Becoming a Garage Landlord

[veeryder]

8 years, second post. Learned a lot here though.

I am considering the purchase of a 30,000sf brick building. Mid 60s era, 15' interior height, doors big enough to drive a tractor trailer through. Good roof, great power.

The reason? I can purchase it for less than the cost to build a 4 car at my home. But even I cannot use all 30Ksf. So I am thinking on dividing the building into rentable work spaces for startup tradesmen. An industrial arts incubator.

My insurance guy is telling me my policy will run me $4-5,000/month, which trashcans the whole idea.

Anyone have any experience with similar situations, and insurance insight?
Thanx, Jeff

 

[Richard Cranium]

make storage units out of the extra space, Around here people are always looking for storage units.
In fact our old K-mart was just sold and is being made into small storage units.

 

[BillK]

Might want to check with a different insurance agent ? I own the two units that my business is in and our entire building is almost 34000 sq ft. I am part of the condo association and the entire building does not pay that much a year for insurance, never mind monthly. Unless rates are entirely crazy where you are for some reason I think you should check around.

 

[MG44]

Sometimes the incentive for an insurance agent to quote a policy they are not familiar with isn't high enough for them... so you get some BS number you just got.

They make initial money on selling a quote and then a little bit here and there by maintaining the account every year. If it isn't familiar with the policy type, he will spend a few hours researching it and if you don't sign with him - he earns nothing.

Hence the BS quote. Find a new agent.

 

[6768rogues]

I would be concerned about a couple of things:
What was it used for throughout its life? At that age, it could have been home to something that caused some kind of pollution that you might have to clean up some day.
Was the roof removed and replaced recently? Commercial roofs are very expensive. Many from that era have asbestos in them and they cost a LOT to replace.
Is there any other asbestos, lead, PCBs, or other undesirable stuff there? You could hire someone to check it out before buying it.
Personally, I would either build the garage at home or form a corporation to own the big one you are looking at.

 

[gnpenning]

Watch out for tenants that may produce any type of hazardous waste.

What was the building used for previously.

Have the ground tested before buying.

Get a new agent and make sure you move all your business.

I.would love to have that much space.

 

[77Birdman]

All of the above regarding any hazmat that may be present. If all is clear, I think I would look into partitioning off what you need/want, and sublet the rest as storage. See if that would make a diff. in the ins. Also, do your homework before you rent out. I would make sure that no manuf. was done and control what gets stored. I know its kinda counterintuitive of your original thought, but you need to be able to control what goes on inside of your space.

 

[vavet]

I rented 2 bays of a 3 bay garage in downtown Richmond several years ago. I found the guy because one of my friends rented a unit from him. We were both building airplanes. The landlord had units all over the back alleys of Richmond. Some were behind a house and part of that property, but he leased them separately. Some were 10 or 20 bay garage units and he leased then individually.
I can't address the insurance question directly, except to say talk to different insurance agents.

 

[Falcon67]

The drag strip doesn't pay anywhere near that much a month to run races and insuring sanctioned drag races ain't cheap.

 

[engineer2]

Does the building have a sprinkler system? Makes insurance cheaper, but modifications more expensive.

 

[veeryder]

Thanx to all for the replies and suggestions. I have done my due diligence on past use/possible pollution and building condition/materials. There is a sprinkler system, and the building has always been owned by the same business/family. I will continue my search for an insurance company that is comfortable writing what is in effect an indoor industrial park.

 

[kbs2244]

There may be a big difference between a garage, as is parking or storage, and a garage as in a shop, with working on cars.

 

[Randy in Maine]

If I might offer a suggestion....

I have seen a few "condos" or "rentals" made over the years for developers that have designed a project to fit the needs of the guys who do various things like rebuilding alternators/generators, battery and battery cable guys, powdercoaters, fabricators, welder guys, auto detailers, auto electrics, RV "fix it guys" guys, engine builders, and around here "boat guys" that need a place other than their house to do their various trades. I like to see those guys stay in business as they offer good quality and can actually fix things that I need. It might be worth looking into.

 

[firebirdparts]

It would be interesting to know what they were planning to indemnify you for at that price. For instance, would it be something that you are willing to self-insure for?

 

[Wanna Ride]

Buddy of mine does this exact same thing with a building that's about 300,000 square feet. He's got over forty tenants, some are just product distributors, there's a photography studio, a mill-wright shop, a cabinet shop, another similar shop that just makes retail store display cabinets and fixtures, a hydraulic shop, a security company office and garage, a guy who rebuilds pianos, an auto repair shop, and several other businesses that just store inventory and equipment there. Some are renting 10,000 feet, others are renting as little as 900'. Some have just been there a year or so, some tenants have been there for ten years. He also runs his sign/vinyl shop and another business out of the same building.

Just spoke with him about this very subject, this week. All of this and his insurance isn't even as much as you were quoted.

 

[PoorOwner]

Why does it need to be catered to "industrial" use?
How are you going to get power for each tenant to run their industrial equipment?

I would sublet the storage space, business owners who need a place to store their goods etc. or some guys who need a place to store an extra car or two. (but not allow to work on it there)

 

[Vintage Veloce]

I know nothing about this... but I'll shoot off some random comments...

I would assume the insurance is to:
a) protect the owner from liability.
b) reimburse the owner in case of loss.

a) might be solved by other means, like an LLC.
b) might be less important if the rent returns the value of the property quickly.

I'm not suggesting that you might not need insurance, but you might be able to structure things so you need much less coverage.

 

[James-W]

I agree with the storage rental units idea. Around here we have a lot of storage rental units. They all seem to be full and they keep building more of them. Apparently there is a rather large demand for them. I would think storage rental units would be relatively easy to make and easy to rent out. Plus, I doubt the cost of insurance would be very much for storage rental units.

 

[frankthezapper]

Confirm that insurance is in fact per month, not "Oh, I meant per year"

 

[veeryder]

Randy in Maine; that is exactly what I want to do, offer space to those enterprises.

Around here there is a surplus of storage units, none of which offer electricity, water/sewer/or heatable spaces. I am not looking to just earn some money, the goal is to offer a hand up for the small tradesmen who wants to graduate from working out of their truck and expand their business. There are several "arts incubators", and a few "shared workspaces" for new economy type businesses, but for the hands on business folks and serious hobbyists (woodworkers, metal workers, motorsports enthusiasts) little exists.

Ten years ago I visited a small industrial park in California that was rows of metal garages housing all manner of small businesses. There is still nothing like that around here to this day. Also around here it is becoming difficult to even park a vehicle with commercial plates in your own driveway because of condos, homeowner associations, and local ordinances.

I used the word "industrial" in an earlier post because back in the 60's when I was in school the "industrial arts" were the dirty hands courses (mechanics, carpentry, metalworking, plumbing) that I gravitated towards.

I continue to look for the insurance agent with the right coverage at the right price.

WannaRide; if you could find out who your buddy insures with, perhaps I could contact them and see if they write in New York. Thanx again for all the comments and suggestions.

 

[Wanna Ride]

WannaRide; if you could find out who your buddy insures with, perhaps I could contact them and see if they write in New York. Thanx again for all the comments and suggestions.

You bet. He's on vacation and gets back in about around the 7th. I'll call him when he gets back and I'll pm you the info.