All Forum Posts by: Landon Elscott

Oh, and from a liability standpoint, it's no different than with your units.  You cover what is yours (the building) and tenants cover their belongings.  The fact that the units are shared doesn't necessarily change anything, although I suppose it's possible that some insurance agencies might deny someone if their "safe and secure" storage consists of shared spaces.  

Here's my opinion, for whatever it might be worth.

Option 1: If you're going to use it for the tenants, since you have an equal number of spaces to the number of units, I'd just build the cost of the spaces into the lease instead of trying to do it as a "bonus" option - although, existing tenants might not be pleased with a mandatory rate hike for a garage space you previously told them was optional.  However, for you new tenants, by including the garage storage space as part of rent, you're guaranteed additional income from the garage as long as your units are filled and rather than being an additional expense for tenants, it simply becomes an added feature included with rent.  If you try to do it as an optional bonus, I just see it as being an additional hassle of trying to find tenants to lease the storage in addition to tenants who lease the apartments, and then trying to manage individuals who are using a shared storage space who both live on and off site.  Sounds like an easily avoided headache that allows you to increase tenant parking and amenities, while increasing profits.

Option 2: If you're going to rent to it separately, I'd strongly consider separating it into two separate spaces, and then renting it the two spaces out for double the amount you initially mentioned each of the four spaces being worth.  In this way, since you have more units than you have apartments, you're creating demand for storage - which is why many large apartment complexes offer covered storage as an added lease bonus - they don't have enough storage units to match the number of housing units.  So now what you'll have created are (2) separate two stall spaces you can rent for perhaps $75 to $100 a month, and that's much easier to advertise to outside individuals. 

If you include the spaces as part of the lease, I think it's acceptable to leave the spaces shared, just as if it were a parking lot, except there's the convenience of doors and a roof, but people should know that even with doors and a roof, it's not necessarily secure by any means - other tenants or their guests could easily access belongings just as if they were in the parking lot.

However, I recommend, if you're going to rent the spaces out separately, at least separate into two areas.  Again, this creates demand that will entice tenants to jump at the opportunity to lease storage, but it will also make for less hassle in regards to safety and desireabilty.  

A few years ago, I had to use a shared storage space out of necessity, it was the only available space in town to store my Mustang Cobra.  At the time, I was living with my parents, so this storage space was sort of my place to store all of my automotive hobby stuff and detail my car.  It was essentially a big warehouse type place with individual doors, and people stored semis and boats there, too.  Anyways, my Cobra had 5% tint on the windows, so you couldn't see in them, and on a couple of occassions, after washing and waxing my car, I'd come to the storage unit and find palm and nose prints on the window.  It happened a lot in parking lots, too, but it was just not cool thinking this was supposed to be a safe place to store my car.  I started looking for other locations at that point and subscribed to gps tracking on the car.

I think it's a good selling/advertising point, especially in converting individuals who are used to paying for the laundromat.  Does it command higher rents?  Probably not, and if it did, the additional value of a w/d would be negligible - perhaps just a few bucks a month.  But all things considered equal between two properties, one unit with and one without w/d, the unit with the appliances will probably be more competitive.

In terms of having an additional appliance to fix, I honestly think that's a minor issue to as long as the units that you're using aren't of any particular value, such as older used ones.  I know locally, you can peruse Craigslist and find a wealth of old appliances for less than $50 that will do the job for your tenants perfectly fine and are simply the result of someone upgrading.  Appliances don't really seem to hold their value very long around here, and since most of the washers and dryers in my area are in the garage or a dingy basement, it's not like you need some high end piece of equipment to fit into the decor.

Yeah, I think that pretty much sums it up.  I suppose I fall somewhere between categories 2 & 3.  I have full time employment but use real estate as a secondary source of income and to a certain degree I don't see myself becoming to busy with real estate that I can't make time for a 9 to 5 job, although I suppose there's always a certain part of me looking at how I can scale the business - and if it works out successfully, it would probably necessitate me making real estate a full time business.

I don't think it was bad to generalize the categories of investors and it sure didn't seem to be meant negatively by any means.  Certainly, the many generalizations that we make of the categories of tenants can probably be construed to be more offensive than what these categories are.  Obviously, categorizing neighborhoods and tenants into classes of A, B, & C groups is rather generalized, and certainly there are exceptions to those classes, yet we still use them as a means of generating some sort of demographic idea of what our risks will be.  

Hey Drae,

I'm just a couple years older than you (26), so I both sympathize with the struggles or starting "young" and also commend you for taking steps to propel your future - a lot of people our age simply don't.

