Everything You Need to Know About Your Self Storage Investment

Self storage may not be the sexiest investment you've ever considered.

However, a self storage investment certainly is a good way to protect your hard-earned nest egg. It remains a stable option to weather the ups and downs of real estate investments and the wild swings of the stock market.

We'd like to offer you this guide covering everything you need to know about your self storage investment.

Why Invest in Self Storage?

Though it's a hidden gem in the real estate investment market, the self storage business generates more than $30 billion per year in income, U.S. News reported in January 2018 in The Smarter Investor. And with nearly 1 in 10 American households using self storage on a regular basis, it's a market that's not going to disappear or suffer cyclical ups and downs.

Consider these 3 reasons for investing in self storage:

  • Volume: We just mentioned the $30+ billion a year in revenue, and that's spread throughout nearly 50,000 self-storage units spanning more than 2.5 billion square feet of space, all across the United States. From small towns to urban areas, Americans are paying an average of nearly $100 per month to store the stuff they don't want to get rid of. In addition, a growing number of small businesses find self storage a better option than working out of their garage or renting expensive warehouse space.
  • Stability: All of those people storing all of that stuff have made self storage one of the most stable real estate investments over the past 50 years. Since 2012, the self storage industry has grown 7.7 percent annually. Self storage units also average 90 percent occupancy, while normally only requiring 45 percent occupancy to break even. This century's great recession proved that people, even when losing their homes, will invest money to keep their possessions. In turn, the self storage business fared well while residential and other commercial investments suffered dramatic downturns.
  • Simplicity: Operating self storage facilities is infinitely easier than residential or commercial properties. With no plumbing and few mechanicals, the ongoing maintenance costs and headaches are greatly reduced. The overhead costs also are minimal as they require few staff, have low taxes and need only basic marketing. Though turnover is higher than in other real estate investments, the logistics of turning over units are simple and quick.

How to Get Started in Self Storage

Like all real estate investments, several options are open to you:

  • Buy an Existing Business: With roughly 82 percent of the self storage businesses in this country in the hands of private owners, opportunities are available to purchase a business, but could be limited geographically. LoopNet, the largest commercial real estate website in the United States, lists only about 500 facilities for sale spread across the country. Owning the business outright will require you to serve as manager and marketer or hire someone to handle daily operations.
  • Build a New Structure: Before making a decision to build, you'll want to conduct a feasibility study to determine whether there is a market available in the area where you are interested in investing. A feasibility study would cover zoning issues, competition, demographics and other factors to determine if a self storage business in a given area could be profitable. You'll also need to consider construction costs, which have risen recently with ongoing tariffs and reconstruction efforts on the East Coast from the recent hurricanes.
  • Repurpose an Existing Business: Purchasing an existing warehouse or retail space and converting it into self storage will save money over a new construction. You'll still want to conduct a feasibility study to ensure it is a good use of that area and your dollars.
  • Invest in a Self Storage Focused REIT: As of the beginning of 2018, only five REITs (real estate investment trusts) specialized in self storage. But this could be the simplest way to invest your money as others are left in charge of finding, building, remodeling and operating facilities. You still receive the tax advantages and enjoy a solid return on investment.

Tax Advantages of Self Storage

Investors in self storage can take advantage of many tax and other government programs to save money and enhance your ROI:

  • Historical Tax Credits: If you are interested in rehabilitating a historic building, the Historic Tax Credit program allows you to claim 20 percent of eligible improvements against your federal tax liability, a direct savings that's even better than a tax deferral.
  • Opportunity Zones: The 2017 Tax Cut and Jobs Act allowed states to create Opportunity Zones in urban and rural areas that create tax savings for those who invest in economically distressed areas. This program remains in a growth stage as states and municipalities still are applying for opportunity zone status. Initially, the program allows investors to defer capital gains until 2026 or they sell the property, whichever is sooner, and if the investor keeps the property for 10 years, they can increase the basis to the fair market value when they sell or exchange the property.
  • 1031 Exchange: Through a 1031 Exchange, a real estate investor can defer capital gains taxes when they sell one property by reinvesting in a like property. For instance, if you plan to sell an apartment building, you can reinvest in a self storage facility REIT to move from active to passive investment and defer the gains tax until your income is lower, thereby lowering your final gains tax bill.
  • PACE Financing: Though not a tax program, PACE financing is another government backed program that allows investors to obtain private financing with 0 percent down to make energy-efficiency improvements to your property. Because many consumers now expect climate-controlled self storage facilities, this is a great way to make improvements that save money without diluting your investment.

