What Makes Parking Spaces a Good Investment
To me, a good investment is something that either generates consistent cash flow or appreciates in value over time (or preferably both).
Parking spaces are a fascinating and truly unique form of real estate investment. The uniqueness lies in their scarce availability and soaring demand, especially in major cities. Data reveals a growing trend towards investing in parking spaces, underscoring its potential as an unconventional yet profitable investment option.
In bustling cities like New York and San Francisco, parking has become a luxury. Individual parking spaces can fetch a price of over $80,000. Yes, you heard it right - that's the price for a standard parking space in a garage. It is worth noting that the pricing can significantly vary depending upon the availability. For instance, a property offering two parking spaces versus one that doesn't offer any can have a stark price difference, sometimes crossing $200,000.
From an income standpoint, parking spaces are routinely listed in San Francisco neighborhoods like Russian Hill and Nob Hill at prices of $300 to $400 per month.
Estimating taxes at 1.5% of an $80,000 purchase price and no other expenses, the total expenses might be $100 per month. If you could pull in a $400 rent, that would be $300 in profit per month or $3600 per year.
That is a 4.5% return, which sounds paltry, but the people buying these spaces as an investment are probably comparing it to buying residential real estate in San Francisco. They probably see these 4 advantages:
Advantages of Investing in Parking Spaces Over Residential Real Estate
1.) Superior Yield – residential real estate in SF generally yields less than 4.5%. As an example, you could not buy an $800,000 condo and lease it for a $3,000 per month profit (to get this much profit, you would probably have to have it leased at $5,000 or more before paying condo fees and taxes.)
2.) Lower Entry Point – land value in San Francisco is sky high. It is not uncommon to see a tear down sell for $1 million or more due to the land value. While a parking space probably cannot be financed, even using an 80% loan-to-value ratio, you will be hard-pressed to find anything you can buy in San Francisco for $400,000.
3.) Not Management Intensive – unlike managing residential rentals, parking spaces are not management intensive. They just sit there. They don’t require a lot of repairs. If someone stops paying, you can probably just have them towed and not have to deal with taking them to court, paying them with cash-for-keys, etc. and all the other tenant-friendly nonsense.
4.) Dodging Rent Control – One of the prominent downsides that residential landlords face is rent control. In layman terms, this regulatory measure limits the amount that property owners can charge for leasing their properties. While rent control might force a residential landlord to rent out their property below the market value, it's highly unlikely to impact those who lease parking spaces.
Parking Space Investing is Risky
It's essential to note that like any investment, parking spaces come with their own risks and challenges. Garnering substantial income from this venture would require owning a sizeable number of parking spaces. Moreover, having a large inventory often leads to increased managerial responsibilities and unpredictable issues.
There is no guarantee that parking spaces will appreciate in value. They probably were worth more money in 2007 before the recession, than they were worth in 2016.
Emerging trends, such as self-driving cars and the popularity of ride-hailing services like Uber and Lyft, might reshape the car ownership landscape, potentially impacting the demand for parking spaces. These transformations beg us to reconsider traditional investment norms and stay abreast with changing dynamics.
If you could just get out of your car and the car could park itself, then would it really need to be parked on property?
Could it not drive 5 minutes away (or 20 minutes away) to another location and park itself?
Will owning a car still carry the same importance in a future where you can summon a self-driving vehicle at your convenience? This thought-provoking question deserves some contemplation as we navigate the financial implications of evolving technology.
These unanswered questions stir a sense of uncertainty. Should you place your bets on the right trajectory, the return on investment could be sizeable, offering a steady income stream that could be cashed in at a significant profit even years later. But, err in your speculation, and you may end up owning a depreciating asset. It's the risk and reward of investment – where understanding the market and timing your entry might make all the difference.