Adding storage units to 6-unit multi-family home?
Vancouver · Member since 2013 · 159 posts · 6 votes
Hi,
I was wondering if it is worth the cost to add storage units in unused space at a smaller multi-family property...
I have no knowledge of how to do this, I'm assuming you have to get permits from the city to make sure it's allowed. I am just curious if it would increase the NOI of the property? Thanks.
I'm not sure how much space you have to work with, so I am going to throw out a couple more ideas to consider.
For my properties that have garage spaces or sheds, I will "rent" that space for a monthly fee, say $ 50 or so (I know that's low, but follow with me). This space ONLY gets rented to the tenant that takes me up on my offer to cut the grass and shovel the snow. Not coincidentally, I "pay" them $ 50/month to do so. I simply credit it on the books if they do what they say they will do. I write up separate agreements so that if they default on the grass cutting and I have to do it, I can enforce the agreement separate from the living unit, which is subject to different laws. The reason I keep the fee low is that if they decide they would rather have cash than the garage space, then I am not stuck paying out a lot. This hasn't ever happened (yet), but I like to cover my bases.
Another idea that has worked really well for me is coin-op laundry rooms. I put one in a 5-unit (all 1 BR and a studio) that has ok. I recently put one in a 4-unit (three 2 BR's and a 3 BR) and it has done extremely well! One washer, one dryer is plenty. Set the price at about the same price as the local laundromat, convenience will win, who wants to haul their laundry to the laundromat when they can just walk to the laundry room? These are run off of the house utility meters. The 4-unit didn't have a house water meter. Instead, it had 4 meters, 1 for each apt. I simply included the water in the rent for one of the apartments (marking the price up accordingly) and tapped that one for the washer.
For the laundry rooms, I took it one step further. I learned that some larger apartment complexes let an outside company set their machines up in the laundry room of the complex. The complex gets 1/2, the outside company gets 1/2 of the take. The complex pays the utilities, the company maintains the machines. Instead, my kids bought the machines. We are teaching them to save/invest and they had just enough saved up from holidays, birthdays, and allowance to buy the machines. So they are "the company". Works great for all and the tenants love the convenience.
The laundry rooms need very little space. Big enough for 2 machines (they make stackable coin machines too if space is a problem) and to open/close the door. They can sort/fold in their apartment. Keeping it small discourages loitering and makes it easier to keep clean too.
I would ask these questions:
- If you don't add the storage, will you have problem renting out the place?
- If you add the storage, can you raise the rent?
If the answer is no to both of the questions, probably it's not worth the cost. If yes to one of the questions, more studies need to be done. If yes to both questions, I think it's worth the cost.
Good thinking outside of the box. My brother @Al Williamson is an innovator in what he calls "hustle lording."
You have an opportunity in increasing your square footage NOI of your property. Call the ball and make it happen.
Keep us informed of your progress,
Tevis
Sounds like a fun project. I love the way you're thinking. I'm with @Yiv L. , get the customer lined up before spending a dime. I say customer because you might be able to rent space to a non tenant. (Tenants are the beginning of your income - not the only clients your multifamily property can serve)
My recommendations are to:
1 - survey your existing tenants. Are they willing to pay more for the space?
2 - Is there someone on Craigslist that looking for storage space? If so, interview them and learn their needs.
3 - create a Minimum Viable Product (MVP) and work out the details. If you can make just one storage unit for starter do so before making six (or more).
4 - Do the low hanging NOI-optimizing tasks first, then move on to razzle-dazzle projects.
5 - KEEP THOSE INNOVATING JUICES FLOWING!
Hope that helps.
just my 02 cents from dealing with a lot of investors in the self storage industry, it is a no brainer. I am consistently amazed that people will pay roughly $1 per sq foot per month to store junk. If you have the room, the construction cost is minimal. You can build a 4 bay metal building with 4 10x10 units for under $9000.
I'm not sure how much space you have to work with, so I am going to throw out a couple more ideas to consider.
For my properties that have garage spaces or sheds, I will "rent" that space for a monthly fee, say $ 50 or so (I know that's low, but follow with me). This space ONLY gets rented to the tenant that takes me up on my offer to cut the grass and shovel the snow. Not coincidentally, I "pay" them $ 50/month to do so. I simply credit it on the books if they do what they say they will do. I write up separate agreements so that if they default on the grass cutting and I have to do it, I can enforce the agreement separate from the living unit, which is subject to different laws. The reason I keep the fee low is that if they decide they would rather have cash than the garage space, then I am not stuck paying out a lot. This hasn't ever happened (yet), but I like to cover my bases.