If you have more questions about investing in self storage or are ready to take advantage of this hidden gem in the real estate industry, contact our specialists and learn how easy Coda Management Group makes your self storage investment.

Stats: https://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/articles/2018-01-11/self-storage-is-an-investment-alternative

Loopnet: http://www.loopnet.com/

Historical Tax Credit: https://www.occ.gov/topics/community-affairs/.../fact.../fact-sheet-historic-tax-credits.pdf

Opportunity Zones: https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

1031 Exchange: https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-code-section-1031

PACE financing: https://www.energy.gov/eere/slsc/property-assessed-clean-energy-programs


How to Use IRA funds to facilitate Real Estate Investments

Always dreamed of being a real estate mogul? It won't be quite that dramatic, but your IRA funds could pave the way for your involvement in the world of real estate.

You can follow the lead of a lot of smart self-managed IRA investors. Real estate, including self-storage, is usually the most popular investment for anyone who directs their own retirement account. According to Knight Frank Research, one of the world's largest global property consultants, individuals with ultra-high net worth invested almost a quarter of their portfolios in real property in 2014.

Even in a slow economic period, the return potential and tangibility of property makes investors like you comfortable investing in commercial real estate using an IRA portfolio. With every investment funded, careful consideration of every factor is necessary.

To protect yourself from fraud or violating tax laws, be sure to start with the following due diligence:

  • Real estate owned in a self-directed IRA must be investment property

First and foremost, to avoid tax penalties, you cannot live in the property, either as a primary residence or a vacation home.

  • Consider the implications of "disqualified persons" rules

Any time you plan to tap IRA funds for investments, you need to be aware that certain transactions are prohibited by law. As with any self-directed IRA transaction, the involvement of a "disqualified person" as part of an IRA-funded investment in real estate is prohibited. This means they could not be renters or live in the investment property any more than you, the account owner. Sale, exchange or leasing of a property between an IRA and a disqualified person is also prohibited.

There's more extensive information in IRS Publication 590-A, but generally disqualified persons include 

  • Your spouse
  • Any beneficiary of the IRA
  • Your lineal ascendants/descendants and their spouses
  • The people who are service providers for the plan, or fiduciaries. This list could include advisors, custodians and administrators
  • An entity (corporation, estate, partnership, and so forth) in which you are an owner of at least 50 percent of the voting stock, directly or indirectly
  • An officer or a director, or a shareholder or partner who holds 10 percent or more.
  • Examine the potential investment opportunities

Ways to invest IRA funds in real estate run the full range, from self-storage facilities and other commercial property to residential property, REITs, multi-family properties, strip malls, non-performing notes, REOS, deeds of trust and mobile home parks.

  • Research before committing

Just like you would before entering into any investment, make sure you have ample information before selecting a real estate investment that involves self-directed IRA funds. Due diligence means the collecting information on the cost and benefit of the investment compared to the risk.

A real estate due-diligence checklist includes

  • Understanding which parties will be involved in the investment
  • Checking for complaints on your real estate professional's record
  • Reviewing the expiration on any current lease agreements that involve tenants still in place
  • Undertaking a thorough inspection of the property, including a trusted provider in some situations to determine if repairs are needed
  • Having a working knowledge of any fees and who will be responsible for paying them
  • Calculating an annual "vacancy rate" for times the rental could potentially be vacant to avoid draining your IRA
  • Understanding the closing process may take a while, particularly if you are buying something the bank owns
  • With most properties, completing a title search to uncover any encumbrances including easements, rights-of-way, mortgages or claims
  • Figuring out if you would need a manager for the property and how much that would cost
  • Examining any current or potential environmental issues, which could include hazardous waste or contamination
  • Seeing if you'll need any insurance and verify that a company is able to issue such insurance in the name of the IRA.
  • Tax Repurcussions – Consult your accountant

Post due diligence:

Once you've made sure the real estate investment is possible and could be profitable, keep in mind these other important facts:

  • The property becomes an asset of your IRA and it holds the title. As an investor, you cannot purchase property you, your spouse or descendants already own (or your ascendants either).
  • Any income and expenses that are generated by the property can only flow through the IRA, not your personal or other business accounts.
  • An IRA is able to get a loan to fund a purchase.

Coda Management Group can guide you through the process of maximizing your IRA funds for a prime real estate investment: self-storage units. 


