It’s no secret parking in large cities is expensive, particularly in downtown areas and entertainment districts. If you’re looking for a lucrative, creative investment outside the norm of traditional real estate products, you may want to consider the benefits of investing in a parking lot. That’s right, you can be a real estate investor even if your land is just a lot!

Parking lots offer relatively stable rates of return and represent a versatile asset class. There are several types of parking lot investment opportunities, varying greatly in terms of investment cost and potential returns.

Urban parkades, for instance, usually represent major investments, but offer the highest possible returns. Suburban surface lots, meanwhile, present a lower barrier to entry. They do, however, often come with lower rates of return.

The way you choose to operate your parking lot also impacts your operating costs and your returns. While fully staffing your lot may require more liquidity and capital, it also allows you to charge higher fees compared to unstaffed parking lots. It may also help you ensure you’re collecting parking fees accurately from each customer.

Benefits of parking lot investing

If you think parking lots are a boring investment, think again! Parking your capital in a lot comes with all sorts of benefits, including the following:

Lower entry cost: Parking lots and parkades often offer a lower entry cost compared to commercial and residential real estate assets. They also present fewer maintenance expenses, meaning your annual operational budget may be significantly lower compared to more traditional real estate opportunities.

Higher yields: If you identify an active parking asset and manage it correctly, you can reap significantly higher yields compared to many commercial and residential properties. It’s important to realize the yields of your parking asset vary widely, depending on the location of the lot and your management strategy.

Less management-intensive: Compared to residential assets, there are far fewer management requirements associated with parking lot investments. Parking lots rarely need repairs or maintenance. Additionally, customers stay for only a few hours, versus tenants that stay in residential buildings for years or even decades.

Fewer regulations: The residential rental market is highly regulated in most parts of Canada. These regulations can become cumbersome, and may eat into your ability to generate a profit from your investment property. Parking lots, however, are subject to far fewer regulatory codes in most municipalities.

Understanding the market

If you’re thinking about investing in a parking lot, take the time necessary to understand the market, and the different segments available to invest in. It’s important to have a clear idea of how the parking market operates before opting to make such a large purchase, whether it’s a small suburban lot or a large, city center parkade.

There are several challenges prospective parking lot investors should consider. For instance, it’s usually possible to obtain financing while attempting to acquire a parking lot. This means you’ll need to pay for the asset in cash. Parking lots are also less likely to appreciate in value the same way residential and commercial real estate does.

The advent of ride hailing services is also changing demand for parking spaces, so it’s important to understand the lucrative nature of parking lot investments may change in the near future. As an investor, one of the most important traits you can hone is flexibility and creativity.

The location of your parking lot ultimately determines your ability to reap a return on your investment. Location is the most important aspect of any business, but it’s even more significant when it comes to the successful operation of a parking lot.

Another challenge facing parking lot investors is the presence of municipally-operated parking nearby. If your lot is located just a few blocks from a city-run parkade offering subsidized rates, it’s impossible to compete while still earning a profit. It’s important to be aware of government-run parking in your target market prior to making an investment.

Parking operators in some sub-markets—like city centers and entertainment districts—may be able to differentiate their product by providing security staffing and surveillance, or even offering services like valet parking. Making your customers feel more comfortable parking with you, and increasing their level of convenience, can go a long way toward improving the returns you reap from your parking asset.

Operating a parking business

If you’re willing to face the risks associated with purchasing a parking lot, you must go into the endeavor with a well-planned business strategy. You should expect to operate your parking lot as you would any other small business. You’ll need to account for staffing, marketing, accounting and more.

To establish your parking lot business plan, first outline your goals and objectives for the quarter, and for the year. You’ll need to spend a fair amount of money operating your lot on top of the cash you already paid to purchase the property. It’s important you start earning revenue as quickly as possible, so you can start recouping your investment.

Determine the services you want to offer at your parking lot to figure out how many employees you’ll have to hire. Are you planning to provide exclusively self-park service, or would like to provide a full-service valet parking experience? If you’re only planning to provide self-parking, you may want to consider buying an automated feel collection system and contracting your security needs out to a firm. This will help you avoid needing to actually hire a pay-rolled employee.

You’ll need to market your parking lot extensively to ensure you’re reaching potential customers. Street signs are usually the most effective way to market parking lots. Also, consider offering specials for sports games or other high-traffic events to attract visitors to your lot.

Take a second look at parking lots

While there are several unique risks and drawbacks associated with parking lot investments, it’s still a highly desirable investment in some cases. If you’re looking for a creative, unusual way to diversify your portfolio, start scoping out parking lot investment opportunities in your area! If you’re located in an urban district or already have real estate investments in a city, there might be a lot right under your nose worth investing in!