Many real estate investors look to maximize the income of their rental property by adding second units—especially in properties with separate entrances. One common opportunity is converting the basement to a rental. Many units are able to be retrofitted to have a second unit in the basement, which means two incomes from one investment property! It’s called an in-law suite and it’s completely separate from the other rental.
Now, before you run off to renovate, know there are certain issues with this plan. The most glaring is the fact that not all rental property basements have the legal height needed to be able to rent it out to a family. There are also big costs associated with HVAC, plumbing and electrical if those aren’t already set up for a basement unit.
Rather than walk a legal tightrope or pour thousands into renovations, we’ve taken a different approach. One of the creative ideas we've come up with is making our basements into storage facilities.
We could have excavated the property for an in-law suite, but it would’ve cost thousands and wouldn’t have given us the return we’re looking for. Instead, we thought “how can we use what's here?” That's when we came up with the idea: Let's use what's here and make a storage facility in this basement.
Consider any barriers before renovating
Before you take steps towards creating a storage unit, you should actually speak to your city and see if you need any type of special zoning to allow this.
Also check on special permitting and even check with your mortgage company, just to make sure they're not going to penalize you. The last thing you want is to have storage units all set up and for your bank to say “this is a commercial property because you're running a business out of here.”
Ask permission; not forgiveness.
If everything's good-to-go, then make the storage units! They don't have to be big, either. A simple 8’x8’ is a nice-sized space and will give you the ability to build in several units per rental. We waterproof our basements too, for added protection.
The value proposition of storage units
The math on basement storage units is really a compelling value proposition. For example, one of our rentals has seven basement storage units. We rent them out for $450 annually—which adds up to an additional $3,150 per year. It’s a nice premium for a space that might otherwise go unused and it costs renters next to nothing (less than $40/month). It’s also competitive with the likes of U-Haul and other storage unit rental fees.
In fact, basement storage units are a popular draw because renters are actually getting more. Other commercial storage facilities are not generally climate-controlled, and those that are have premiums attached. As long as the basement is waterproof, you can avoid a lot of the potential issues facing storage units—specifically those involving climate.
Optimize the draw of your investment
What we did to fully optimize the appeal of our basement storage units was install automatic lights that go on and off within the units themselves, and in the hallway connecting them. It conserves a ton of energy and makes it easy for people to easily access and navigate their storage units.
We also have an access control keypad, where you enter a code to enter your unit. Every renter gets a unique code that gives them 24-hour access and the security they need. And, we can quickly change it on the fly if there's a vacancy. In the event of a tenant changeover, everything can be changed to guarantee security in just a few minutes.
Utilizing empty units
You’re not likely going to fill all your basement storage units at the same time and keep all those tenants for the same duration. So, what do you do with vacancies or empty storage units?
Ideally, if you can, rent to friends or family, or even people you know. Obviously, that’s the simplest solution. If that’s not an option you can also post classified or take out an ad online to try and fill the vacancy with more temporary tenants on shorter 3- or 6-month leases.
We actually had our property manager handle filling the units. We made a special arrangement for what type of price he would charge us to rent them out, and now he rents them for us. It’s a fully-automated situation, so we’re completely hands-free. It's working really well!
Even if you don't rent out the storage unit, can you keep it for personal use. It's amazing! In fact, we're going to use one of the units for our materials: Tools, supplies and things like that, that we need for rental properties. We’ll give access codes to our contractor so he has access to these materials for any type of repairs or materials he might need. In this way, we don’t necessarily make money from the unit—we save money with it.
It’s all about the bottom line
With these units adding an extra $400-500 (times the number of units), it really increases the bottom line. Whether it's a single-family home, duplex, four-plex, whatever the case may be—if you have extra space in the basement that's not being used, we highly recommend making a little storage facility there.
There are so many uses and it's a great way to utilize empty space or space that can’t be leveraged into another pure rental unit. Even with attractive rental rates, the cost of several basement storage units will quickly recoup themselves and eventually become a standalone source of passive income. They take almost no oversight to maintain and manage, and even with consistent turnover among tenants, you shouldn’t have too much issue finding someone in need of space.
Again, just a word to the wise, make sure you’re going through the due process of verifying local building codes, ordinances, permits and mortgage stipulations. The last thing you want is to get stuck with fines, fees or penalties that erase those storage unit pr