When you think of income-generating assets, you probably think of traditional stocks, bonds, ETFs, and other financial instruments that will allow you to invest your money and potentially help you get rich. Then there are also real estate investments, which enable you to grow your money and potentially earn a steady stream of cash.
Have you considered a parking lot investment?
Probably not. Parking lots and parking spaces can be valuable, particularly in an urban area with high parking demand. You can generate significant parking revenues that can help you as an investment for monthly income.
What Is a Parking Lot Investment?
Parking lot investments allow you to claim ownership over a parking asset and generate income from operations. These assets can include any facility that owns and operates parking spaces in the short-term or long-term.
Parking facilities come in many forms, including:
Parking or surface lots that a parking lot operator manages are typically found in urban office settings or near residential properties.
You only have a few parking assets in a surface parking lot, such as the asphalt, parking lines, and bumper blocks.
An operator also manages parking garages. These multi-deck facilities are covered and can be extremely expensive to own and operate, and their success or failure is primarily determined by demand and the overall parking market.
Depending on the location and the parking facility, an individual can potentially profit from such a garage.
Temporary Parking Spaces
Short-term lots that are temporarily converted into parking lots. These parking lot investors only need to manage the parking lot for short times during the year when they can turn their property into a parking lot.
For example, haunted houses and mazes are built on farms during Halloween, attracting many seasonal visitors. I often go to the mazes near Gilroy and notice that the adjacent properties convert their land into temporary parking lots to generate passive income from real estate land that would not be used otherwise.
Real Estate Crowdfunding
It is also essential to recognize that you do not have to own or operate a parking lot to be considered a parking lot investor. You can invest in lots by investing your money with a parking lot operator with experience in these areas. These investment opportunities may allow you to gain from car parks.
Crowdfunded real estate allows you to pool money with other investors and have an experienced operator manage the investment.
EquityMultiple is a real estate investing platform that gives accredited investors direct access to individual commercial real estate investment opportunities, allowing you to review, compare, and personally choose the deals that meet your investment criteria. Join EquityMultiple with low minimums of only $5,000 investment.
You must meet the accredited investor qualifications to select investment opportunities such as parking lots.
Stocks and REITs
Finally, remember that you don’t need a physical structure to invest in parking lots. As always, many stock investments will enable you to invest in parking lots without knowing anything about the specific parking lot they own.
It is also possible for REITs to own parking lots, meaning that these businesses will provide you with a heavy dividend that they generate from the parking facilities they own and operate. This has an added benefit: If you are familiar with the stock market, you can use parking demand to your advantage and make an appropriate investment.
Some popular options are PARK24 Co. Ltd (PKCOF) and Mobile Infrastructure Corporation (BEEP). Incidentally, BEEP was a result of a SPAC deal.
Since most parking investments are not publicly listed, the liquidity of investing with stocks and REITs is poor, and caution is advised.
Why Invest in Parking Lots?
Parking investments and parking owners can see a massive benefit for the savvy investor.
First, it is essential to consider that parking facilities – like self-storage facilities or other real estate – can have many of the same benefits as owning a home or investing in a commercial building and renting that property out.
They can generate regular and massive cash flow. This cash flow can cover the operation and costs of operating any of your parking lot investments.
Low Maintenance and Evictions
However, parking lot investments have only some cons of residential real estate. Problematic parking facility tenants usually aren’t a problem, and it is difficult to see a renter in your parking lot facility, causing massive damage to the property.
Also, the possibility of needing to evict a tenant with a long, drawn-out court battle is relatively low. And eviction moratoriums would be hard to justify for a parking facility.
It is crucial to keep in mind the trends of the overall assets. Again, it is not as if you own a single parking space: You own or invest in an entire parking facility. These investment opportunities will act like real estate because the investment will appreciate if the land is scarce.
It doesn’t matter if you own a surface lot or an entire parking garage: The investment will grow with the rest of the real estate market. Yes, you will need to keep the asset up to date, but if you manage your investment correctly, this shouldn’t be a significant problem.
Finally, a parking lot can generate more cash as demand increases. As noted above, parking lots can pay expansive returns to investors, mainly if a lot is near commercial real estate, in a growing city, or a growing neighborhood.
As demand increases and the population grows, a parking lot operator can charge higher rents. While some cities cap rates, you should be able to work within the existing rate structure to return a healthy profit.
Quick Learning Curve
When you buy your first rental property, you will understand how much work is involved from the start to the end, from learning how to evaluate a rental property to understanding the basics of being a landlord and dealing with maintenance requests.
Low Management Overhead
Paying an operator to run your parking facilities is cheaper than hiring a property management company. You have substantially less management compared to most other popular methods of investing in real estate.
The parking lot investment is as easy as a NNN lease.
Covered Land Plays
Many real estate investors invest in vacant land, hoping for developments enabling them to sell the ground at a higher price to developers. Unfortunately, holding on to vacant land costs a lot of money in property taxes and results in no income during the holding period.
Parking lot investment can be viewed as a covered land play. You receive income from the parking lot and wait to sell the land and air rights to anyone who can build vertically on the plot.
How Can Parking Lot Investments Be Risky?
As valuable as an investment in this asset class can be, there are also many significant risks that you need to keep an eye out for.
