Parking lots can seem pretty boring to the untrained eye, but they can be a lucrative investment for the savvy investor. They range from a simple unpaved dirt lot in a densely populated area, to a multi-level structure located near an airport with a shuttle service and automated parking-space counters. Below we take a deep dive into everything you need to know about parking properties.
Table of contents
Parking Property Definition
A parking property (also called a parking lot, car lot, or car park) is a piece of land that is primarily used for short to medium term parking of motor vehicles (cars, trucks, etc.). This can include both public and private parking lots.
Parking Lot Properties Explained
The fundamental idea behind parking lots is to generate revenue by renting space for people to park vehicles. Parking lots differ from self storage rental properties in that they are generally intended to be used for short to medium term parking. They can range in complexity from a simple open lot, to a multi-story structure with automated space counting technologies.
Successful parking businesses can often be found in dense urban areas where there is a high population with limited ground-space. Revenues generated from parking are dependent on the demographics of your area, for example parking in a downtown financial district can be priced at a premium. Overhead is dependent on the facility. A simple paved lot will have minimal overhead, however a garage with automated payment processing and parking management systems will have significantly different overhead costs.
History of Parking Lots
As it can be assumed, parking lots only date back to the introduction of motor vehicles – specifically the Ford Model T that was first introduced en masse in the early 1900’s. This period of American society saw the first wave of motor vehicles introduced to the general public. At the turn of the 20th century, without any type of formal parking rules, cars were being left unattended on public streets and started becoming a major problem for densely populated cities. After urban planners took hold of the issue in the 1920’s, modern style parking lots emerged that were owned and managed by private commercial and retail associations, or owned by public entities and maintained by private operators. To this day, parking lots are still owned and operated by a mix of both public and private operators to facilitate commercial enterprise.
Types of Parking Facilities
There are several different types of parking facilities of which investors need to be aware. We take a look at each type below.
Surface Lot
A surface parking lot is a site, or a portion of a site, that is used for ground-level off street parking of vehicles located on ground-level, and is usually not covered by a structure. A surface parking lot may be owned by an investor, private individual, business, or government entity. These lots often sit in busy downtown areas, near transit lines or commercial districts. They can be gated or monitored electronically, and cars are either parked by drivers or valets.
Parking Garage
A parking garage, also known as a car park, is a structure that is specifically built for off-street vehicle parking. Parking garages are usually built near high-traffic areas, such as retail shopping centers, office buildings, and stadiums. They typically have multiple levels and may include features such as electric vehicle charging stations and car wash facilities.
Parking garages are an essential part of many cities and towns, as they provide a convenient and safe place to leave vehicles. They can also help to reduce traffic congestion and pollution, as people are less likely to drive around looking for a parking spot. In some cases, parking garages may also offer discounts or other incentives to encourage people to use them or monthly or yearly rentals of spots to specific customers, particularly in high-density cities like NYC and San Francisco.
Types of Parking Garages
Single Level Parking Garage
These are very similar to your standard parking lot, with the added bonus of protection from the weather. They typically have a floor-to-floor height from the ground to the second level of roughly 10.5 to 11.5 feet. They’re typically best utilized in low-traffic, low density areas.
Multistory Parking Garage
These structures rise above ground and can be several stories tall while housing thousands of cars. While designs vary, the most common layout is various levels with ramps to move from one level to another. These are more well-suited to high traffic areas, particularly those attached to large businesses like malls or airports.
Underground Parking Garages
In many areas, there is not enough space above ground to create sufficient parking. Underground lots fill this need, whereby there are several subterranean floors of parking below ground. These types of parking garages usually reside underneath large structures and require sufficient ventilation systems for the enclosed spaces.
Automated Parking Systems
Automated parking systems (APS) are automated, and/or robotic, parking garages that are growing in popularity to utilize valuable building-space while increasing parking ease and efficiency. Robotic systems move cars throughout a structure to the next available spot, which can be horizontal or vertical, depending on space considerations and user needs.
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Pros and Cons of Investing in Parking Properties
There are many factors to consider when determining whether or not to invest in rental properties, specifically parking properties. The following is a comprehensive list of the pros and cons you need to know before investing in parking properties.
Parking Lot Investing Pros
- Parking properties can provide a steady stream of income through rental income. Few things are as comforting as the steady cash flow derived from residential and commercial rental properties, including parking lots. Owners and investors can count on a relatively stable monthly income, which they can put away for a rainy day or leverage to acquire more properties in their investment portfolio.
- Parking properties can appreciate in value over time. In addition to steady cash flow, the value of a parking property itself can rise with time, particularly during periods of high inflation. The real value of the land remains the same while our currency, the dollar, depreciates. This can provide substantial protection from the pernicious effect of inflation on your savings.
- Parking properties can be easy to manage and maintain. Managing and maintaining a rental property can be a handful. You’ve got to find tenants, deal with leases, and constantly maintain the property. Parking lots are decidedly easier to manage, with minimal marketing, staff, and maintenance expenses compared to most other types of leased real estate.
Parking Lot Investing Cons
- Parking properties may be more sensitive to market shocks. While many forms of rental real estate offer countercyclical resistance to recessionary pressures, parking properties can rise and fall with the highs and lows of the economy. We saw this first hand during the COVID-19 pandemic, where traffic in dense urban cores came to a standstill, negatively affecting many parking lot owners- and other foot and car-traffic-based businesses.
- Parking properties may require a significant amount of upfront capital. Parking properties are not cheap, particularly in high-traffic areas. Not only are they valued as an income generating asset, but also for the land’s development potential. As an investor, you’ll need deep pockets or rental property financing access to acquire a substantial asset.
- Parking properties may have issues with crime. Crime is a fact of life, particularly in the cities where parking lots generate the most income and benefit from the highest appreciation value. Unfortunately, many parking lots see heightened levels of crime of all kinds, from car break-ins to driving offenses. This can be mediated or remedied with sufficient property owner legal protection and security.
Parking Property Management
Since each property is different, how to manage a parking lot property will depend on various aspects such as its size, type, and location. In recent years, the simplicity of parking rental properties have brought about much automation in terms of payment and space tracking. Having a property management company that is both tech savvy and can handle the unique circumstances of your lot will greatly contribute to both increased customers and profitability.
How to Invest in Parking Properties
Like other forms of rental real estate properties, there are several different ways one can invest in parking properties, including:
Direct Ownership
You can always find, purchase, and manage a parking lot yourself – or hire someone else to handle the heavy lifting. Direct ownership gives you much more control over your investment, but you’ll also be required to put a bit more sweat equity in compared to some of your other ownership options.
Parking Lot REITs
Parking lot REITs are another way you can invest in parking properties. REITs represent fractional ownership in a company or portfolio of parking properties. You purchase these via your broker or trading app, and that’s typically the extent of your involvement.
Crowdfunded Parking Lot Investments
In a similar vein to Parking Lot REITs, you can often find equity and debt crowdfunding opportunities in the parking lot sector. With a crowdfunded asset, a sponsor sets up a deal on a crowdfunding platform, like CrowdStreet or RealtyMogul. They then solicit capital from investors, who often have to be accredited, in exchange for a share of the profits generated from regular cash flow and property appreciation.