Have you ever noticed that the best investments are boring? I know a guy who retired at 45 from owning car washes and karaoke machines. That’s because characteristically “boring” investments are often overlooked. It’s also why investing in parking lots is such an underestimated approach to building wealth.
In this article, let’s look closer at parking lot investing and how those with parking empires of their own are able to yield such a high ROI.
The Growth of Parking Lot Investing
The thing is, there is more to real estate than the glitz and glamor of flipping single-family homes or investing in duplexes. In fact, one option doesn’t involve a home at all – just a piece of asphalt.
Have you ever looked for a place to park in a busy city? It’s hard, and most people would gladly pay a couple of bucks to keep their car safe and avoid the hassle, which is what makes them such great investments.
According to Statista
“It is projected that the revenue of parking lots and garages in the U.S. will amount to approximately 11,3 billion U.S. Dollars by 2024”
So, how are people getting a piece of this?
What is Parking Lot Investing?
Parking lot investing is when you purchase, lease, or build parking lots or parking garages with the aim of generating income through parking fees. The key here is focusing on acquiring spaces in strategic locations—typically high-traffic, densely populated urban areas—where there’s a high demand for parking. The ultimate goal is to yield a high return on investment (ROI) by offering short-term or long-term parking options to consumers.
Why Parking Lots are a Lucrative Investment
Here are some of the main reasons we think parking lots are so lucrative.
High Demand
In urban areas, a parking spot is always in demand. The necessity for parking spaces in bustling cities means there’s a consistent revenue stream. The number of cars out there is only going to grow, and the demand for space will probably always lag behind supply.
While it’s true that there are more parking spaces than cars, it doesn’t feel that way when you’re in a highly populated area. A survey found that New York residents spend 17 hours per year searching for parking spaces.
Low Maintenance
Unlike residential properties, parking lots don’t need the amount of routine maintenance. There is no plumbing, no landscaping, no nosey HOA board, and less repairs. You’ll still want to plan for capital expenditures – parking lots need some scheduled maintenance.
Flexibility
When a parking lot is not being used to store vehicles, the space can be rented for events, pop-up retail spaces, farmers markets, and more. You can even charge businesses for advertising services on signage throughout your lot.
Scalability
Once you get started, the cashflow potential is so great that it will be tempting to scale quickly.
Once you have one successful parking lot investment generating steady cash flow, the potential for scalability becomes evident. The parking lot business model can be replicated with ease, especially once you’ve navigated the initial challenges of your first investment. Here’s why scaling in this business is so tempting:
- Streamlined Operations. After the first parking lot, you’ll have a better understanding of operational needs like staffing, maintenance, and customer service. You can implement the same operational efficiencies and technologies (like automated ticketing systems or security measures) in the new locations.
- Leveraging Business Relationships. A successful first parking lot can serve as a strong case study when negotiating leases or buying additional lots. It can also help in forming partnerships with nearby businesses or franchises.
- Geographic Diversification. Owning multiple parking lots in different locations can also provide a hedge against local economic downturns, seasonal variations, or other location-specific risks.
- Asset Appreciation. As you acquire more properties, not only does your cash flow increase, but you also stand to gain from the cumulative appreciation of these assets over time.
Covered Land Plays
One of the biggest benefits of owning a parking lot is that market value of the land appreciates as well. Since parking lots take up so much space, there are opportunities for leasing, selling, or developing down the line.
Covered land play is a commercial real estate and investment strategy where you acquire land with the intention of redeveloping it in the future but uses it for a different, often simpler, purpose in the meantime to generate some income.
In a covered land play, you can buy a piece of land in a location that will appreciate in value or be ripe for development into a more lucrative property type, such as residential or commercial buildings, in the future. However, instead of leaving the land vacant until that time, in covered land plays you can use it for a low-cost, high-return purpose—like a parking lot—to generate immediate revenue.
Types of Parking Lots
- Surface Parking Lots. These are open-air parking spaces typically located on a flat surface. They are the most basic and straightforward type of parking lot investment.
- Multi-Level or Multi-Story Parking Garage. These are vertical parking structures that can accommodate a large number of vehicles across multiple levels.
- Automated or Robotic Parking Systems. These are technologically advanced parking systems where cars are automatically placed into and retrieved from parking spaces by mechanical systems.
- Valet Parking Services. A service-oriented parking investment where attendants park and retrieve cars for customers.
- Park-and-Ride Facilities. Parking lots or garages located near public transportation hubs that allow commuters to park their cars and then take public transport.
- Parking lots that are dedicated to specific types of vehicles such as RVs, boats, or buses. The use of recreational vehicles, boats, and specialty vehicles is surging, and many of these recreational vehicle owners don’t have the space to store them at home (or they’re subject to strict HOH guidelines). In either case, these RVers and boat owners are willing to pay good money to keep them somewhere safe, like your parking lot.
The ROI Potential of Invest in Parking Lots
The return on investment (ROI) for parking lots can be surprisingly high, especially when compared to other types of real estate investments. For starters, there are relatively low initial costs compared to other forms of real estate.
Operational Expenses
One distinct feature of parking lot investments is that they require some operational expenses. You might need to hire a parking lot attendant, security personnel, or someone to manage self-parking pay machines. However, depending on your setup, the costs can be pretty minimal.
Diverse Revenue Streams and Dynamic Pricing
From hourly rates to monthly subscriptions, the revenue streams are diverse. Unlike certain types of real estate where you might only collect rent from tenants, parking operators use a range of ways to generate income, giving you the flexibility to adapt to market demands, local economy, and customer preferences. On top of that, the cost to store or park cars is going up nationwide.
- Hourly Rates
- Target Audience: Short-term visitors, shoppers, tourists
- Advantages: Quick turnover, higher rates per hour compared to long-term parking
- Challenges: Requires more active management and may incur higher transaction costs
- Daily Rates
- Target Audience: Business commuters, day-trippers
- Advantages: Stable demand, especially in business districts or near tourist attractions
- Challenges: May leave lots empty during off-peak hours or days
- Weekly and Monthly Subscriptions
- Target Audience: Residents, long-term tourists, and regular commuters
- Advantages: Predictable, consistent income with lower management requirements
- Challenges: Lower rates compared to short-term parking, and less flexibility to adapt to short-term demand spikes
- Event-Based Pricing
- Target Audience: Attendees of special events, festivals, or sports games
- Advantages: Opportunity to charge premium rates during high-demand events
- Challenges: Requires active management and marketing to inform potential customers about availability and pricing
- Ancillary Services
- Types: Valet service, car wash, electric vehicle charging stations
- Advantages: Adds value to the customer experience, allowing for premium pricing
- Challenges: May incur additional operational costs and liabilities
Parking Lot Investment Is Closer Than You Think
You don’t have to be a millionaire or a seasoned investor to start a parking business.
You already own a parking asset. In fact, you can use the space you have right now. With Neighbor, you can rent out your garage or driveway to those in need of long-term parking or vehicle storage.
Then, once you accrue the resources to buy a full-scale parking lot, you can also use marketplaces like these to fill parking vacancies.
