How do I evaluate the value of a parking lot?

[Daniel Music]

Hello All,

First time post long time reader.

I have interest in many facets of real estate investing and decided first to ask about parking, although many of your answers will likely apply to other types of real estate investing as well.

My questions...

1. I am curious about cap rates as they relate to a parking lot vs a traditional business that is conducted inside of a building. 

For example lets say I'm looking at a surface commercial parking lot, compared to a business right next door. Say for example that based on the going rates for parking I can buy a parking lot that has a 10% cap rate or the piece of property next with an office building on it for a very similar price if not the same and it also has a cap rate of 10%, is there no consideration given for the fact that one lot has a building on it? Is Cap rate the only thing that matters?

2. Help me evaluate my method of looking at the profitability of an example lot and come up an offer price.

In some areas I have looked I have noticed that the paid parking lots seem to be small lots that were once houses and when the houses got old etc they came down and made way for parking. In some areas it appears there can be a 25 car parking lot in between two houses or other businesses. Now doing some basic math with a few assumptions, those assumptions to keep my example simple, each spot is rented only once in the morning, and only 250 times a year to reflect federal holidays...

$5.00 x 25 cars x 250 federal holidays = 31250

now I'm not sure of how much of a percentage to calculate for vacancy or expenses so I'm going to just guess at numbers and hopefully all of you can help me with the reality of these numbers.

vacancy 10% = 3125, expenses 10% = 3125 so in my example

31250-3125-3125 = 25000

now in many areas there is a tax levied on parking lots, I do not see one in Tacoma where I am looking other then B&O tax

and then there can be sale tax in Washington on parking based depending on the length of term and if you have assigned parking.

So in my mock example there is a sales tax of 10% or 2500 for a total remaining profit of 22500

2A. Now if I am after a 10% CAP rate should I be willing to pay 225000 for a patch of asphalt?

2B. What would be a good starting offer price?

3. If the lot I'm looking at is managed by a separate company would I try to figure out the current CAP rate and base my offer off of that?