Another idea that has worked really well for me is coin-op laundry rooms. I put one in a 5-unit (all 1 BR and a studio) that has ok. I recently put one in a 4-unit (three 2 BR's and a 3 BR) and it has done extremely well! One washer, one dryer is plenty. Set the price at about the same price as the local laundromat, convenience will win, who wants to haul their laundry to the laundromat when they can just walk to the laundry room? These are run off of the house utility meters. The 4-unit didn't have a house water meter. Instead, it had 4 meters, 1 for each apt. I simply included the water in the rent for one of the apartments (marking the price up accordingly) and tapped that one for the washer.
For the laundry rooms, I took it one step further. I learned that some larger apartment complexes let an outside company set their machines up in the laundry room of the complex. The complex gets 1/2, the outside company gets 1/2 of the take. The complex pays the utilities, the company maintains the machines. Instead, my kids bought the machines. We are teaching them to save/invest and they had just enough saved up from holidays, birthdays, and allowance to buy the machines. So they are "the company". Works great for all and the tenants love the convenience.
The laundry rooms need very little space. Big enough for 2 machines (they make stackable coin machines too if space is a problem) and to open/close the door. They can sort/fold in their apartment. Keeping it small discourages loitering and makes it easier to keep clean too.
Thanks everybody for the GREAT responses, very helpful...
Al, that's a great idea of building one unit first than building hopefully more as needed. I will make sure to ask the existing tenants if there is a need for storage. If there happens to be no need, do you think it's reasonable to have non-tenants use the storage space? Would I charge non-tenants more? Would that count towards the properties NOI?
Adam, it terms of the laundry room on your 5 unit (the property I'm asking about is a 6 unit) I see you pay for the water on the property. Is there a way you can find out how much the laundry room uses for water if you don't add it into one of the tenants bill? I have heard mixed reactions about leasing out the laundry machines to a company 50/50. What do you recommend, leasing it out or buying it yourself? Love your idea of getting your kids involved early, by the way! Roughly on a property around the size we've been discussing how much could you reasonably project per month to make from it?
Thanks Joe and Tevis for the input as well!
I am sorry if this is out topic but I have one questions. @Adam Johnson
with respect to adding the water to one of the apartment, do you charge the tenant the water use for all the units (meaning the water use for the washer?) If yes, don't you think that could bring you problems with the tenant that you are charging the entire water bill?
I am sorry if I misunderstood but I was just curios.
Back to topic, great idea on the storage units! here in my market tenants pay a premium for extra storage.
Have a good day!
@Diego A. and @Taylor Green - I will clarify the water issue first, didn't mean to cause confusion. In my 5-unit, there is only one water meter with the bill paid by me. That's the easy one.
In my 4-unit, it has 4 separate water meters with each tenant paying their own water. However, the way the law reads in NY (and elsewhere probably), I can't make a tenant pay for water they don't use themselves unless it is metered. It really didn't make sense to add another water meter for a washing machine. Instead of doing that, I bumped the rent up $ 30/month for one of the apartments and include the water for that apartment in their rent. I then use that meter for my laundry room and pay the whole bill. I technically get reimbursed for the tenant's usage in that unit by way of slightly higher rent. I stay legal by including the water in the rent, but not charging separate fee without a meter. Hope that clarifies things.
Now, regarding the storage to NON-tenants, check zoning laws and think about this carefully! This use may require specific zoning and likely it isn't the same as multi-family housing. Also, you are going to create some extra foot traffic in/out of your property. You may not want that, for security and tenant comfort reasons. You should also check with your insurance person. You may also want to speak with the fire marshal and/or building/code enforcement. Separate uses may require fire separation, greatly increasing the cost.
If you only rent storage space to your tenants, you might avoid some of the extra complications and "fly under the radar". Renting to others may open up a can of worms.
Regarding the 50/50 deal on the laundry machines, I only did it because it was my kids. I only used the idea to come up with a fair way to split the coins. If it were not for that, I would simply buy the machines. We bought them new and have had no problems with them, with the exception of a tenant prying into one of them to bypass the coin-operator. That tenant is gone and the note on the machine telling the other tenants they were not stealing from me, but from my kids, seems to have prevented any recurring problems.
I didn't mean to hijack your post about storage and shift it to laundry rooms, I just thought it was another cool alternative way to make $$ with otherwise wasted space.
No problem at all "hijacking" the thread, this all all great information!
I have a question about how much I should charge for covered 10x8 storage units? If the going rate in the area at a "self-storage complex" is roughly 65-85 dollars. How much should I ask for from the tenants? I was thinking pretty low, like around half the price...
