No this is no article about Metallica´s Garage, Inc. 1998 album, today I just wanted to talk about an alternative investment opportunity which may not appear as a first obvious choice: Investment in garages!
In the spring of 2015, I purchased 2 garages in central Oslo and these have shown to be very good small scale investments, my average gross profitability* is 6% and my net profitability should be around 4,7%.
So what makes garages or parking spots so interesting?
- It is a relatively affordable investment: Depending on where you live, it can start between 8000-20 000 EUR up to 50 000-55 000 EUR (Belgium and France), so definitely more affordable than a studio apartment (120 000-150 000 EUR).
- In larger cities and capitals, it is difficult to find parking spots in the city center so there is an opportunity to rent out at an interesting price.
- Your maintenance cost is close to nihil.
- No one will call you because your tenant is noisy, no tenant will disturb you because the washing machine is broken while you are enjoying the best crispy duck ever during your overseas holidays.
- Nothing to do besides checking payments once a month (bank app on the phone – 20 seconds “work”). In my case one of the tenants sent me a text once because the remote needed replacement, I ordered it online and got it sent straight to him (it took me 10 minutes to read his text, send a text back, order the new remote, pay and check up on whether he received it), besides that no work.
- If well-located your vacancy risk is minimal: One of the tenants moved so I had to look for a new tenant, thanks to the central location of the garage I managed to find a new tenant in less than 2 weeks, all while being myself in Paris and the garage in Oslo.
- Depending on the purchase price and the rent, your gross profitability might even reach 8-9%.
So how do I start my garage empire?
- First things first, do your maybe boring but necessary research : Ask around you where your friends have trouble parking, check popular real estate websites online, go visit the advertised garages, see in which condition these are, gauge the occupancy rate, ask for their buying price, renting out price, call agencies and ask them to be on their mailing lists so you know when something new is popping up. After a few weeks of research, you should be able to locate the areas with the best profitability and you will be able to determine what the best price for your garage is. Be as well ahead of the game and inquire on any future plans in the area (are there plans for a huge parking lot, will there be new residencies that need parking spots?…)
- You are investing in “small real estate” and whether it is 10 000 EUR you managed to save up during the last year or 40 000 EUR you are borrowing from the bank, the goal is that you want to attain the best possible net profitability! Also do negotiate, a reduced purchase price will give you a higher profitability!
- The amounts could be relatively small : Should I save the money or borrow from the bank? It depends on your situation but in my opinion if the bank is willing to lend you the money go for that option in order to benefit from the leverage effect! More on this in “Debt is good for you”.
I must say some people in Norway looked weird at me when I told them I had bought garages it seemed like a rather unconventional way of investing, well what can I say? An investment is an investment, the goal is simply to get the highest possible return on investment! So while you make fun of me, wonder why on earth someone would think of such an investment, I will continue trying to improve the net profitability of my investment over the years!
For my part this investment in garages has been an interesting experience so far : On the one hand it has given me a valuable small entrepreneur experience as I needed to advertise and “sell” the garage, negotiate with the tenants that want a deal, make sure a proper contract was in place,… On the other hand (and as well a big plus of this type of investment) it has given me a taste of additional passive income!
So what are you waiting for? Get in the car, put on “Whiskey in the Jar” from Metallica´s album and go look for your first garage!
*Gross profitability : (12*monthly rental)*100/purchase price
Suppose you purchased a garage in Paris 7th district for 55 000 EUR and you rent it out for 220 EUR/month your Gross profitability is then 12*220*100/55 000 = 4,8%, let s say you negotiate with the vendor a 12% discount, you profitability is then increased to 5,4%, so you see negotiating is totally worth it!
The net profitability formula is ((12*monthly rental)-taxes-non recoverable charges-management fees (if any))/Purchase price