Buy a parking spot and rent it out, or invest savings in an interest-bearing account?

Question

I've saved some money and now I'm thinking about two things to do with it:

1. Buy a parking spot (~20.000) and rent it (~90 month)
2. Put in a account that give me about (3% year)

but I can't decide because I'm afraid of other factors that I don't know about it (taxes, risks,...) .

What other things I have to evaluate to decide?

Answer 1

From strictly a gross revenue point of view, the parking spot is going to yield a higher rate (5.4%) versus a 3% savings account, assuming you have it rented all year. Your break-even point (not considering other expenses) is 7-8 months of rent per year.

So, what are things to consider? Here's a few to start with.

• Does location give the parking spot a potential for appreciation of rent or value as economic conditions change?
• What is demand like? Will you be able to rent it consistently? My neighbor rents a garage to college faculty on a semester basis, and it is often difficult to get tenants in the summertime.
• What are the carrying costs associated with the spot? Insurance, property tax, business district fees, etc.
• What are your liquidity requirements? Conveying real property is more time consuming than liquidating savings. This relates to the location too: you can sell a spot in a business district or high-density neighborhood quickly.
• Does anything about the location limit downside risk? e.g. stable generators of parking demand like a commuter train station, government office, large apartment, etc.

The parking spot is a nice investment in that you get a decent return, and the potential for appreciation. The savings account/CD will give you a fixed return with no risk.

To support your decision, make sure you understand all of the costs and understand all of the downside risk. If you're 50 and this is alot of money to you, be conservative. If you're 25 and have a good job, you can afford to chase the yield.