Investing : big city versus small town

Making a first investment in one or more parking spaces requires a precise study of prices and the geolocation of the spaces. CIPG’s investors discussed whether it would be better to invest in parking lots in big city or in small town. Here are some answers to help you.

Investing in big city : you need to know the market

It is of course not possible to oppose an investment in big city and the small towns because it would not be relevant. On the other hand, the different neighbourhoods, population density, date of construction of the buildings and average income of the inhabitants are good comparators. Let’s break a myth here : just because we invest in a wealthy neighbourhood doesn’t mean that profitability will be better.

As proof, big city’s down town leaves little room for investors because the purchasing power of homeowners is so important. To avoid turning 20 minutes every night to find a parking space and take the risk of damaging their vehicle ; they are ready to invest very large sums. For example, it is necessary to count about $ 60.000 for a box with no access defects (narrow ramp, car lift, etc.).

In big city as elsewhere, some real estate is made for investors and others not. In view of the increasing population density and the gradual disappearance of on-street parking spaces due to the multiplication of free floating operators, bus lanes and now electric scooter lanes, the market will continue to be driven by demand for a long time to come.

💡 Did you know that : Parking real estate is neglected by the majority of investors. It’s time to invest in this niche !

What must be considered is the overall coherence of the investment project. If the investor lives in the provinces, the only way to buy in big city is to have a trusted person on site ; ready to make one or more visits, give a beep and have a lease signed. A real estate agency will be able to do this work very well, but will take from the owner 5% of the monthly rental value and a month’s rental from the owner as a minimum. However, in the context of a 4.5% net profitability before taxes, for example, this solution is not de facto feasible because it is not at all profitable.

Investing in car parks in big city is not very risky

In general, there are two ways to make money with car parks : have good rental management and make a capital gain on resale. In big city, prices have been rising steadily in recent years. Thus, a square purchased today should continue to increase in value if it is purchased at market price. However, it is necessary to wait until the acquisition costs have been amortized first.

Secondly, a parking space can only be profitable if it is rented and has relatively low co-ownership charges (less than $ 15 per month). However, the density of the big city’s population plays in favour of a rental almost without vacancy. To do this, do not delay and post a rental announcement as soon as you are notified of the tenant’s leave.

While the average profitability in big city is around 3.5% net before tax. There are significant disparities depending on the spaces and intrinsic qualities of the car parks. On the other hand, this is a safe investment : if the property has no defects, it will be rented without any problem.

There are also some nuggets. Anne owns a 14 parking lot for two-wheelers in a big city’s down town. It achieved a net profitability of 12% before taxes.

Where invest in big city

Some districts offer car parks at affordable prices. For example between $ 15.000 up to $ 20.000 and rents of around $ 100 per month. It seems reasonable to avoid city down town completely in view to make them pedestrian and the small number of inhabitants.

About the suburbs ? The suburbs of the big cities can reserve very good surprises because the prices are lower than those of the city centre.

Jess owns a lot of 10 garages in a bog city. His rental profitability is around 5% net before tax in a luxury residence with high charges. Another member, Oliver, only invests in the suburbs of large cities. He owns more than fifty locations and always takes the time to choose the right area and the right condominium before investing.

Advice from the Investor Club :

• Prefer to buy a box if you live far away because the tenants stay statistically longer.
• Living nearby, yes, but more than a kilometre away, so you will never have to pay any housing tax, even in the event of a rental holiday on January 1st.
• Equip your seat with an electric charging station.

Investing in the Province : understanding and mastering this niche sector

The province is vast and presents different scenarios. Since all states are more or less the same when it comes to parking, we cannot reason by region. Let’s start with the most important element related to supply and demand : the number of inhabitants to determine the different sizes of cities :

• Very large cities,
• Big Cities,
• Medium sizes,
• Smaller cities,
• And finally small villages in the countryside.