First of all, your typical bank is probably going to prefer to see roughly 25% down to secure to loan, but that doesn't include the other requirements they'll likely require and don't forget to have some cash left over to cover you for a couple months and potential repairs. For instance, even if you structure through an LLC for instance, you're still going to be personally responsible for the loans and possible default, so there's a good chance that they'll likely want to see both good credit history and sufficient income to cover the loan. Unfortunately, without prior rental experience, you probably won't be able to secure a loan based upon future possible income. Obviously, this can present quite a hurdle, and when it comes to securing ownership of investment properties, securing a deal for the very first one is often the largest challenge since additionally properties can likely be secured using investment income, good faith, or collateral - but watch out for creating a house of cards where each you use property as collateral to the point that if one fails, the rest will also.

Granted, there's some creative financing solutions, short term loans through hard money lenders and then refinancing, etc, but essentially, the point I'm getting at is that for your typical first rental property mortgage, you'll need 25% down payment plus existing income.   Looking outside of that for no money down deals is entirely possible, but I recommend checking out posts here specifically outlining those types of options and involved risks.

As far as setting the rent low to avoid turnovers, I'd really hesitate against that.  It's one thing to be competitive, but pricing yourself way under market value is asking for problems.  You might think that all you're doing is making rent more affordable, but you'll likely scare away great potential tenants and attract a lot of unwanted applications.  Plus, even if you get your rent on time each and every month, I have a hard time believing that being priced at $500 a month on a decent property is going to leave you much in the way of cushion for repairs or vacancy and it doesn't matter what you price your unit it at, sooner or later it's probably going to sit empty for at least a short period of time and the bank is going to still want to get paid or they'll be than happy to take over your property.

Now, for a first time, young investor, you'll probably want to start with a SFH or duplex. If you can get your hands on a multifamily (what I'm going to consider 3+) unit, those will probably generate better returns (maybe), but I'm hard pressed without knowing your current income that you can qualify for a multifamily unit. Of course, there are some extremely cheap multifamiliy properties around, but I'm just suggesting that a rule of thumb around my area is that decent multifamily units are much, much higher priced than what a decent cash flowing single family home or duplex is. And don't forget to consider owner occupied duplexes.

I just lock in an interest rate and lock in a positive cash flow.  Presidential real estate, while not immune to volatily, is a necessity.  Regardless of what crisis exists, people need housing.  If it's hard to buy a house, more people will rent.  If values plummet, people still need housing and it opens the door for great investment opportunities.

I'm particularly in it for the cash flow and principal pay down; however, if the city I both live and invest in maintains a path of growth after what has been a rough past few years of recovery, I hope to see some appreciation.  I got an absolutely stellar purchase price, so I'm already ahead in that sense.

I have one on the main drag through town.  We live on the west side of town and a lot of the major shopping is on the east side, so we naturally drive by several times a week.  My wife also works just up the road, so she drives by it every single weekday simply because it's the best way to get to work.

Well, to extend beyond other people's answers, how about we take a look at it from the IRS stand point?  You might be surprised to learn that some investments we might consider passive, the IRS does not - even things like stocks and bonds.  Essentially, the IRS considers passive activities to be any rental activity or business activity in which the taxpayer (i.e. the passive investor) does not materially participate - yet some of which they consider to nonpassive seems contradictory.  So of course, things like salaries, wages, 1099s, or any other income you receive from "work" is not passive.  However, interestingly enough, according to the IRS, stocks and bonds, interest and dividends, guaranteed payments, sale of undeveloped land, and even royalties are not considered passive investments by the IRS, despite the fact that they seem to be so from the definition of passive.

Now, passive investments (in terms of that of which doesn't require much involvement or labor) are great, because you're essentially using existing money to create new money with very little to no actual participation on your part besides the financial investment - capitalism at its finest.  But from a tax and IRS standpoint, it's important to learn what they do and don't consider to be passive and how passive investments will differ from other income and understand that typically, passive activity losses - that is financial losses as a result of passive investments - can only be deducted against passive income, with some exceptions.  So unless you meet the following requirements, unfortunately you probably can't offset dividend income with rental losses according to the IRS, even though you'd think they're both equally passive.

Fortunately, if your AGI is below $100,000 you can actually deduct passive activity losses up to $25,000.  Unfortunately, if you make over $150,000, you can only deduct passive activity losses against passive activity income.  And if you your AGI falls somewhere in between $100,000 and $150,000 then the deductions against wages are phased out $0.50 per $1.

Hope that makes some sense.  Here's some more information:  http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Losses-Real-Estate-Tax-Tips

Hey Larry, I live over in Newton - about a 45 minute drive east on I-80 from your neck of the woods.

Anyways, after the fall of Maytag, it pretty much rocked this city to it's knees.  Things are slowly starting to turn around, albeit very slowly.  If you're interested in diversifying, perhaps we could chat and see about any interest in working on some projects.  Due to the harsh economic climate, real estate is at bargain prices here and I'd like to bring something great to this city, I just don't have the financial means to do so alone.