Does more parking add value to a property?

Question

Hello BP community!

We recently purchased a 4-plex with a driveway that is big enough to park 4 cars but only two units have a parking space (otherwise, they'd all be blocking each other in).  The parking spots were allocated by the previous owner as follows:

Unit 1 - parks on the street and has stated to us that she doesn't like the parking situation.
Units 2 and 3 have a parking spot in the driveway.
Unit 4 moved in on March 1, and his lease notes parking is on the street. No complaints from him so far.

When there is a parking ban in effect (which happens often with Rhode Island winters), all four tenants park in the driveway until the ban is lifted.

We've been looking into expanding/widening the driveway to allow one parking spot per unit but the quotes  are higher than I expected (ranging from $3500-5400), so now we're rethinking whether or not it's worth adding more parking.

We have the money to pay for it, but it would be out of our own pocket, as we haven't owned the property long enough to have built up the CapEx savings.  We're leaning towards not making any immediate changes, but is that being short-sighted?  Is this an added value to the property other than keeping one tenant happy?

I appreciate any thoughts or similar experiences that others have had.  Thanks!

Joe Splitrock · Answer

@Nancy DeSocio off street parking has value to tenants and it will help you retain and attract new tenants to have off street parking. It probably has value around $25 per month, maybe more. As @Shaun C. mentioned, you can add a parking addendum and increase rent that way. The tenant who wants a spot just needs to agree to pay $25 per month and they get a spot. I don't think $3500 is bad to add a couple parking spots. If you can charge two tenants $25 per month, that is $600 per year. Parking spots will last 25 years and your break even with the higher rent will happen after 5.8 years. When you do the improvement, mark it as a repair expense on your taxes and you can claim the entire $3500 as a deduction for 2018. A deduction will reduce your taxable income, so let's say you are in the 25% bracket, then you reduce your taxes by $875. So you are essentially paying $3500-875=$2625. Now your payback is 4.375 years to break even. Don't be afraid of spending money to improve your property. Between the tax benefit and increased income, this is improvement makes sense to me. You could wait a couple year to do the improvement, but they you delay the benefit. If you are holding long term, why not fix the issue now.

Jay Hinrichs · Answer

@Joe Splitrock  depends on the area and the customs..

I remember my first venture into a new subdivision in Charlotte and was staggered that you had all these new houses with driveways leading up to the front of the house but NO garage  LOL.

and I Charleston were we are building parking is defiantly has value.. some lots that you can only park on are worth north of 100k for a small couple thousand sq ft.

other areas not so much.. I think its case by case and how the streets are etc..

In Portland some of the new construction in the city you CANNOT build parking off street.. WHY to encourage public transportation.. but you know what this does.. people have cars anyway and its a mess.

Randy E. · Answer

Two of my SFRs are on residential streets where nearly every house has a driveway ... except my properties.  Initially, I too wondered if the lack of a driveway might cause delays in finding tenants.

While some applicants have mentioned they wished the houses had driveways, I can only think of 1 or 2 in 5+ years who have said that was a factor in not pursuing the rental.  In my market, I always have multiple applicants eager to rent so it's never been a concern for me.  Most of my tenants in those houses are like your tenant in Unit 1, they may mention the lack of a driveway, but they don't base their decision on that.

Nancy DeSocio · Answer

@Michael Noto, thanks for pointing that out.  We did get one quote for gravel, and it was much less expensive, but also a shorter term solution since we won't get as many years out of it.  Certainly an option though.

@Joe Splitrock, you make a good point that it pays off long-term.  It's a C-class property in a C-class neighborhood.  I'd say the street has more single-family homes than MF, and for that reason, there is always street parking.  But it's certainly an inconvenience, esp on trash day, snow days, etc, so I see the benefit to having more parking.  I hadn't considered the tax part of it, so thank you!

Michael Noto · Answer

@Nancy DeSocio In situations where we had to widen driveways we have in certain cases used crushed stone instead of asphalt. It is much cheaper in our experience. Have you looked into that?

Carlos Tavares · Answer

I believe having off street parking does give more value, as I would not buy a house that doesn’t have it and would pay more for similar property with parking  and most tenants rather have a place to park in any situation. Sometimes there is no place on the street to park.  But you have to factor the cost as it’s an investment.  I’m always into if I wouldn’t live here why would I want my tenants to, but that’s just me 🙂

Shaun C. · Answer

You are more than welcome to increase rents whenever you and your tenant agree through a signed lease addendum, which is why you'd want to ask them about it and see if they're open to it. I wouldn't move forward with it unless both agreed to a $15-25/m increase.

Anthony Thompson · Answer

@Nancy DeSocio my recollection is that you paid a sizable amount for that property. My advice is not to do the parking right now, because I can pretty much guarantee that within the next year or two something will come up on the property that will make you wish you'd saved the $3500+ in reserve for higher priority items.

Keep it on the "nice to have" list and just deal with the current parking situation until you have so much money that you feel you have some left over for improvements after all the necessary reserves have been satisfied. (If you don't know what I'm talking about, Google replacement reserves rental property.)

Unless you have money to burn of course. Then do the driveway, do an interior redecoration of all the units/common areas, and invite me out for coffee (your treat ;)

Shaun C. · Answer

You can ask your tenants that you're considering adding parking, but only if they would be open to an increase in rent for street parking. Otherwise, depending on how your leases are staggered; it may not ever really make sense. FWIW, we pay about $4-6/sf for concrete pours in Metro Detroit.

Does more parking add value to a property?

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