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Looking for a niche sector for your real estate investments? Considering outside-of-the box opportunities? It might be time to invest in parking lots.
But before you pave your dollars, it’s important to do your research. What’s the best way to invest in parking lots? How much can you make? Are there any drawbacks? Here’s what you need to know.
Ways to invest in parking lots
For those seeking to invest in parking lots, there are many options. You can start small and safe by simply purchasing one parking spot and leasing it to a tenant.
On a slightly larger scale, you can find a small parking lot for sale and purchase the entire lot. Another option is to purchase a building, demolish it, and repave the land as a parking lot.
Once you own the parking lot, you can establish dynamic pricing that offers the best returns. For example, rates may be higher for weekday parking or during special events.
With parking, you also have options to lease your facility to a third party for management of operations. With this arrangement, you can sign a long-term lease and collect base rent plus annual increases.
The bottom line is that there are many ways to invest in parking lots. Depending on your initial capital, you can start small with parking lot investing, or go big.
The return on parking lots
If you turn your parking lot investment into a parking lot business, you can make $73,000 or more annually from an average-sized operation. However, this varies greatly based on location and the size of your business.
For good locations, parking lots can generate hefty profits from monthly lease payments. And because the costs associated with maintaining and managing the lot are typically far less than with some other types of real estate, parking lot owners can experience high ROI.
Ultimately, your return on parking lot investment depends largely on the location and size of the lot. But often, these assets offer generous profit.
Pros and cons of investing in parking lots
As with any type of real estate investment, there are benefits and drawbacks to this asset. If you decide to invest in parking lots, you can enjoy several advantages:
- Low barrier: Compared to other real estate investment options, this asset often has a lower entry fee. Additionally, parking lots can be maintained on a lower annual operating budget.
- High return: If managed properly, a parking lot can reap higher earnings than other types of real estate. However, location is also key in determining the lot’s profitability.
- Low maintenance: Compared to residential property, parking lots require little repair or upkeep. They also offer high turnover in clients without the drawbacks and hassle of residential or commercial turnover.
- Fewer regulations: Residential and commercial real estate are often heavily regulated. With parking lots, there may be fewer regulations to navigate as you establish and run your operations.
At the same time, parking lots aren’t unique in that they also present some potential stumbling blocks as an investment opportunity:
- Lender issues: Because this is a lesser-known asset class, fewer lenders are available to finance these investments. Those looking to break into this market with a financed investment may have difficulty finding a lender who is willing to front the funds or provide attractive financing terms. In some cases, a private equity investment firm may provide capital to back your investment. However, these types of investments are usually only available to very wealthy investors on a restrictive basis.
- Managerial burden: Overseeing operations of a large parking lot that leases spaces may include security, parking attendants, lease agreements, maintenance, and liability issues. While the level of management may be less than a residential investment, it is still something to consider as you decide whether to invest in a parking lot.
For many investors, the pros outweigh the cons to invest in parking lots. However, you should carefully consider the drawbacks before you decide to invest.
Supply and demand for parking lots
In the spring of 2022, more than 284 million vehicles were traveling the roads of the United States. This number of vehicles requires a significant number of parking spaces to accommodate them. And with so many areas of the country being so car-dependent, the demand for these spaces is not going away.
However, some cities are attempting to change the current trend. Since the World War II era, governments have enforced minimum-build laws that require the construction of parking lots as part of a building development.
In some areas, these laws have given more space to cars than homes—and in some cases, decision-makers are pushing back. California recently enacted a ban on parking minimums, in an effort to reduce car emissions and increase the amount of affordable housing options.
Other cities, such as Anchorage and Nashville, are following suit by lessening or removing requirements to build new parking lots. Cities such as Miami, though, are maintaining their parking minimums, pointing to a lack of available spaces.
In either scenario, parking lots could become a premium. You just need to be aware of the trends for that city, to guide your investment decisions.
If you decide to invest in parking lots, you’ll need to carefully research the region’s trends. Determine if this type of real estate is in demand or is on the decline.
Future redevelopment of parking lots
All real estate investment involves some risk. To invest in parking lots, though, offers a potential advantage in redevelopment. In business districts, parking is typically the least valuable type of land. That makes parking lots prime candidates for redevelopment when builders are looking to add new development.
This means your investment may not remain a parking lot, but it could offer high returns if you can sell it to be redeveloped. And until then, it can offer steady income from parking fees.
Since areas zoned for parking are often the least valuable, you may benefit from investing in an asset that will develop into something else in the future.
Getting started with parking lots
Are you ready to invest in parking lots? Learn more about real estate investing, and read reviews of platforms that can help you get started. This can be an attractive option whether you’re looking for a small starter investment property or thinking of going much bigger.