Recently, ads have appeared on the web inviting you to invest in a parking lot. According to their authors, this is one of the sectors that does not know the crisis with a guaranteed return on investment, which is more widely higher than inflation. In some countries, such as the United Kingdom, retirees are even encouraged to invest their retirement pension in parking spaces. Is this business as profitable as claimed? Isn’t it risky?
As an alternative investment, like the purchase of investment properties for example, investments in parking lots are becoming very popular in Europe and other parts of the world. Investors buy a block of property in a car park and lease the spaces to a tenant, which is almost always a property management company. The latter annually sublets the parking space to customers, who are most of the time the employees of a company operating in the vicinity or local residents.
Investment generally thrives, as parking spaces are very limited in large cities. People are willing to pay large sums of money to have a place to park their vehicle every day. In addition, the purchase price of these places is rather affordable.
One of the many advantages of investing in parking is that it is a low risk proposition, if the demand for parking spaces is high. Investors can sometimes expect returns on investment in the range of 8-9% per year. As long as there are customers willing to park their vehicles in a garage or other commercial parking space, there will be returns on the investment.
Some of these parking investment plans are also eligible for inclusion in certain tax cuts. In this case, the investment must be used for business purposes only and the tax authorities must approve the inclusion. This gives investors special tax privileges in addition to what could be a very attractive rate of return.
One of the disadvantages of this type of investment is that there is no uniformity in fees, expenses, and investment conditions. It is essentially an unregulated sector. It is for this reason that financial services are reluctant to include them in tax incentive schemes. Investors should therefore do their due diligence before jumping in.
For example a car park in Glasgow may advertise to residents of France and if you choose to invest you have no way of knowing if the car park actually exists unless you are willing to visit the city to check for yourself. The key to making these investments profitable is to buy in an area where demand is high. If demand drops or isn’t strong enough, the chances of recouping your initial investment are low.
Finally, these investments are not very liquid, which may make them unattractive to many investors. You sign a multi-year lease in most transactions, which means that even if you make 9% profit per year, you have to be prepared to keep the investment no matter what happens during that time. If the market changes, or the return is only guaranteed or covers a limited number of years, you may not see the promised returns for all years.
Investing in a car park is always profitable as long as you exercise caution and don’t throw yourself at the first opportunity. It is necessary to ensure that the demand for parking spaces is strong in the locality where the car park is located and to check the number of years during which the return on investment is guaranteed.