How A 1031 Exchange Can Expand Your Real Estate Portfolio

Whether you're dealing with a life change or just a change in real estate investment strategy, the IRS's 1031 exchange option offers you the opportunity to defer capital gains taxes.

Seasoned real estate investors probably have taken advantage of the 1031 exchange many times. However, newer investors may not understand all the advantages a 1031 exchange can provide to their investment portfolio.

What Is a 1031 Exchange?
The IRS explains and has long recognized like-kind exchanges. You do not have to pay capital gains under Section 1031 of the tax code as long as you continue to hold your investment in the like-kind property.

Under the Tax Cuts and Jobs Act passed by Congress in 2017, 1031 exchanges were limited to real property. Like-kind properties are not so severely restricted. If you sell a residential property, you are not required to invest in another residential property. You can sell an apartment building and invest in a commercial property, such as a self-storage facility.

Through a delayed 1031 exchange,  the IRS also gives you the opportunity to sell one piece of property then reinvest in another like-kind property within a certain period of time. Typically, you must act on the new acquisition within 45 days of completing the sale, and you have 180 days to complete the transaction.

Options for 1031 Exchange
Options for how you could take advantage of a 1031 exchange will vary depending upon your situation and your investment strategy, but here are a few scenarios that might inspire ideas for your situation:

  • You are divorcing or dissolving a business partnership and need to split the assets of a commercial building. You sell the property, split the assets and reinvest your portion in another real estate holding within the 45-day window, deferring your portion of the capital gain.
  • You have owned and managed a 20-unit apartment building for 25 years, and are now ready to retire and slow down. You sell the property and reinvest in less-stressful type of property, such as self-storage units that require less hands-on management. You also could invest the money into a real estate investment trust (REIT) or another type of crowd sourced real estate investment where another party manages the properties and you are now a passive investor.
  • You are an up-and-coming real estate investor who owns a 4-plex as well on a 10-unit residential apartment building, and you're ready to upgrade to a 25-unit apartment building. First, you need to make sure you've held both properties for at least 12 months, or the profit from a sale is taxed as regular income rather than a capital gain. This could be a situation where you need to take advantage of the reverse 1031 exchange option to buy the new property, then market your existing holdings.
    Maybe none of these scenarios apply directly to you, but they can at least get you thinking about the strategy behind your real estate investments. One of the more stable options for real estate investing is self-storage units and have remained one of the safest real estate investments over the past 50 years. Since 2012, self-storage has seen 7.7 percent annual growth, according to statistics from IBISWorld.

To learn more about how an investment in self-storage real estate could be a solid performer for your investment portfolio and how a 1031 exchange can benefit you, feel free to contact us.


A Comprehensive Guide to PACE Funding

Lowering costs and maximizing returns on a real estate investment is integral to the overall success of an investment portfolio. As such, real estate investors are turning to energy efficiency, renewable energy, and water consumption to increase the value and lower utility bills on their investment properties. 

Not every property owner or investor has the capital required to self-finance the upfront costs of clean energy projects. If the building owner has poor credit, obtaining funds from a financial institution can be next to impossible.

That's why so many are turning to PACE to finance their projects. The Property Assessed Clean Energy (PACE) initiative offers $0 down long-term financing for clean energy improvements to properties, which can be repaid on the property taxes. 

Coda Management Group has compiled a comprehensive guide to PACE funding. If you're considering making upgrades to an investment property, keep reading to find out if PACE is right for you.  

What Is PACE?
PACE programs offer long-term private financing for renewable energy and energy efficiency upgrades to residential and commercial properties. 

The PACE program is legislated at the state and then municipal level. PACE legislation allows for improvements to buildings to be funded by private capital and repaid through a long-term tax assessment. 

Getting a PACE Loan
The process of obtaining PACE funding can be summarized in three steps.

1. Framework - A state passes legislation that allows a county, local, or municipal government to establish a PACE program. 
2. Project - Authorized PACE lenders help business owners choose energy improvement projects that are both economical and in line with each owner's business objectives.
3. Financing - PACE programs process applicants, approve projects, and make funds available to building owners. Once funds are distributed, the PACE lender attaches an assessment to the property's tax bill.   

Repaying a PACE Loan
PACE loans are repaid on an annual basis as a line item on the property tax bill. The length of the repayment term can be up to 20 years, however, it cannot exceed the life expectancy of the upgrade.

