Real Estate Investing Basics

Why Investing in Garages Is an Ideal Way to Create Passive Income

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
228 Articles Written
detached garage painted black with black garage door next to a modern looking house with natural wood siding exterior

My love for investing in garages began a few years after I had started investing in single family and multi-unit residential real estate.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

I had taken some real estate courses to work toward my broker's license, and one of the topics we covered was the highest and best use of property.

What Is the Highest and Best Use of Property?

This concept really helped me to take a step back and look at property with a whole new pair of eyes, including properties that I already owned, was currently looking at, or might pick up in the future.

At first, my motivation was to increase rents. I would look at properties to see where I could add a bedroom. For example, I’ve made a laundry room into a bedroom by moving the laundry hookup into the basement.

I’ve also made an enclosed front porch into a bedroom by adding heat and electric. This was a two-story home that had two apartments, one of them up and one down, so it made the first floor one-bedroom unit into a two-bedroom apartment.

I’ve also made a first floor bedroom out of the kitchen when remodeling a house that needed a new kitchen by putting the new kitchen where the dining room was.

I’ve even put two bedrooms on the third floor of a two-bedroom, one-and-a-half bath house that became a four-bedroom, one-and-a-half bath house. That move alone drastically increased the rent and the value of the property, so you get the idea here.

great-deal

Related: Rental Renovations: Which Maximize Rates & Lower Vacancy – And Which Don’t?

How to Maximize Rents and Increase Values

For me, one of the most valuable strategies for getting the highest and best use out of a property was renting out garages.

At first, I utilized garages in a small way. If I had a row home with a garage underneath the house, I often didn’t include the garage with the house when advertising for rent—unless, of course, they wanted to pay for it. For example, it wouldn’t be unusual to get another $75 a month for renting the garage out as residential storage only.

Next, I started looking for properties with access so I could plant a prebuilt, prefab garage on it. These were always great to rent out to a nearby landscaper or contractor.

Then, once on one of my duplexes that had a large rear yard, I actually built a four-bay garage that I now receive an additional $660 a month in rent for. This ran me approximately $30,000 to build several years ago, and the beauty of garages is that all I have to provide is electric.

Benefits of Garages as Rental Property

Easier to Manage

Obviously, garages are much easier to manage than tenant-occupied property, serving as the tenant’s residence. Maybe you’ve heard garage horror stories, where the guy rents the garage, fills it up with asbestos, and runs away. To be quite honest, I’ve never really had these types of problems.

In fact, it’s been the opposite with my garage tenants. They’ve been very long-term, and they rarely call for anything to be repaired. I actually have a waiting list of prospective tenants who want to rent my garages. Also, if I ever have to evict a garage tenant, when I go to court, the District Justice has little sympathy since it’s not their primary residence.

tax-strategist-cpa

Related: BP Podcast 138: Self Storage, Systems, and SEO with Michael Rogers

Larger Scale Storage Centers

Later on in my career, I raised capital to purchase storage centers, which are another great vehicle for owning cash flowing real estate without having to deal with as many tenant issues as you would with residential rentals. The beauty of larger commercial pieces is that the value of the property tends to be based more on cash flow than nearby comps.

As I’ve gotten older and wiser, I’ve drifted more into the types of real estate investments that are easier to deal with. Whenever there are people involved, the problems seem to be just around the corner.

So, who on BiggerPockets likes garages as much as I do? And why or why not?

Let me know with a comment!

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nat...
Read more
    Tina Huffman from Napa, CA
    Replied over 2 years ago
    Creative REI – I like it. I have a large storage unit with two bays attached to my garage that I could rent if I made them a little more secure. I’ve considered it in the past, but this makes me think of seriously doing it. Small scale house hacking!
    Steve Mitchell
    Replied over 2 years ago
    I live in the beautiful state of California, where illegals are legal, and need cheap housing. My friend bought a 3 bedroom home with a two car garage. Now he has a 5 bedroom house without a garage and puts bunk beds in all the rooms (2 in each room) and rents them out by the bed. Great money and no taxes. Just have to keep the neighbors happy.
    Katie Rogers from Santa Barbara, California
    Replied over 2 years ago
    Illegal immigrants are not legal in California, but you are correct that there are a lot of slumlords like your friend in California.
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied over 2 years ago
    This is such a great idea! Just starting out on my REI adventure and this will allow me to look at properties a little differently that have detached garages. Thank you!
    Mike Spero from Kansas City, Missouri
    Replied about 2 years ago
    Dave, I’m looking at a 10 bay carwash, all the equipment has been taken out, it’s just the shell, good roof and brick walls. I was looking into making it a storage rental, but a garage rental sounds like better income. What are your thoughts? Thanks Mike
    Marilou Ancheta from Clovis, California
    Replied about 2 years ago
    This is very interesting. Thanks for the idea!
    Brian S. Rental Property Investor from Bellefonte, PA
    Replied over 1 year ago
    This is a very interesting topic that has my mind churning! Thanks for sharing this article about “best use of property!”
    Tony Mickelsen
    Replied over 1 year ago
    I know a lot of people doing this and it works really well. They quickly increase cash flow with relatively little effort. And the garages get rented out quickly. Especially if you post the garage on Neighbor.
    Scott Crabtree
    Replied about 1 year ago
    Hello Dave, I am looking at some multi-family properties with detached garages, which I would rent out separate from the main residences. However, I am having trouble determining comps for pricing the garages, and I am concerned that a garage may have a higher vacancy rate than an apartment. Do you have any advice for these pricing with these concerns in mind? Thanks.
    Travis Stevens
    Replied about 1 year ago
    So for a garage with several bays, I’m assuming you frame in a dividing wall between each bay?
    Patrick Winn Rental Property Investor from Fort Worth, TX
    Replied about 1 year ago
    Dave. Thank you for your post. I have a duplex with a very large lot with plenty of room for an extra garage and your unique idea seems to be perfect for my situation. I’d like more details on where you built your garage in relation to where the duplex is, as well as how you deal with the tenants in the duplex having to interact with the garage tenants. Thank you in advance.
    Amelia Dahl
    Replied 11 months ago
    This is a great idea! I have a pretty large garage that we just renovated and have been thinking of renting it out or using it as a paid storage unit. If you're renovating or need some ideas of inspiration, check out www.lifetimedoor.net - Tons of great examples of their website.