Harder To Finance
The best advantage of real estate investing is the usage of leverage in the form of loans. Very few financial institutions can underwrite this niche compared to residential or commercial real estate. Creative financing strategies may also prove difficult as you must educate the lender before they can lend you the money.
Tied to the Economy
First of all, as today’s economy proves, broader economic conditions often determine the success of an investment in this unique niche, regardless of the costs, asset generation potential, and overall benefits in the parking lot.
You need no further proof than what is happening today: With work from home becoming popular, the office market is tanking, and these economic factors are dramatically reducing demand for parking. As demand for parking declines, so does the profit-generating potential of this market.
However, in economic distress, the loss of office workers will further dampen demand for parking lots.
Second, parking lots can be expensive – particularly parking garages. As inflation continues to be a significant problem, costs of new developments and parking lot construction will rise, complicating any efforts and meaning that many investors may need extreme caution when investing in a parking lot.
Buying an existing parking lot would be expensive since long-term investors hold onto it as a covered land play.
A parking lot can only partially be considered passive income, and this is genuinely a management-intensive niche. There are many factors to consider: Location, marketing, rate setting, short-term vs. long-term contracts, managing competition, adjusting to the market, and more.
The income generated from parking lots largely depends upon the success or failure of a parking lot operator. You may be in trouble if you invest in a lot with a bad operator.
With the increase in autonomous driving capabilities, ride-share drivers feel the impact of robots taking their jobs.
I have frequently relied on the Waymo and Cruise autonomous cars in San Francisco to drive me around safely. Elon Musk has the ambitious goal of Tesla’s robo-taxis, and the current FSD is being used to prove the concept.
The demand for parking facilities could drop if I can have my car drop me off at a location, and then it drives itself back home automatically.
Why Should I Look for in Parking Lot Investments?
There are many investment opportunities and the potential for significant investment returns in the parking industry. This money can be very similar to rental income or real estate. An investment or ownership in the parking industry generates regular cash that you can use for additional reinvestment opportunities. However, there are a few things you need to look for before investing in parking facilities or a parking garage.
Diversity of Tenants
First, you will want to find a parking garage or parking deck in an area in high demand. This often means getting a parking asset located in urban cores or urban areas. It can also mean operating parking garages where there are no other alternatives, where there is a noted shortage of parking, and where there is a diverse array of populations.
Yes, getting a parking investment near an office park often works well, but remember, there is never a guarantee that you can consistently rely on the one business or industry currently supporting your parking rates.
When office workers’ demand drops, you should be able to rely on tourists using your lots or millennials frequenting clubs.
Good Parking Operator
Second, parking operators matter – and matter deeply. A good parking operator will have experience working with the right market, including one with suitable office buildings or residential establishments. They will know how to market the property, minimize ownership costs, and work with local real estate brokers and owners to ensure a steady flow of individuals traveling into and out of the parking lot.
Third, remember, the local economy truly matters. There was once a time when a place like San Francisco was on fire – now it is hemorrhaging money. No matter how hot one specific neighborhood is, a parking investment can only be successful if the broader economic trends are successful. Many large cities may meet the appropriate metrics, but you must examine what works best for you.
Finally, consider broader trends in the local economy.
- What is the long-term development potential of the area you are considering investing in?
- If you are looking at one lot in particular, what is the feel near the region?
- How is the real estate market performing?
- Is the population growing?
- Is the area near public transportation?
- How high is car ownership in the area in question?
These broader considerations can often be measured by using sensible metrics, but at other times, you may need to travel to the site in question and see what the feel is.
How Much Profit Can You Make With a Parking Lot?
The biggest wild card would be the cost of the parking lot.
Typical annual expenses in a surface lot are
- Permits and licenses
- Wages of attendants
- Maintenance Costs
- Property taxes
Assume you have 30 parking spots on a surface lot. You charge $10/spot for 8 hours.
You offer a discount for office workers allowing them to park only Monday to Friday from 9am to 6pm for $150 each. You charge hourly for tourists during the day on weekends. Downtown is also popular with clubs and bars so you can charge during the evening and night hours.
|Clients||Assumptions||Monthly payment per spot||Spots||Total|
|Office workers||Mon to Fri 9am to 6pm||$150||30||$4500|
|Tourists||Sat and Sun during daytime||$120||30||$3600|
|Club and Bar guests||Assume 5 hours every night||$150||30||$4500|
This parking lot has a monthly income of $12,600
Assuming you pay an attendant for 14 hours a day your employee cost would be $6,300 per month. The maintenance costs, permits and property taxes would vary based on location.
Are Parking Investments Worth It?
As you now understand, parking spaces will likely always be needed – at least for the imaginable future. Parking facilities can be great investments and help you generate an alternative revenue stream. However, there are still many risks with assets in this area. Ultimately, it is up to you to ensure you are making wise investments to meet your financial goals.
John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
M1 Finance: John compared M1 Finance against Vanguard, Schwab, Fidelity, Wealthfront and Betterment to find the perfect investment platform. He uses it due to zero fees, very low minimums, automated investment with automatic rebalancing. The pre-built asset allocations and fractional shares helps one get started right away.
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Streitwise is available for accredited and non-accredited investors. They have one of the lowest fees and high “skin in the game,” with over $5M of capital invested by founders in the deals. It is also open to foreign/non-USA investor. Minimum investment is $5,000.
Platforms like Yieldstreet provide investment options in art, legal, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.