Asset Focus: Parking Lot Investment
With space at an increasing premium in urban centers, investors are turning their attention to parking lots as an alternative source of income. With investor appetite growing, there are now plenty of ways to invest. But how to choose the right route for you? Welcome to our our quick one-stop investors guide to parking lot investment.
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What Is A Parking Lot Investment
Parking Lots generate income from operations. They can often be built where the construction of other types of real estate is limited, in already built-up urban areas for example. Parking lots are a small niche within real estate, but potentially a very profitable one. That said, there are of course plenty of risks to consider.
The key to building and operating a profitable parking lot is to purchase a site where demand is growing. This includes repurposing old buildings and developing new sites in built up urban areas. Building long-term parking lots close to airports can also be a good strategy.
There are of course lots of individual parking spaces too. In fact, there are over 2 billion parking spaces in the US. This includes single spaces on private property, and owners of these spaces in high demand areas can charge a premium for their use.
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How to Invest in Car Parks
There are a number of ways to invest in parking lots. The most obvious is to go find a private parking space or small parking lot for sale. This kind of alternative real estate investment is really growing in popularity as investors look for low cost high income assets that are relatively easy to maintain and manage.
One of the biggest barriers to entry in the parking lot market is upfront purchase and development costs. Sometimes, developers will turn to equity investors for a portion of their capital stack. As such, there are some private equity investment firms that provide capital to parking lot developers. Unfortunately, access to these types of investments are restricted to a small group of very wealthy investors.
We also occasionally see some more esoteric alternative investments where parking lot developers offer single spaces to investors. This usually involves you buying a parking space ‘off-plan’. Your purchase funds provide development capital for the park owner who will keep a majority of the spaces, and operate your space for you alongside their own.
There have also been some parking lot REITs, although the most well-known – Parking REIT – is now a defendant in multiple lawsuits due to losing more than 50% of its value after its initial public offering closed in 2017.
Related: How to Invest in Commercial Real Estate for Monthly Income
What Returns Can I Expect From a Parking Lot Investment
There really is no benchmark for investment returns from parking lot investments. As I mentioned above, the only REIT specializing in parking lots in recent years didn’t do so well. The yield from any parking lot investment will depend on the price you pay, rental income, and ownership costs.
If you can find a parking space for sale, you can start figure out the likely investment returns for that particular investment based on its purchase price and likely rent.
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Is Investing in Car Parks Risky?
If you find a good location, parking lots can generate generous monthly income from lease payments. And the time and cost of management and maintenance is usually far less than other forms of property.
That said, any investment carries risk. But there is an argument to say that a parking lot investment is maybe less risky than a other forms of real estate investing – like buying a house or apartment block for example.
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Conclusion and Resources
Informed investors make better decisions. If you want to learn more about investing in parking lots and other investments that generate monthly income, you can further your research using the following resources: