Thirty-four items you don’t want to forget during the design process for a better and more profitable facility.
A colorful bright large retail office and showroom will increase your rentals. Remember the majority of the rentals are by the ladies. Believe it or not you are in the retail and fashion business and need to wow your customers.
Date: April 4, 2018
To: Self-Storage Property Owners
From: Heidi Henderson, Executive Vice President of Engineered Tax Services
Many real estate investors are unware of how the top industry professional utilize the tax code to their benefit. And most think that their tax professional is aware of every aspect of the existing code to advise them of any applicable credits or deductions they are eligible for. In reality, the tax code is complex and expecting your CPA to know every aspect of it, is like expecting your family doctor to be able to perform heart surgery!
I am a real estate investor myself and through many years in tax and accounting I have learned from the best on how to apply every aspect of the tax code to create the most tax efficient real estate portfolio, leading to continued success.
Recent tax changes under the Tax Cuts & Jobs Act expound on the benefits of real estate investing. Taxpayers can now capture immediate deductions for business related tangible property, your depreciation can be front loaded, and for energy efficient buildings the available credits and deductions were renewed in February of 2018 and assets removed during demolition can be written-off or donated for a charitable contribution on your tax return.
These are just a few of the complex tax code sections which can make the difference between a profitable business, and a losing proposition. Below is an article outlining 11 Frequently Asked Questions about Cost Segregation, which is one of the methods you can apply to your property.
We partner with business owners across the U.S. and have worked on thousands of self-storage properties nationally. Give me a call today for more information and to discuss the some of the tax strategies that might be applicable to your business or property. I can be reached at (801) 689-0325 or via email at email@example.com
11 Frequently Asked Questions about Cost Segregation for Self-Storage Properties
By: Heidi Henderson, Engineered Tax Services
Cost Segregation is the process of identifying personal property vs. real property, and individual building components for tax purposes, rather than treating a building purchase as one large asset. This determination allows a property owner to depreciate their assets over the useful life of each asset instead of assuming that the entire purchase amount applies to one long-term (39-year) asset.
All investment properties, including self-storage properties qualify for cost segregation. When a cost segregation study is applied, you are telling the IRS that you are simply choosing one acceptable method for depreciation (MACRS*) vs. another approved depreciation method (straight-line). Both are acceptable, however MACRS requires an analysis to identify the value of each individual asset you own, rather than looking at your property as one large asset.
Cost Segregation can be applied to a newly purchased building, a newly constructed building, or a building you have owned for around 15 years or less. If the property is not fully depreciated (39 years is the length of normal depreciation), then there is an opportunity to change the method with cost segregation. Although any property can be depreciated under MACRS, the costs of performing a cost segregation study may outweigh the benefits if the property was acquired for less than approximately $300,000.
Under straight-line depreciation a property’s total cost (less an allocation for land), is depreciated evenly over 39 years. Under MACRS the assets are identified and reclassified in 5-year, 15-year, and 39-year class lives depending on the IRS determination of its actual useful life. And whether the assets are used for your business use, or the basic function of the buildings use as a structure. Examples of 39-year property include; windows, walls, doors, roof, HVAC systems, plumbing, and electrical. Examples of 15-year property include exterior improvements such as; fencing, exterior signage, asphalt, curbs, landscaping, and exterior lighting. And examples of 5-year property are; carpet, appliances, specialty lighting, woodwork, unit partitions, individual unit locks and security, and business specific heating and ventilation systems.
Some property types will have a higher reallocation percentage than others. Interior, climate controlled self-storage properties will see a higher amount than a shed-row or boat and RV storage type. The allocations are based on actual assets and values or each of the components within the property.
Surprisingly, the information required to perform the study is limited. For a recent purchase, the closing statement or HUD is the only requirement. Blueprints are helpful but not necessary. New Construction projects require cost breakdowns and total costs for construction and development, but individual invoices are not required.
Choosing a reputable firm is a vital to ensuring that every aspect of the IRS requirements are met, and in the case of an audit the report is upheld without disallowances or associated interest and penalties. The IRS Audit Technique Guidelines dictate that a physical site visit is performed, the analysis is performed by a professional with cost-accounting or engineering expertise, and the method of determining asset value is an approved methodology. Make sure that audit defense is included in your study, and that the final report offers complete detail over every aspect of your property. Choosing a low-cost provide may be tempting, but the ultimate savings, detail and support of a reputable provider will far outweigh any additional costs. And finally, ask for references!
Cost Segregation is not a “trigger” for audit. The IRS issued automatic consent for deprecation whether applying a change from straight-line to MACRS at the time of purchase or retroactive for a property you bought 10 years ago. This means that taxpayers are allowed to make this change with the approved forms offered by reputable cost segregation firms. However, in the rare case of an IRS review, rest assured that a detail report with the proper IRS approved methods and audit support will affectively defend your tax filing position.
The cost is usually based upon the type and use of the building, size, and location of the property. Beware of cost segregation providers who charge a percentage of the tax savings. The tax savings is relative to the entity type, number of owners, the year of acquisition and other factors, so the actual cash benefit can vary. Most providers will offer a quote along with projected tax savings, so you and your CPA have the information necessary to make an educated decision.
The tax savings realized with a cost segregation can vary depending on the type of building, your total acquisition cost, and length of ownership. Self-storage properties vary in type and size and may see reclassification percentages from 15% to as high as 40%. Request a detailed benefit analysis from a qualified and experienced firm who has a history with self-storage properties.
The Trump administration passed the TCJA which is the largest tax reform bill passed in over 30 years. There are significant changes that offer tax cuts for real estate investors. The largest change being the adoption of 100% bonus depreciation for tangible personal property acquired after September 27, 2017. Tangible personal property is defined as assets with a useful life of 5, 7 or 15 years. Therefore, when cost segregation is performed to identify the personal property (5, 7 15-year property) apart from real property (39-year assets), it allows the property owner to capture bonus depreciation on those reclassified property and immediately expense the entire value in the year purchased!
*MACRS: Modified Accelerated Class Recovery System
Marc Goodin, President of Storage Authority LLC,
Ed, you must be excited to have started construction on your self-storage facility?
Ed: Absolutely. We have put substantial time and research into this project and the team is excited to open Storage Authority Houston-Walters Rd.
Marc: First I want to congratulate you and your wife Jenny. It was not that long ago we met as strangers in a Houston hotel lobby and you shared your goals with GP & I. Now we are friends and you are well on your way to making your self-storage dreams come true.
Can you provide us a short background on yourself?
Ed: I do remember that meeting with you and GP and it has been a pleasure working with you all on this project. I have been in the transportation industry working in an executive role for many years and I have also been involved in a few technology startups, but I always have had a passion for real estate.
Marc: I know you are all ready to starting your marketing for your grand Opening. What is your projected construction time?
Ed: Approximately 6 months
Marc: How helpful was the Storage Authority preferred Houston Area real estate broker Richard Anderson?
Ed: Richard was both a resource and an advisor through the entire process. He has an extensive commercial real estate and development background, so his experience was invaluable.
Marc: How many acres did you buy? And How many square feet of self-storage did you get approved?
Ed: We bought four acres of land and will be building a 60,000 sq ft facility in two phases.
Marc: You and I did some conceptual early on and then once your offer was accepted we worked together with your architect & engineer to come up with the final layout for both the buildings and the individual units. It’s a tradition civil engineers (like myself) get a little tough on Architects but other that did you feel the Storage authority process helped you understand the options and choose the right layout for you?
Ed: Yes indeed. You were involved in all reviews of the design process and we made many updates to the plans that gave us a much better final layout that I am confident is positioning us for a strong opening.
Marc: You actually had a very smooth design and approval process but what surprised you the most about the design or approval process?
Ed: Although the internal side of the design/approval was manageable, like any real estate deal I believe staying creative and alert to the details of the transaction is critical. We encountered several hurdles finalizing the deal that brought us to the close.
Marc: What advice would you offer a new franchise owner starting the design process?
Ed: Tap into Storage Authority’s experience and knowledge, while being sure to be mindful of local storage development trends. Bounce ideas off of Marc and collaborate to develop the best solution.
Marc: Obviously getting a loan is one of the very important steps of self-storage development. How does it feel to have your first multimillion-dollar loan?
Ed: Exciting and challenging. I believe the due diligence that we performed, feasibility studies and local research were all keys to forming a solid working partnership with my lender.
Marc: Many people don’t realize there is a lot of work between the site plan design and having the final construction bid & permits the bank requires. Sometimes inexperienced developers wait until after final site plan approval to start, the building design by the Architect and getting complete bids. You had your Architect and Contractor on board during the site design process. Do you agree this was critical for your project?
Ed: It was essential. I believe the site design process is essential to understanding the full scope of a deal’s feasibility.
Marc: What did you find the most challenging so far and why.
Ed: Keeping a detailed checklist, timeline and prioritizing all of the items was a challenge as we neared the final stages of the project. Large companies have teams that manage this process, and, in our case, it was me and the Storage Authority team.
Marc: Did Storage Authority meet your expectations? And what can Storage Authority do better to assist the next Storage Authority Owner?
Ed: Storage Authority exceeded my expectations. As for what can be improved, you all are already doing it. From enhancing your web platform to providing new operating guidelines your team is innovating to help me the other Owners be successful.
Marc: Thanks for share your experience and thoughts. One last question for now. Are you excited to start your self-storage marketing and renting up your facility?
Ed: Marc, we are ready to get this one leased up, so we can get back to work with you and the team on our next project.
Why don’t most self storage implement a marketing plans? Simple it takes a lot of self storage marketing experience, time and money just to develop a marketing and even harder to get your staff to implement. This is great news for Storage Authority Franchise owners because not only do we know what works, you will have your sales and marketing plan ready day one but even more important is we have the secret sauce of how to implement a successful marketing plan.
We Bring the Ritz Carlton Experience to the Self-Storage Industry!
Simply put Storage Authority Platforms & Systems makes for happy customers and allows Storage Authority Franchise owners to charge premium rates for higher profits. Storage Authority Franchises are the market price leaders, often renting up much faster at rental rates higher than their competition.
Sales and Marketing is 50% the environment and 50% people driven. Storage Authority Franchise owners start with the next generation facilities designs and the platforms, systems, tools, training, manuals and a detailed facility-specific marketing plan. The Storage Authority Manager driven system is backed up by both the franchise owner and Storage Authority experts available 24/7. Storage Authority has replaced the losing one-month free marketing strategy (which costs a facility over $50,000/yr. in profits) with “it just feels right” feeling, sales and marketing.
The Storage Authority over the top sales, marketing and customer service philosophy is shared in detail with every potential franchise to confirm they believe in our marketing strategies and plans and are ready to embrace them before they are approved.
Manager Training & Marketing:
Managers are hired for their friendly personality, and sales and marketing abilities and are taught the Storage Authority sales and marketing. Some examples items managers learn starting day one:
Storage Authority managers have detailed scripts they must learn and adhere to including the following scripts:
Storage Authority managers have a list of daily, weekly & monthly marketing duties they must adhere to that is completed because they are completed regular they become a habit. Examples:
Special Marketing projects and new marketing projects.
Storage Authority New Generation Facilities
Storage Authority Mulbury FL
Storage Authority New Generation Service:
Storage Authority provides:
Storage Authority New Generation Marketing
Storage Authority -Target Marketing Partners:
Co-operative marketing and referral partnerships opportunities
Great for cross-marketing
For their move-in Packages – Self Storage Rack Cards with a coupon for move in packets, helps leasing consultants overcome an objection of downsizing to an apartment.
Do they do move in Packages? Resource Center?
Auto/Boat/RV – (their clients may need a place to store these) Homeowners – Buying/Selling – they call their insurance provider – may need temp storage or downsizing.
What marketing opportunities with local school to participate in.
Families need quick storage to clear out the house for sale, time to grieve and then go through stuff and decide to keep or give away.
There is an art and a science to presenting auto-pay to the self-storage customer but there is a tremendous value for both the customer and the self-storage facility.
The presentation of auto-pay is everything, how you say it, how you deliver it and the sub-conscious triggers the customer reads all work as a synergy to optimize your auto-pay program. With Storage Authority Franchising we have the system in place for you to maximize your revenue and streamline the process.
