

Question

I have come across a potential investment with a legal basement 1 bedroom apartment, these are fairly common in the area and I'm not a big fan since every 5 years or so there seems to be some type of water event and I can't think of a crappier situation then a tenant's unit knee high in raw sewage or water. These are older building with even older sewers and mitigation of flooding is very expensive. Does anyone have thoughts or experiences about garden units? Is the added cash flow worth the risk? Are they hard to lease up or have high rates of vacancy? If the unit was above grade I wouldn't hesitate to put in an offer but I'm now thinking I should add no buildings with below grade units to my buying criteria.

I'm also wondering about providing basement storage for tenants and the related insurance and liability issues? Do you specifically mention storage in your lease agreements and the insurance and liability onus?

Thanks

I'm also wondering about providing basement storage for tenants and the related insurance and liability issues? Do you specifically mention storage in your lease agreements and the insurance and liability onus?

Thanks

Matt Clark · Answer

@Plato Panagos, I've managed a number of below grade units, and thankfully have never had a plumbing backup.  So I really can't speak to that... although with a new acquisition I would recommend "scoping" the main drain by running a camera to inspect it.  Better to correct any problems before they happen.

These units are almost always priced lower than a similar unit above grade for obvious reasons.  If it's priced right it will rent.

Storage units are also a good option, although there would be the same exposure to the risk of plumbing backups.  A simple "Storage Addendum" to the lease can cover all the details of pricing, rules/regulations, etc.  And by adding it to the lease, the tenant's insurance coverage will be extended to the storage unit.