For example, if a PACE-funded project involves the installation of a water heater and the life expectancy of the water heater is 12 years, then the repayment term cannot exceed 12 years.

What You Need to Know About PACE
While there are many successful yet different business models of PACE programs throughout the country, there are a few important keystones that hold true for every PACE program.

  • PACE is voluntary for all parties involved.
  • Can cover 100% of a project's costs and fees, including labor and project development
  • Financing terms of up to 20 years
  • May be combined with incentive programs on utility, local and federal levels 
  • Pace-funded projects are permanently affixed to the property.
  • PACE assessment is filed as a lien on the property

What Will PACE Pay For?

  • PACE funding can be used to finance renewable energy installation, energy efficiency, water conservation, and natural disaster preparedness projects. 

Eligible Upgrades
PACE covers the following upgrades and more.

  • New heating and cooling systems
  • Lighting improvements
  • Solar panels
  • Water pumps
  • Insulation
  • Roofing
  • Motors 
  • Fuel cells

Eligible Properties

Almost any type of property is eligible for PACE-funded projects. 

  • Residential
  • Multi-family homes
  • Commercial
  • Industrial
  • Non-profit
  • Agricultural

Commercial PACE (C-PACE) has funded nearly 1700 projects totaling $712 million and created over 10,000 jobs. More than two-thirds of the projects funded ranged between $75,000 and $750,000.

Residential PACE (R-PACE) has approved over $5 billion to fund 220,000 home upgrades. 42,000 jobs were created from these projects.

How Is PACE Different?
PACE loans differ from traditional financing options in several important ways.

  • Down payments -- No down payment is required.
  • Selling the property -- PACE financing is attached to the building instead of the owner. When a property owner obtains PACE financing, the property is used as collateral. If the property is sold before the PACE-funded project is repaid in full, the balance owed remains attached to the property and becomes the responsibility of the new owner.
  • Equity Vs. Credit Score -- The amount of PACE financing a property owner qualifies for is determined by the property's equity instead of their credit score. This makes PACE a viable financing option for property owners who want to complete clean energy projects on their property but have poor credit.

Where Is PACE Financing Available?
Legislation that enables PACE is active in 35 states and Washington D.C. There are currently active PACE programs in 20 states and D.C.   

To find a PACE program operating in your area, click here.

Looking for Investment Opportunities?
Real estate investors often have reservations when it comes to investing in high-risk areas like apartment complexes. Coda Management Group connects return-driven investors with a safe alternative: self-storage.

With an annual growth rate of 7.7% since 2012, self-storage has been one of the safest bets in real estate investment for the past 50 years. Coda Management Group makes investing in self-storage easy. Schedule a call today to learn more.


Five Reasons People Use Self Storage

Self storage facilities are popping up all over the world. They are becoming an extension of the way we live our lives. They are used to store everything from furniture to sporting equipment and everything in between. As a society, we all know it is hard to give up your possessions. These are things that are purchased with money earned or have sentimental value. If you don't use self storage but are curious why others do, here are 5 reasons that people regularly rent space at self storage facilities. 

Store Seasonal Items. Today, many people live in homes that are short on storage space. This means that they are looking for ways to store items that they don't use on a regular basis like holiday decorations or dishes and seasonal clothing items. Self storage offers a a climate controlled space that acts just like a closet in your own home. Your items are accessible at any time, making it easy to retrieve things as needed. 

Warehouse Sporting Equipment. As people amass more and more toys, there is less and less space for them. Think about items like surfboards, skis, bikes and camping equipment. All these items take up value real estate in your home or garage. Many people choose to store them in storage facilities. It is easy to just stop by on your way to the beach or before a ski trip and pick up what you need then head out for the day.

Short or Long Term Furniture Storage. Moving is a fact of life. Whether you are moving permanently to a new city or taking on a short term assignment, using a storage facility can help. Here are three scenarios where storage facilities are helpful:

1. You are moving to a new city and are not sure about your long term prospects, you may choose to store your items until you find a home to purchase.

2. You are coming from a single family home and now you are living in a smaller dwelling. Storage is a great option until you decide your permanent situation.

3. You are taking an assignment overseas, you may want to store your items until you return while you rent out your house or, in some cases, until you find a new rental apartment on your return.

