Purchased my first apartment building. What to do with basement?

Question

Hi guys!

I’m 23 years old and new here but have been reading and studying BP for years😄

What would you do with the basement of this apartment building?

I bought my first sfh ($1500/month) at 21 in 2016 and another ($750/month) at 22 in 2017 and I finally took the leap in December of 2019 for a multi family.

It’s scary and exciting but so far, so good.

Found it off market $485k with owner financing. 10k down, 5.5% for 30 years.

It’s a very solid 23 unit building capable of bringing in 10-11k a month in its current condition. But bringing in closer to 5.5k/month currently because it’s less than half full due to a fire next door several months ago that forced them to evacuate the whole building until engineering reports/inspections were done, and with the owner being from out of town and a very weak management system in place they’ve been very slow to fill it back up. (I know and own in the area, very strong and stable rental market)

I know 485k is way high considering that it’s only making a few hundred dollars a month after Payment, utilities, taxes and insurance and current PM. but planning to start by getting 2nd and 3rd floors full to help with the cash flow then update/renovate the entire first floor (7 units) to raise the rents significantly, fill it then repeat with the 2nd floor a unit at a time.

Shooting for $12-14k rent roll a month after renovations and 90% occuapancy.

While keeping my operating expenses under $7k a month including good property management.

Anyway, all details aside! This building has a full basement with no windows but is nice, solid and dry under it, 125’ by 40’ with 9’ ceilings that is just sitting empty and a waste of space that I think I need to make use of. I’m considering sectioning it off for storage units for the tenants or possibly even for the general public if there’s not enough tenents wanting storage.

There’s 1 large 8’ wide stairway on each end of the building making for easy access down there.

Thoughts on that or any other ideas on how to make that basement profitable!?😄

Matthew Paul · Answer

I wouldnt do tenant storage , it will become a trash collector . I would do the coin op laundry and section off most of it for my own storage . It would be a staging place for materials for the rehab , a place to keep maintenance supplies . extra refrigerators etc.

David Steinbok · Answer

I echo the above comment. Make an area for storage and a coin op laundry room. Also keep a storage area for yourself. And keep some extra fridges and stoves. You can find used ones on kijiji and just bring them up when one breaks.

Charles Kao · Answer

@Jake Grabber Definitely section off to storage but be careful about making available to general public, specifically marketing as that could be a zoning issue but more importantly you have outsiders coming in that may not take care of place like tenants. You could also build a common area for people to have to rent out or entertain but storage is definitely best idea.

Bjorn Ahlblad · Answer

@Jake Grabber welcome to BP and big time congrats on the building!! Inspirational achievements!

Storage is always popular; section some off and make it lockable and secure for tenants. I would try to stay away from non-tenants due to conflict and security issues. Common area for laundry is a solid investment if the units do not have washers and dryers. My coin machines yield a great return. Keep us posted on how you are doing. All the best!!

Luke Miller · Answer

@Jake Grabber what's the area like? What's your tenant base like? What is your immediate competition doing? All of these things are critical before making your decision. If your tenant base is more in the C to C- range, laundry and/or storage might make sense. If you have a higher-class tenant base, you might want to think about a "community room" with wifi, TVs, comfortable furniture, pool table. If you're in a market with no gym close by, it might make sense to put some equipment down there.

It might be tempting to put some storage or coin op down there, but in some markets it doesn't make sense to squeeze every dime out of a building if your competition is offering better amenities for the same price.

Bjorn Ahlblad · Answer

@Jake Grabber I buy the coin washers and dryers new. I think it might be tough to find used w/d with the coin mechanisms. Depending on where you are you can also go with a service they take over everything and do a 50/50 split. Also fixing the old ones has worked well for me too. If you go for new ones educate your tenants to use less detergent or you will end up with useless service calls-don't ask how I know!🤪 My 12 unit brings in 250-275/mo for laundry. The tenants do their own schedules and keep the room clean.

As far as storage goes you might just as well use one of your empty units as you are building them back to ready, and have better access to your stuff. Long term I would definitely store extra appliances and stuff in the basement. All my tenants have individual storage units in the underground garage. Works well, and I never have to worry about it. The storage units are 6 by 8 and full height with access through a regular type door to each unit, they are included in the rent.🤔

Jake Grabber · Answer

I’m guessing two different sizes of storage units would be in order.

Any recommendations on the most efficient sizing of those units and what you would charge per month?

Jake Grabber · Answer

Thanks guys.

Actually, I failed to mention that there is a portion sectioned off as a laundry room with a few coin op machines in it that appear to have quit working and no one fixed or replaced them.

Do you guys buy or lease your coin op units? I’m assuming buy.

Do you buy used? Are they fairly maintenance free?

What would you estimate that to bring in with an average 23 unit building?

I’m leaning towards probably getting that laundry back into operation, frame up a good secure section for supplies and tools and turn the rest into storage.

Purchased my first apartment building. What to do with basement?

Purchased my first apartment building. What to do with basement?

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