How Parking Lots for Sale Can Generate Passive Monthly Income
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When you think about investing in commercial real estate, you probably think of transacting office buildings, apartment complexes, retail shops, and industrial space. Yet, specialty real estate, a category that includes special-purpose property types such as parking lots, can be just as profitable.
Parking spaces are often a scarce resource, and many will likely pay top dollar for the good ones. This is especially true in cramped cities, like NYC, where a private parking space can go for as much as $350,000. Even less prestigious parking spots can cost you a pretty penny.
Here, we'll discuss how parking lots for sale can be a lucrative investment. We'll cover some of the reasons why you might want to invest in parking lots for sale as well as the ins and outs of parking lot financing and real estate financials.
Let's get started.
Why Invest in Parking Lots?
It can be a little odd, at first, to try and wrap your head around the idea of buying a parking lot for sale. But this type of commercial property does have some favorable characteristics that can make it a profitable special-purpose real estate investment.
#1 – Lower Barrier to Entry
Compared to other types of commercial real estate, parking spots have a relatively low barrier to entry. Costs to build a small parking lot range anywhere between $50,000 and $200,000, and there are opportunities to lease land and build parking structures.
The downside is that finding financing for a parking lot or parking structure might be more difficult than finding funding for more traditional commercial real estate investments.
#2 – Easy Management
Unlike an apartment complex, parking lots are relatively simple and don't require nearly as much management or upkeep.
Cleaning is relatively straightforward, and if a parking tenant doesn't pay, you can just tow their car instead of dealing with the hassle of having to evict someone from a residential unit. Most repairs and maintenance deal with lighting, cameras, and gate systems.
#3 – Few Regulations
Parking lots are also relatively flexible in terms of regulations: You can set lease terms more or less how you want, and there are few minimum standards to maintain.
Apartments in larger cities, like NYC, might also be subject to rent control, but parking structures are very unlikely to fall under these requirements.
#4 – Straightforward Yields
With parking lots, it's also relatively easy to calculate and project potential yields. All you need to know is the price per space and the total number of spaces you expect to fill each month.
For example, say you expect to sell 80 passes each month for a price of $250 per pass. That comes out to around $240,000 in annual parking revenues.
How Do Parking Lots Generate Passive Income?
Parking lots generate the majority of their income through operation fees. Typically, buyers look for lots that are close to other recreational amenities or stores. Parking lot owners can simply charge per use of space, rent out private spaces, or execute a combination of both.
In addition to revenue from parking operations, garages and lots can generate income from other sources. For example, many parking garages have vending machines that can provide an additional source of passive income for owners.
How Can You Find a Parking Lot for Sale?
The most straightforward way to find parking lots for sale is through the Internet. Listing sites will have entries for parking lots, parking complexes, and even private parking spaces.
Another way to find parking lots for sale is by working with a commercial real estate broker. An experienced broker can help you analyze parking lots and structures to find ideal investment candidates. Agents can also help negotiate sales contracts and seller concessions.
Is Investing in Parking Spaces Profitable?
It's difficult to find concrete averages and figures on parking lot revenues and finances because they can vary so significantly, but we can provide some general figures. Parking lots and parking garages in the US pulled in around $10 billion in revenue in 2022. Assuming a lower estimate of 70,000,000 paid parking spaces in the country, that comes out to about $142 in total annual revenue for the average parking space.
Note that this figure is just an average, and actual revenues will vary significantly depending on the city and state. For example, a parking garage in NYC will most likely pull in more revenue per spot than a parking structure in, say, St. Louis. Similarly, parking near denser, more urban areas will probably yield higher revenues.
Additionally, parking revenues can vary based on external factors. For example, during recessions, fewer people go out, meaning there is less parking activity and so less parking revenue for lot owners.
Is a Parking Lot a Capital Asset?
Yes, a parking lot is considered a capital asset because its costs can be amortized across the longevity of its useful lifespan. More specifically, the IRS considers parking lots a type of land improvement, in addition to all other relevant structures in the lot, like lighting, cameras, and gate mechanisms.
If you bought a parking lot for sale as part of a larger lump sum of capital assets, like when buying an entire building complex, the fair market value of the parking lot component will be used to determine the proportioned cost.
Do Parking Lots Depreciate in Value Over Time?
Yes, the IRS considers parking lots and parking structures 15-year depreciable assets, so they have a 15-year useful life. The good news is that your parking lot for sale doesn't have to be in continual use to claim the depreciation.
For example, if a pandemic caused your garage to close, you can still claim the depreciation even if no one was using it. The simplest way to claim depreciation on a parking lot is by using the Modified Accelerated Cost Recovery System. Additionally, resurfacing a parking lot is an operational expense and, as such, is depreciable.
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