Extension of an At Home Businesses. As more people start their own businesses, they are finding that keeping items for their business at their home is impractical but taking on the high overhead of traditional office space or a bay is beyond their reach. Self storage prices are much more budget friendly for any self starter. It's great place for someone to store their tools, materials or office equipment. Most storage facilities have 24/7 security built in so they know their inventory is safe.

Move Loved Ones Possessions. With multi generational care become more prevalent, people young and old are finding themselves on the move. For older relatives, moving into assisted care facilities or downsizing from a large single family home can be stressful. Storage facilities offer the opportunity to put sentimental items or larger furniture pieces into storage until relatives can make a family decision on what to do. In some cases, these items may be there for a few months until a grandchild graduates college and needs some help furnishing their new apartment.  

There is no shortage of ideas of how people can use self storage facilities. Whatever their stage in life, storage facilities offer customers flexibility and ease of use. It's a place to put items that you may not use on a daily basis. 


Why Self Storage?

Self Storage: The Better Investment to Residential Real Estate

Real estate investors have focused on residential properties to help grow their investment portfolios. While residential properties rely on a strong rental market to turn a profit, the type of property you own or where it is located can create great risks subject to the volatility of the market. Below are some of the reasons that self storage make a better investment to traditional residential investments. 

Consistent Overhead Costs

Self storage facilities have low and constant overhead costs. There are minimal management costs, electric, air conditioning and maintenance required. Unlike residential units, there are minimal cleaning and repair costs associated with the moving process. There is no need to keep a repairman on staff or provide amenities that quickly drive up overhead costs. Once the startup costs are incurred, there are lower overhead costs for upkeep.

Many Sources of Income Means Lower Risk

Because storage facilities rent hundreds of units, at a lower rate than residential units, it is more likely to have a few unoccupied units. The average cost of a self storage unit depends on the size of the unit but a 10'x15' climate controlled unit can cost anywhere between $115-$150. Compare that to the monthly cost of a residential unit in your neighborhood and you can understand how a tenant would be less likely to gather their belongings to move down the street to a different facility over a small rent increase.

Recourse for Unpaid Rents

In the residential market, the biggest fear is unpaid rents. Unpaid rents, for many investors, can translate into unpaid mortgages. A few unpaid months of rent and you could be facing foreclosure. In many cases, there is no way outside of costly court proceedings for owners to get the money they are due.

In self storage, if a rent goes unpaid, the owner has the right to sell the contents of the storage unit to pay off the debts. Self Storage Industry Statistics estimates that the average price of a storage unit auction is $425 with about 155,000 auctioned annually. This translates to about $65 million recovered annually. 

High Demand, Large Profits

In a 2017 report posted by The SpareFoot Storage Beat, it is estimated that more than 9% of the US households rent storage units. Looking at the overall revenue, this means that the industry brings in $38 billion per year in the US with self storage unit construction reaching more than $3 billion this year. Forbes estimates the typical profit margin for self storage owners is around 11%. 

Recession Proof

Self storage is something that people use regardless of the economy. Many self storage facilities are full of items that were purchased when the economy was on the upswing like new sporting equipment. When the economy takes a downturn and people need to downsize their living accommodations, they look to self storage as a less expensive alternative to storing items than the expensive square footage of living space. 

For some renters, self storage is a long term option for delaying difficult decisions. They may be looking  to store items from an elderly relative's home who has entered long term care or as a place to store household goods during a divorce. Regardless of the economy, these items will stay in storage until the life events that place them there are settled. 

As you start to examine all the options for your long term real estate investment, don't overlook self storage facilities. They provide a great opportunity for high returns at a lower risk than residential real estate investments. 


10 Reasons Self Storage Investing is Better than Multi-Family Investing

1.) Property Management is less labor intensive. Operational costs are reduced due to less maintenance issues (ie less plumbing, toilets, etc.)

2.) Operators can evict tenants quickly due to non-payment. Some states have lengthy processes to evict tenants in apartments. However, with self storage, lien laws gives the ability to sell contents of the storage unit after 90 days of non-payment and re-coop lost revenues. 

3.) Recession & Inflation Proof - In good times, consumers buy more "stuff". In bad times, consumers downgrade their living environment, but don't necessarily sell their belongings. Also, in self-storage, there is no rent control that exists in larger metropolitan cities around the country. Renters don't take the time to move their stuff to a new facility down the street over a $10/month rent increase. 

4.) The US is a country of consumers. The "Amazon effect" has simplified the purchasing of goods.