Thanks
@Taylor Green - we need to work on the way you think! Never leave money on the table. If area self-storage's charge that amount, then that is what you should charge, or maybe even a little more. Remember - you are offering them a convenient service, don't sell that short!
One thing you may want to consider, however, is that self-storage generally is fairly long term (not always) from what I have learned from some of the operators. People need a long-term home for their junk. If you are only renting to your tenants, then you may want to tie the leases together so that if they move out of the apartment, they have to clear out the storage as well. I would save sharing that little "detail" until later on in the discussion about the storage so they have a chance to fall in love with the idea before they cringe at the details.
This may or may work as a tenant retention tool. My gut tells me that it won't make a lot of difference, but will give you a chance to boost your rent roll up a little bit.
Thanks for the input Adam, big help...
Great idea of writing in the lease they have to clear out of their storage unit if they move out, I actually do think that could really help with tenant retention. Who knows though...
If permitted, do you think that I should build the storage units or just buy a storage unit container?
Before building anything you also should consider the curb appeal of the property before and after. Storage units can be somewhat of an eyesore if not built and/or maintained properly. I lived in a building once that offered storage as a form of ancillary revenue but they had them in the garages so it didn't affect the cosmetic value of the building yet added $ to the bottom line.
@John Sheedy -great point on the curb appeal.
@Taylor Green - I was led to believe that you had existing space somewhere in the building that you would convert to storage. If you are building new or bringing in container type storage for only 6 units, I would strongly question the economics. I would also encourage you to check local zoning laws first. No sense spending hours/days planning something that will never get approved. Time to do your homework!
Sorry to not make that more clear Adam..
The extra space is located in the back of the property, (you can't see it from the street). I guess the previous owner lived in one of the units and kept his RV there before so it's kind of this blocked off gravel lot.
I called the city and they said I could add up to 200sq. ft. of rentable storage property on the premises before I needed to file for a permit.
Thanks for the input John as well, that is a good point...
Timely topic - I've been thinking of putting a shed up for tenant storage for my garage apartments, just to keep crap out of the yard and give a place for bikes etc. Thinking of partitioning a large shed - any ideas?
@Taylor Green - got it. So you are speaking of LAND space, not BUILDING space. You could run numbers quick, but my guess is that building a new building is probably not going to give a great return. I could be wrong, as I don't know what storage rates go for in your area.
Just to follow up on this thread.
The city allows you to put up to 200 sq. ft of storage space on the land before it needs to get permitted. The 6 units are on two separate tax parcels, so I'm allowed to put 200 sq. ft. on each parcel without needing it to be permitted.
I have had the property manager survey the tenants if they would have interest in renting a non-AC storage unit on the property for an extra $25-30/month. We had 3 yes, 1 maybe, 2 no response.
I will be putting up 3 connected - 8x6 units to start out with. The quotes have came in from $1500-$4500 to build, including the pad for the units to be built on.
If I charge $25/month for each unit and go with a middle priced bid of $3000, that is an extra $900 a year for $3000 investment. 30% return is good enough for me. Not to mention the increase in NOI.
This is my attempt to add value to the property, seems to make sense to me. I am just starting out though, so I'd like to keep hearing if this is a good/bad idea. Thanks!
At first glance this appears pretty good. To play devil's advocate, consider these thoughts:
1) Will this improvement increase your tax assessment? This needs to be included in your ROI figures
2) With an increase in rent collected, will your property manager take more money? If their fee is tied to rent collected, then it will, which will decrease your projected ROI.
3) You have 3 tenants that want one now, what happens when you only have 2 in the future? Need to allow for a vacancy factor just like your apartments.
4) You have not carried any allowance for maintenance/repairs. What happens when a door gets damaged? This needs to be included in your calculations.
5) Will the additional building(s) add to the cost of your property insurance?
I'm not saying this is good or bad, just offering some talking points. When I made adjustments for the items above on my napkin analysis, my ROI was in the high teens. You will have to decide if the effort to do this is worth the return. I realize that the items I mentioned are probably small dollar amounts, but when analyzing ROI on small deals, you need to use the same rules you use on big deals and include all related expenses.
Some portable building manufacturers will custom build a structure to meet your needs. The buildings are considered portable therefore no increase in property taxes. A local investor has 4 of these structures, approximately 40'x12'-four 10'x12'units/structure. His cost around $8000, he rents for $55-65/mo.
hello everyone,
I am currently a landlord in WA and have added two gorgeous sheds to a rental property the tenants have already been there for a while so the original lease does not include these sheds. How do I go about drafting up an addendum or changing the lease to include these and mentioning the rules governing the sheds and non-liability for stolen property etc.
Would greatly appreciate any input as I am still learning a lot as I go.
Thank you