We love customers on auto pay because they save us time (for marketing) Typically only the few who put themselves on auto pay get on auto pay. Even if asked if they want to go on auto pay say no because most yes or no questions naturally end up with as a no. This one is a no-brainer. It just takes learning the script and techniques mandatory and one hour of training and the proper lease. Because people stay 2 extra months if they are on auto pay an extra 10 auto pays a month is worth $30,000 a year.
When presenting the hard copy lease, Storage Authority may be the only one who has this option on the front page of a lease making it easy to present and get a yes at just the right time. And no extra paperwork like every other facility. Of course, we had to pay a self-storage attorney to set it up to make sure we met the law, but well worth the investment.
As self-storage evolves, and we make the paperless transition the very wording on how you start the lease presentation will be critical to your success, ” All I need is your ID and the debit card you would like to keep on file.” As you swipe the debit card (debit cards carry less merchant service fees than credit cards) into the software you remind the customer their card will be debited on whichever date their move-in date every month and we will send an email confirmation. You automatically put them on auto-pay by just assuming they want the value of the program. Remember they are also reading your late fee schedule that is on your counter (*See Below example) as your working through the lease presentation. It’s expensive to be late in self-storage there is an immense value to the customer to automate their payment process.
For self-storage owners & operators, auto-pay is, undoubtedly, their best source for obtaining on-time payments. It helps lighten many of the biggest hassles that go along with operating a storage facility—namely delinquent payments, collection calls and lien sales. In addition, too, customers on auto-pay generally don’t think about paying that bill every month or scrutinize the dollar amount they’re paying too closely. Because it becomes just part of their monthly budget many will also stay an additional two months or more as noted earlier. Adding a rental increase also becomes streamlined and more acceptable for tenants enrolled in an automatic-payment system.
Take advantage of the “no late-fee guarantee” program use your tool on the counter to help educate the customer if there is any hesitation. Tell the customer how convenient it is to enroll. Also, be sure to ease their fears about any risks of keeping the card on file by letting them know your software program meets Payment Card Industry Data Security Standards (PCI DSS) and compliance. Customers cards are stored on an encrypted level where managers can only see the last four of the card.
Ultimately, the service should reduce your collection calls and lien sales, as customers on auto-pay will always make their payments on time. Plus, it’s another great service and valuable convenience you can offer your tenants.
Auto Pay Program + Late Fee Schedule
These should be outlined on a single laminated sheet and displayed on the counter or positioned in a plexiglass 8×11 frame very visible on the counter for the customer to read. Many self-storage operators fail to realize how valuable this is. Too often we forget to tell customers about our late fee schedule, or how they are guaranteed no late fees by enrolling in our simple, automatic, debit/credit-card payment plan.
How much of a collections issue would you have if most of your customers were on auto-pay? Quit asking new tenants if they want to sign up for it. Instead, make it part of the lease and sales presentation. For example, you can say, “Our customers love the convenience of our auto-pay program. All I need is your ID and debit card to get started?” More auto-pay customers mean fewer past-due customers and more streamlined revenue for the facility.
Money in the bank following the Storage Authority Franchising system.
Yesterday Kmart/Sears/Macy’s announced another round of store closings.
If you type in kmart & sears closings into google search you will see round after round of store closings. Maybe there is one near you. In the past 5 years Sears has gone from over 2000 stores down to 12oo stores.
Here is a map of the latest round closings. The article above will give the Towns.
While this is a sign that Amazon is killing the big box stores it is also a sign it time to consider conversions for self storage. I recent talked to one self storage developer and he only does conversions. He has done 4 and has each is doing very well. The big boxes are typically in areas of suitable, even high populations so it is a matter of confirming the available demand taking into consideration of the existing self storage.
Conversions typically save you time because they are much easier to get approvals and takes less time to build. Grocery stores are a great conversion as well and they don’t have to be oversized. Often a 30,000 square foot self storage will have a large parking lot you can convert into another 30,000 sf of self storage.
Here is a quick web demand study on one site I randomly choose. This is a great program everyone looking for self storage because what used to take a couple of days is provided in seconds. send me an email at Marc@storageauthority.com to learn more about conversions or this web demand study
If you look to the left you can see the existing self storage demand information. What is real interesting and what makes this site worth checking out is almost all the existing self storage is non climate control!
To More Success in 2018!
You can do it!