Before diving into Storage Condominium ownership, there are some little known tax benefits lurking out there that are fairly new and worth exploring. Cost-segregation is notable.
Essentially, a cost-segregation analysis allows an owner to depreciate certain types of building components and improvements over a shorter depreciation recovery period than the typical 39 years generally used for self-storage facilities. For instance, most site work (paving, curbing, fencing, lighting, retaining walls, storm drainage and other utilities) can now be depreciated over 15 years. Many systems, such as closed-circuit television, controlled access gates, computerized locking or alarm, can be depreciated over five to seven years.
You're probably wondering, "Why hasn't my accountant told me about this?" First, the concept of cost-segregation is a relatively new one. Second, it requires an engineering skill set and expertise most accounting firms don't have have in-house, such as being able to read construction drawings, and knowing construction systems, cost estimating and how various types of IRS asset classifications relate to existing construction and use. A cost-segregation study does not replace the accountant's role in determining taxes or preparing tax documents and forms. It provides information to the accountant so the proper IRS forms may be prepared and the correct, allowable depreciation calculated.
First Republic Bank, located in Palm Springs is providing financing for our storage condominiums. Here are the expected terms. (The below terms are preliminary, as we are still not close enough to completion for exact quotes just yet.)
Pricing terms are subject to change – and reflect a deposit relationship with FRB, including having the monthly payments deducted from a FRB checking account. Fixed rates available to stronger borrowers combined with having/establishing a good deposit relationship with FRB.
If you desire 100% financing and some tax deductability at the same time, a HELOC may be what you are looking for. Using the equity in your home, you can borrow the necessary funds to purchase your storage condominium. Often you can borrow enough to fund the entire pourchase.
A home equity line of credit (often called HELOC, pronounced Hee-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house (akin to a second mortgage).
Further, (subject to some restrictions), you can deduct the interest portion of your loan from your taxes, where with traditional loans, you cannot (personal use, not business use.)
Here is a link to get you started, but almost all major banks provide this service. Shop around as the rates vary quite a bit. -- Bankrate.com
SBA 504 commercial loans are the darlings of comercial loans. The down payment can be as low as 10%, with long amortizations of up to 25 years, making the monthly payments very low. However, the process for this type of loan tends to be lengthy. Set aside at least 60 days for funding.