The holy grail for investors is a guaranteed investment return that beats inflation. There are so few of these investments in existence that, when one appears, it demands serious consideration from almost every real estate investor. Enter, the car park investment.
What Are Car Parks in an investment context?
Car park investments are becoming very popular in the UK, and other areas of the world, as an alternative investment. Investors purchase a block of property in a car park – called “car park spaces.” The investor then leases the space out to a tenant for a specified period of time. The tenant is almost always a property management company of some kind.
The property management company turns around and sub-leases the car parking space to customers on an annual basis.
The investment works because parking space in certain areas in the UK is very limited. People are willing to pay large sums of money for monthly parking. Spaces can be purchased by investors for as little as £25,000 for a six year lease.
Advantages Of Investing In Car Parks
One of the many advantages of a car park investment is that it’s a low-risk proposition if the demand for parking is high. Investors are often promised somewhere in the neighbourhood of 8 to 9 per cent annually.
As long as there are customers willing to park their vehicles in a garage, or some other commercial parking space, there will be returns on the investment. Some of these car park investment schemes are also eligible for inclusion in a SIPP under HMRC rules.
The car park investment must be used for commercial purposes only and the SIPP provider must approve of the inclusion. This gives investors special tax privileges on top of what could be a very attractive rate of return.
Disadvantages Of Investing In Car Parks
One of the disadvantages of car parks is that they are not uniform in their fees, expenses, and terms and conditions. It’s essentially an unregulated investment. Because of this, not all SIPPs accept them for investment purposes.
Investors need to do their due diligence prior to investing in them too. For example, a car park in Dubai may advertise to UK residents, and if you choose to invest, you have no way of knowing whether the car park actually exists unless you’re willing to visit Dubai and check it out for yourself.
The key to making these investments profitable is to buy into an area where demand is high. If demand drops off, or was never strong to begin with, the odds of you 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 deals, meaning that, even if you do make 9 percent annually, you have to be willing to hold onto the car park investment regardless of what happens during that time.
If the market changes, or the guaranteed return on your investment is only one year or a few years, you may not see the promised returns for all of the years you hold the lease.