Buying a garage parking spot for rental income

[mjwmustache]

Hi all,

I am considering purchasing a garage parking spot for rental income and I would love any feedback I could get.  I live in DC, in an area where parking is very scare.  The spot is $35k with an additional $902/yr in expenses (tax and monthly fees).  I would be able to rent the spot for $250/mo.  I am looking at this as a potential 5-10 year investment and after that period of time, I would likely be able to sell the spot for $40k, based on past appreciation in value of parking spots in the area. 

The question I have is whether this would be a good investment, or if it would be better to use that $35k in a different way.  I have no debt, roughly $60k in taxable investment accounts (Wealthfront), and am saving about $6k/mo.  Would it be better to just keep the $35k in my Wealthfront account or buy the parking spot? 

I know we typically predict a 7% growth in market over the long term, but given the current extended period of growth and other factors, I think something smaller is likely over the next 5-10 years.  The break even point for the parking spot would be market growth of roughly 5%, so anything better than that and it would make more sense to leave my money in the market. 

Any suggestions?  I'm happy to hear any thoughts as this would be my first foray into rental income and my first time buying parking. 

Thanks.

[Enough]

With a 0% vacancy and $0.00 administration costs, I am getting 5.73% returns on a cash purchase. 10% vacancy, goes to 4.91% return.  with 10% administration costs, return drops to 4.17%.

[MissGina]

I'm familiar with DC, buy!!

[erutio]

Parking spot won't have the same costs as housing RE, so the 1% or 2% rules don't apply.  Seems like it'll be a good deal.  What sort of insurance do you have to carry?

[AlanStache]

how well is the $902/yr in expenses locked in?

you would be renting it month to month?  would you be able to administer the space if you left the DC area?

are you borrowing money for this or intending to pay cash?

is the space located close to Govt buildings with workers that would be insulated from economic downturns?

it looks like this might be a highish percent of your networth but potentially still a profitable path.

[mjwmustache]

Thank you all for the helpful questions.  I'll try to answer them the best I can.

- The $902/yr is pretty locked in.  May increase slightly over the years as the tax assessment changes, but I do not anticipate that being a large change.
- I would be paying cash; not borrowing any money. 
- The space is not located near government buildings but it is in an area that is a hub for restaurants/nightlife.  It is rare for rental spots to become available, and when they do, they are scooped up quickly.
-  Yes, it's a high percentage of my net worth, but I believe a relatively safe move. 


Erutio, sorry for my ignorance, but what are the 1% or 2% rules for housing RE?  I'll also look into insurance, because I don't know the answer to that one. 

Is the percentage return a better way of analyzing the value for the property rather than projecting how the money would do if it was in the market instead?  My main point of comparison has just been to see what I would make per year renting the space, after costs, which totals $2,078.  And then comparing that to the value I would get from between 3-8% returns in the market (compounded).

[AlanStache]

I can see both sides on this.  In some ways it is nearly a 5% bond that would be hard to sell.  Personally I would not like to have that much of my net worth tied up in something I could not sell easily - shit happens you know.  But that also comes down to your macroscopic family situation. 

Dont do this because you have money to invest and this is the first shiny thing to catch your eye or to have a conversation topic "yes I own property in Dupont Circle...".  Do it if it fits your longer term goals.

Also what do you think the longer term effects of Uber/Lyft/etc will be on the space?

Also market timing - blah - blah - blah....

[BlueHouse]

Gosh no. I fully expect driverless cars to come online within the next few years. Already we have robot delivery service, so that's an industry that will no longer use cars. Telecommuting is becoming more accepted each year. And the bike lanes in DC are becoming useable enough that I even want to get rid of my car altogether. I think this is a point in time where the parking situation is going thru a major disruption and you don't want to get stuck holding a useless piece of asphalt.

[Ocinfo]

No. I'm in DC and looked at doing this in the recent past. Partially to use myself and possibly to rent. Most spots near me have been in the $40 to $50k range (West End/Georgetown) so didn't make sense. Instead, I ended up buying some CVX stock for around $80 with a dividend yield over 5% (I keep a small percentage of net worth available for stock picking). Gets me a nice income stream, chance for solid appreciation (>40% in 1.5 years since I bought), and is completely passive.


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[mjwmustache]

Thanks all for the responses.  It's nice to know there are so many DC people in the forum. 

[Roland of Gilead]

I think I would just buy $35K of stock in Pfizer and collect the nearly 4% dividend yield.

[uwp]

Do the expenses cover some sort of monitoring/towing service?
I assume if someone is paying you to rent the spot, you are responsible for keeping others from parking in it.