We will study the commonalities and disparities between provincial cities on a case-by-case basis. As in the big cities region, it is essential to master the sector before investing.

💡 Did you know that : Geographic location is the most important criterion you need to validate before investing in parking real estate.

Investing in a very big city

Today, the strategy of mayors of very large cities is simple. Drive cars out of the city centre and reduce the number of parking spaces in the city centre. This strategy boosts the real estate market for car parks and garages. Let us also thank the price increases for public car parks. The interplay of supply and demand has never been so strong.

As proof, Fred, owner of a garage in a very big city, finds a tenant in less than a week. While having the luxury of being able to choose his tenant among 3 candidates. He obtains a profitability of about 6% net before taxes knowing that the charges are sometimes high in residences located in the hearts of big cities.

Patricia, owner of two parking spaces in a very big city finds tenants just as quickly. She gets a return on investment of about 9% net before tax.

Advice from the Investor Club :

• Thoroughly analyze the neighborhood before investing: time to find a place, etc…
• Favour the purchase of a box to reduce tenant turnover.
• Live nearby, but more than a kilometre away so as not to pay the housing tax in the event of a rental vacancy.
• Discover more tips on the community’s forum !

Investing in a big city

As in the case of larger cities, reducing the number of cars remains a priority for town halls. Market remains fairly stable even if we observe a slight increase in sales prices. The entrance ticket to become an owner is more affordable than in very large cities. Storage and furniture storage demand is also increasing the panel for owner lessors.

For example, Kevin has just invested in a lot of 3 garages in the downtown area of a large city with a projected net profitability of 7.3% before taxes. Andrew, owner of a lot of 23 garages in a large city gets 8% net profitability before taxes.

Advice from the Investor Club :

• Favour the purchase of a lot of garages outside the residence to meet a request for storage, furniture storage.
• Live nearby, but more than a kilometre away so as not to pay the housing tax in the event of a rental vacancy.
• Discover more tips on the community’s forum !

Investing in a mid-sized or smaller city

Pollution remains an important issue for smaller cities. The effect of the increase in the price of parking in medium-sized cities is beginning to be felt in the market. The reduction in the number of locations and the hourly cost is increasing rental demand in the heart of city centres. Pedestrian street vendors prefer to move en masse to a cheaper parking solution than the traditional urban planning subscription. The demand for storage space is exploding and not every city has a storage centre yet. Garage owners are rubbing their hands in it !

💡 Did you know that : The demand for furniture storage is exploding, underground garages cannot accommodate furniture ! Read more…

For proof, Christopher and Terry each own a garage in the city centre. Their tenants, merchants in the downtown area, bring stability and about 5.5% net before taxes.

Advice from the Investor Club :

• Favour the purchase of a lot of garages to meet the demands of parking and storage.
• Properly evaluate the rental demand of the neighbourhood concerned.
• Live nearby, but more than a kilometre away so as not to pay the housing tax in the event of a rental vacancy.
• Discover more tips on the community’s forum !

Investing in a village in the countryside

Peace and quiet are two of the advantages of the small villages of the countryside. Often depopulated, the demand for parking is very low. It is necessary to aim at different activities to obtain a good profitability: wintering, guarding of motor home, caravan… storage, furniture storage, etc…

For example, Christopher and Philip’s compagny offers furniture storage and winter storage services for large vehicles. The balance sheet for the first year is beyond the forecast ; and gives a net return on investment of 7.5% with a low occupancy rate.

Advice from the Investor Club :

• Carefully assess whether the rental demand corresponds to the proposed product.
• Thinking security, isolation in the countryside can be a weakness.
• Benefit from the experience of our members by joining our community !

Conclusion : Big city or Small town

It all depends on your project and your investment objectives. We have shown that each size of city or town offers a different business model. The most important thing is to offer the right product (parking, garage, vehicle winterization, etc…) in the right place. Take the time to measure supply and demand before you start. Don’t hesitate to take advice from specialists such as CIPG investors.