Buying Parking Spaces

[Dave Madoch]

I posted this in the main real estate thread and didn't get any input. I am hoping the Chicago specific forum will help. Thank you

I am considering buying a 2nd spot in the building I live(West Loop/Fulton Market Chicago). The area is booming and parking is scarce. I am still waiting on the price that he is asking but guessing he will go for $30k-$35k. I am curious what is the overall opinion out there on buying a spot for investment reasons(we will be using the spot for the next 1-2 years while living there). Once we start to rent the space only, it will go for at least $250/month. I just want to hear pros and cons of purchasing a space to rent out and/or sell in the future.

Thanks

[Rishi B.]

Hey Dave, good question - I've mulled over this one in the past as well when considering purchasing another spot in my building in the West Loop with similar numbers - while the cap rate does look good (8ish if you assume $30/mo HOA and $32.5k in your scenario) ultimately the main I invest in RE is because of how much leverage I can employ and the extraordinary impact that has on IRR/cash-on-cash. I'm almost positive you'd have to purchase an additional parking spot with cash and wouldn't be able to get a mortgage for it, so your return would be equal to your cap rate. Personally, I'd prefer to use $35k of liquidity for a down payment on a $130k-ish property at a 6 cap that might get me 15% IRR with today's financing terms.

If your situation was different and you were going through the condo purchase process and had the option to purchase 1 or 2 spots with the numbers you mentioned, I'd probably get the spots because I believe they'd be able to be bundled in with the mortgage.

Hope this is helpful!