5.) Transient Population - This "Millennial Effect" where the younger generations enjoys being mobile, but still have possessions to store in the meantime. This holds true across other demographics as well. 

6.) The conversion process from an empty warehouse space to a self-storage facility is simpler than if you were to convert to apartments. There is far less framing, drywall, plumbing, appliances, tile, etc. 

7.) Warehouse Supply - Empty warehouse space is everywhere across the U.S. Think of how many Sears Stores and Kmart's have gone out of business in the last decade. These serve as potentials for a self-storage conversion.

8.) Self-Storage Occupancy is above 90% nationwide.

9.) Self-Storage has the Lowest Default / Foreclosure Rates in Commercial Real Estate. 

10.) Ability to Cash Out / Re-finance is much easier than with an apartment building since Self-Storage is a less volatile product when it comes to vacancies. 


What You Need to Know About Opportunity Zones

What You Need to Know About Opportunity Zones

Trump's tax reform law of late 2017 is drawing renewed interest from venture capitalists and philanthropists due to the tax shelter it creates. A program hidden in the law aims to tap into an estimated $6.1 trillion in unrealized capital gains to spur economic growth in low-income communities throughout the U.S.

The Opportunity Zones program utilizes tax incentives, similar to a 1031 Exchange, to encourage investors to take advantage of investment opportunities in specific communities.

Keep reading to learn what you need to know about Opportunity Zones.

Who Created Opportunity Zones?

According to the IRS Q & A website, Opportunity Zones were established by Congress in the Tax Cuts and Jobs Act, which passed on December 20, 2017.

Opportunity Zones were inspired by the Investing In Opportunity Act, a bipartisan community development program that was championed by senators Tim Scott (R-NC) and Cory Booker (D-NJ), representatives Ron Kind (D-WI) and Pat Tiberi (R-OH), and nearly 100 congressional cosponsors.

Economic Innovation Group (EIG) first conceptualized Opportunity Zones in 2015 in Unlocking Private Capital to Facilitate Growth in Distressed Areas, a whitepaper written by Jared Bernstein, an integral member of the Obama Administration's economic team, and Kevin Hasset, the chairman of the Council of Economic Advisers and co-author of the book Dow 36,000.

What Is an Opportunity Zone?

An Opportunity Zone is an economically challenged area in an urban or rural community, in which federal tax incentives are offered to investors to reinvest their unrealized capital gains into these areas. 

A location may qualify as an Opportunity Zone once it has been nominated by the state and its nomination has been certified by the Secretary of the U.S. Treasury. The first set of Opportunity Zones were designated on April 9, 2018. The Opportunity Zones cover parts of 18 states. Click here for the map (Adobe Flash plugin required).

What Is a Qualified Opportunity?

When an investor realizes a gain from a sale or exchange of a capital asset, they have 180 days from the date of the sale or exchange to reinvest the gain into a qualified partnership or corporation. 

These funds must be used to significantly improve eligible properties, businesses, and partnership interests located within the zone. 

It is the responsibility of the entity and the taxpayer to self-certify the investment. Later this summer, the IRS will release a form that eligible taxpayers must complete and attach to their federal income tax return for the taxable year. No approval or action by the IRS is required.

How Do Opportunity Zones Benefit Investors?

There are three tax incentives available to investors who reinvest their capital gains into Opportunity Zones.

These benefits are available to all taxpayers who invest in qualified assets, regardless of whether they live in an Opportunity Zone or not.

1. Temporary Deferral of Tax
Taxpayers may elect to defer tax on prior gains if they have been reinvested into a qualified Opportunity Zone within 180 days of the asset sale. The tax may be deferred until the earlier of the date on which the investment is sold or exchanged, or until December 31, 2026.

The election to defer tax on that gain should be made on the federal tax return for the year in which the tax on that gain would be due had it not been deferred. IRS form 8949 must be completed and attached to the tax return as part of the deferral election procedure.

If you wish to defer taxes on a gain acquired during 2017 and have already filed your tax return, you may file an amended return and attach a completed IRS form 8949. 

2. An Increase in Basis 
Up to 15% of the original gain that was reinvested into a qualified Opportunity Fund may be excluded from taxation, depending on the amount of time the investment is held in the fund by the taxpayer.

If the reinvestment is held in the opportunity fund by the taxpayer for at least five years, the basis of the capital gains will increase by 10%. The basis will increase by 5% if the investment is held for at least seven years.

