A lot of investors won't even consider parking when looking for investment units.
Well 2019 is finally here and I can't wait for things to get back to normal - and by normal I mean running around the city, doing showing after showing, writing up offers and closing deals. Don't get me wrong, I loved the time off during the holidays but man, I really start to get antsy after a couple days of my phone not ringing. It's still a little early for the Spring market to really get going, but I'm counting the days.
Which got me thinking - with condo prices up ~10% year over year and rents up about the same, will 2019 be just as busy with investors as 2018 was?
Last year, more than half of the buyers I represented were investors. The math made sense, interest rates made sense, and rental demand was clearly strong enough to justify every purchase. I don't really see any of those pieces changing any time soon, so I imagine 2019 will see a steady flow of investors keeping the market healthy.
I started to think back to all the questions investors ask me when we start their search: What's a good area, what's a reputable building, what's the rental potential, etc.
But a question that comes up more often than I realized is "Is a parking spot worth considering on an investment unit?"
Just about every investor client I've worked with has asked this question at some point so I thought I'd tackle some of the main things to consider:
1) The cost of a parking spot varies from building to building - Obviously the first thing to consider is how much a parking spot will actually cost. In the downtown core, I've seen parking spot sell recently for as as low as $25k, and as high as $70k. In most cases, parking spots can only be sold to owners within the same building or group of connected buildings (with some exceptions), so the basic rules of supply and demand apply. But given how builders include fewer and fewer parking spots with each new development, parking is getting more scare and more expensive. Almost every time I do a resale deal, the other agent will make an argument that "parking is worth $60k in Toronto. That's how to value units". That's naive and each building should be considered independently. I can show you countless buildings where a parking spot has never sold for even close to $70k, so be careful when someone is trying to justify an inflated price of a condo with parking. (This makes me laugh but there's pre-construction project on King West where the developer is selling parking for $125k. Things that make you go hmmmm).
2) Always consider the maintenance fee associated with the parking spot itself - A lot of folks either forget or don't realize that owning a parking spot in a condo means paying an associated condo fee, just like owning the condo itself. That fee covers costs like garage cleaning, repairs, maintenance, etc. The monthly fee also varies from building to building but it can be as low as $25/mo and up to over $100/mo. In buildings with ample parking, the monthly fee per spot is significantly lower than the average. I'd say around $50/mo is about average and it's almost always included in the condo fee you see on a listing. Just remember that part of that fee is for the parking spot.
3) Rental demand for parking also varies, which can affect your profit - Parking isn't cheap downtown, and that's also true for parking within a condo building. A typical parking spot in a condo would rent for anywhere from $130/mo to $300/mo. More often than not, because of condo rules, you're limited to renting your spot to other residents in the building, so again the size of the building and the number of total parking spots will affect the rental rate you can get. If your plan is to rent out the parking spot separately from your unit, pay close attention to the rent you could realistically get.
4) The cap rate from the parking spot will depend on #2 and #3 above - I love cap rates because it's a quick and easy way to figure out if an investment makes sense. Check out my post on cap rates here. If you figure a parking spot is worth $40k, the associated monthly condo fees are $50/mo, and parking rents for $200/mo, your cap rate on the spot alone would be 4.5%. In Toronto, 4.5% is pretty darn good. In fact, I don't think I've seen an investment unit with a 4.5% cap rate in years. I remember way back I was looking at the math on parking spots and realized it made more sense to buy parking spots within condo buildings rather than the condo units themselves, strictly from a rental perspective. That still kinda holds true.
5) The spot itself may not be actually deeded - In some buildings, you don't actually own your parking spot. These are known as "exclusive use" common elements, where only you (or your unit) can use a specific parking spot, but you can't sell or transfer the spot to another unit or owner. Most condos have deeded parking spots (I don't have specific percentages, but I'd anecdotally say "most"). Deeded spots are obviously worth more for the simple fact that you can sell the parking spot separate from your unit. That flexibility certainly has value.
6) The spot may actually be worth more as part of a unit, rather than the value of the spot itself - I always remind clients to think of their exit strategy. Who will you be renting your unit to in the near-term, and who are you planning to sell the unit to down the road? The way condo prices are going in Toronto, couples will ultimately be looking at 1-bedroom and 1+den condos as their starter home. They already are. And a lot of people still drive. In my opinion, people who need a car will ultimately pay more for a parking spot when it's already included in the price of a condo. They're not necessarily thinking "wow, that parking spot costs $50k". More likely they're saying "this is the perfect size of a condo we can live in, and it comes with parking, which we need". Selling the spot separately may get you $40k, but rolled into a unit, it could actually be worth more to the right buyer in the future.
7) 1-beds with parking are getting harder to find for renters - I do a lot of rentals and I can tell you from experience, it's getting harder and harder to find 1-bedroom rentals with parking. And it's getting more expensive. Most developers these days are not even offering purchasers of pre-construction 1-bedroom units the opportunity to buy parking so as these new projects get completed, the percentage of 1-bed units with parking in the core will keep shrinking. As long as there is a strong and growing pool of renters who need cars, the rental premium for 1-beds with parking should also keep growing.
Remember, parking spots are actual property that can go up and down in value. As long as people keep driving in Toronto, and as long as developers build fewer and fewer parking spots (and as long as the TTC continues to, well, suck), I wouldn't immediately write off parking when looking at investment units - As long as you can justify the math.
I've done a couple other posts on investment-related topics, so definitely check these out as well. They'll blow your mind. Or they won't. Either way, hopefully you find them helpful:
If you have a comment, feel free to leave it below. And remember, if you haven't already, please "like" my Facebook page, follow me on Instagram and check back regularly!
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)