There’s a lot of value to be found in obscure corners of the real estate market, where risks can be high, margins are highly variable, and even huge successes lack much discussion. One example is the boom in mobile home parks. Institutional investors like private equity firms, pension funds, and real estate investment trusts (REITs) have made impressive profits by investing in the oft-overlooked mobile home park sector over the past decade.
Another niche that can yield great returns is the parking lot market. That may seem counterintuitive, but experts estimate that there are as many as two billion parking spaces in the U.S. for only about 250 million cars. How can parking lots be a good investment with an excess supply like that? There are dynamics in the market right now that make parking lots a choice investment — though there are some barriers to entry, such as the difficulty of getting investment loans to buy a parking lot property.
Let’s review some of the most significant advantages to investing in commercial parking lots.
1. Declining Supply
As we touched on above, there are already around two billion parking spaces in the U.S.. That’s about four times the number of cars in the country, so there’s a bit of a glut.
However, the number of parking spaces in the U.S. is declining. And many of the areas where they’re disappearing are the areas where parking is in the highest demand. Until recently, up to a third of all land in U.S. cities was taken up by parking. This was primarily due to post-war zoning regulations that incentivized car ownership and mandated a certain amount of surface parking for every new building. In Buffalo, NY, the amount of required parking was so high that half of downtown Buffalo was parking lots. But urbanists and developers eventually realized that devoting this much land to parking was an economic hindrance for cities. Many cities have made zoning changes that sharply cut or even eliminate required parking with new developments.
The upshot is that, as cities repurpose parking lots in urban centers, the amount of parking is rapidly declining — and the remaining parking lots are increasing in value.
2. Very Low Maintenance
Nearly every other real estate investment requires at least moderate maintenance. Single-family homes require around 1-4% of their value on maintenance annually. Buying a multifamily property usually requires hiring a professional property management company. While essential, these services take a big chunk of all rents collected.
Parking lots, on the other hand, require little-to-no maintenance. Other than the real estate commission you might have to pay on the initial purchase, routine cleaning of trash and spills, keeping the draining clean, maintaining the fencing and gates, sealing small cracks, and seal coating the surface every few years, there isn’t much else to be done. It’s as close to a zero-maintenance real estate investment as one can find
3. High-Quality Location
Most parking lots are in commercial areas or urban centers. These are some of the most lucrative places to own real estate — for example, a single parking space in Brooklyn was selling for six figures. Think about it — parking lots are so valuable that people will pay high rates to use a small portion of the space for a single day or even a single hour.
And if you eventually decide that you no longer want to operate your parcel as a parking lot, you’ll have plenty of options to sell or repurpose it.
4. Fragmented Market
Parking lots aren’t like suburban housing developments that are so predictable that an iBuyer’s algorithm can accurately value them. Every parking lot is unique, as is the market. This means that individual investors willing to do a little on-the-ground research can uncover great hidden gem investment opportunities.
5. Low Competition
One of the big upsides of moving into a market that’s as untapped as the commercial parking lot market is that it’s what’s known as a “blue ocean” — an unexplored market that’s wide, deep, and open.
While this will likely change as more investors catch onto commercial parking lots’ profit potential, you’ll likely have very little competition right now. In a compressed, well-known market, you’re competing against many other investors, and margins are smaller. In a market like commercial parking lots, it’s easier to find high-quality investments to help you meet your real estate investment goals.
6. You Can Incrementally Invest
Many other commercial real estate investments are all-or-nothing. You can’t buy half of an office building or a quarter of a warehouse. However, if you’re looking to invest in parking lots, it’s highly possible to find smaller, piecemeal investments. Many parking lot developers will sell single spaces to investors to raise development capital. As such, it’s a great way for novice parking investors to get a small foothold in the field.
Some REITs specialize in parking facilities, which let investors buy into a portfolio of properties and share in their potential profits. Buying into commercial parking facilities via a REIT will let you get the feel of the market and see what real-life returns look like from different investments.
Ben Mizes is the Co-Founder and CEO at Clever Real Estate, the nation’s leading real estate education platform for home buyers, sellers, and investors.