3. A Permanent Exclusion
The interest accrued from capital gains invested into a qualified opportunity fund may be permanently excluded from taxation if the investment has been held in the opportunity fund by the taxpayer for a minimum of ten years before it is sold or exchanged. This exclusion only applies to gains accrued after investment into an opportunity fund.

Where Can I Find Out More About Opportunity Zones?

A current list of approved Opportunity Zones is available at Opportunity Zone Resources. The list is updated in real-time as more Opportunity Zones are approved. A complete list will be published in Spring of 2019 once all Opportunity Zones have been nominated, certified and designated.

More information about Opportunity Zones, including legal advice, will be released by the Treasury Department and the IRS in the coming months. Information will be available at Treasury.gov and IRS.gov as it becomes available.


Pace Nation. Pace Market Data, 2017. http://pacenation.us/pace-market-data/

Pace Nation. Pace Annual Impact Report. 2017. http://pacenation.us/wp-content/uploads/2018/08/2017-C-PACE-Annual-Impact-Report-Optimized-1.pdf

Pace Nation. What is Pace? 2017. http://pacenation.us/what-is-pace/

Pace Nation. Pace Basics. 2017. http://pacenation.us/wp-content/uploads/2016/10/PACEBasics_2016_10_7.pdf


Self Storage: An Alternative Real Estate Investment Opportunity to Multi-Family

We have all seen the various ways to invest in real estate. HGTV has made an entire network devoted to flipping houses, purchasing homes with income potential, or finding an investment property at the beach.  As passive observers, the TV show hosts demonstrate how much income you COULD earn if your home were rented or sold at a certain price. However, these forms of real estate investments come with serious risks and the real estate market can be fickle. What a home is worth today may not have the same value tomorrow due to interest rates, market conditions, or the market collapsing altogether.

Meet Self Storage, a Safer Investment Opportunity

If you are unfamiliar with the self storage market as a form of investment, a great place to start is US News and World Reports article from January 2018.  As one self storage investors states, "Self-storage does even better during a recession because people need a place to store their stuff." Another investor states, "When the economy is good and people buy too much stuff they have to put it in storage." This is one of the many reasons why self storage is a great opportunity.

Self Storage vs. Apartments 

Self storage properties offer investors a unique opportunity without the challenges of other types of property. Owning a multi-unit apartment building usually comes with finding a long term tenant. Many issues can arise during the tenants stay like plumbing, electrical or upkeep of the grounds. This includes expenses incurred during and after a tenant leaves the property. In cases where the tenant refuses to pay or leaves the premises, eviction proceedings can take months. Remember, if the property is unoccupied or rent is not paid, no one is collecting any income.

Self storage facilities have very little maintenance involved. You don’t have the plumbing and electrical for bathrooms and kitchens for each individual unit as you would have in apartments. If a tenant does not pay their rent in the self storage facility, goods can be sold at auction leading to a much easier eviction process. This helps protect the owners and investors by turning the unit over in a more efficient manner than with apartments.

Another important factor to point out is self storage is not as price sensitive as apartments. Increasing the price of a locker 4% will not cause someone to take the time to rent a boxed truck and move their belongings to another facility. Raising the rents in an apartment 4% may cause the tenant to look for another apartment.

What is Driving the Demand for the Self Storage Market?

In July 2018, Benjamin Burkhart, the owner of storagestudy.com, notes that many storage facilities have longer term tenants. The need for storage arose out of circumstance, tenants would rather not revisit. Divorce, a death in the family, convenience all lend their hand in these decisions to continue to make payments rather than make a large investment in a moving truck and labor to move items. While these types of renters do not make up all the customers, when coupled with those who have other life events like moving out of college or packing up an apartment for a stint overseas, it does mean that older facilities are more likely to hold on to their clients, creating a demand for space and a need for more storage facilities. 

Another key factor is the location of the self storage facilities. Areas that are densely populated, with a high portion of renters, or near a recreational resort are likely to see greater occupancy rates. For those located in urban environments, space is at a premium, so renting storage space is a more economically sound alternative. For areas with a high portion of renters, storage rental may be a necessity prior to a  lease ending or beginning. For resort areas, storing equipment, tools, boats and vehicles will be a requirement for some second home owners.

The self storage industry is here to stay. If we continue to amass items that we are reluctant to let go, the industry will keep growing as will the need for more facilities. 



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600 Waukegan Road, Suite 129, Northbrook, IL 60062

+1 847 272-7775

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Sunday: Closed

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