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

by | BiggerPockets.com

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

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.

Download Your FREE guide to evicting a tenant!

We hope you never have to evict a tenant, but know it’s always wise to prepare for the worst. Navigating the legal and financial considerations of an eviction can be tricky, even for the most experienced landlords. Lucky for you, the experts at BiggerPockets have put together a FREE Guide to Evicting Tenants so you can protect your property and investments.

Click Here For Your Free Tenant Eviction Guide

Highest and Best Use

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 hook up 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.


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

Maximizing Rents and Increasing 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.

Easier to Manage

Obviously, garages are much easier to manage than tenant-occupied property, serving as the tenant’s residence. Maybe you’ve heard the 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 perspectives 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.


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 investment that are easier to deal with. Whenever there are people involved, the problems seem to be just around the corner.

We’re republishing this article to help out our newer readers.

So, who on BiggerPockets likes garages as much as I do?

Let me know with a comment!

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


    • Dave Van Horn

      Hi Christopher,

      Thanks for the kind words!

      I’ve done a few different set ups but I’m not positive on all of the exact brands of prefabs:

      – Initially I used an 84 Lumber kit which came with a plan that I took to the township for approval. So 84 Lumber dropped off the materials for a stick-built garage to my property. They gave us the plans, lumber, the trusses (the only thing that came per-assembled), and other materials and we had someone put it all together.

      – My one set of garages were located not far from Lancaster, PA so we would use Amish construction workers who made prefab garages that they would drop off.

      – I also used a friend’s company that would combine both the stick-build and preassembled model where they would bring in pieces of the garage in sections and assemble it onsite. This was great for instances where there was obstacles that would prevent fully built prefabs from fitting in there.

      I’ve also looked into pole (metal) barns too but haven’t used them as of yet. What you’re building the garages for and what they’ll house will help dictate what materials you’re using to build/the type of prefab you set up.


    • Julie Moran

      We are listing for rent a 2400 sq ft SFR totally updated. In addition to the attached 2 car garage it has a detached 2 car garage in backyard accessible by driveway. How can we position / separate the detached garage to get more rent ? Pricing ? Wouldn’t it devalue house rent if the garage was rented to a separate renter ?

    • Dave Van Horn

      Hi Wesley,

      In my experience, I initially thought to set up the garages as commercial properties. There was so much red tape, fees, etc. that I quickly learned it’s much easier to propose garages as a residential add-on to get through the permitting process in a fast and easy manner.


  1. Brandon Kelly

    This is something I’ve looked into doing as well, but where my roadblock lies, is if someone wants to store a vehicle in the garage… …if they don’t pay their rent, I can’t just up and sell the vehicle. The title isn’t in my name. Whereas, “stuff” they store doesn’t carry title, and can be sold (or tossed). The vehicle would simply have to be towed out, and impounded? Thoughts? Assistance?

    • Dave Van Horn

      Hi Michael,

      I think the biggest difference is that there’s more demand for the one-off garage for someone who runs their own small business. Garage renters are usually getting more bang for their buck with more space for less cost, which probably lends into the higher demand.

      I also think storage centers have more rules and are stricter with credit on tenants. I’m usually more lenient with that because when you go to court over a garage, it usually boils down to the judge asking them: “did you pay the rent? yes or no?” There isn’t the same kind of sympathy for garage tenants like there is for apartment/home rentals.


  2. Patrick Desjardins

    Hey Dave,
    Great insight that I’d put in the “maximizing cash flow” category. Maybe you should go a bit more into the practical details in how to use this strategy to maximize cash flow (and other tips I’m sure you have). Did you select these properties with that goal in mind of adding a prefab building? Are these in suburban areas? Did you come up with a rate through trial and error?

    That would make for some great and very different articles.

    • Dave Van Horn

      Hey Patrick,

      Thanks for the response!

      The first place I built garages was in a suburb and I actually lived in the residence before building them and had no intention of putting them there. It wasn’t until I moved out that I realized there was no cashflow coming from the large back yard. So that’s when I had the idea to use it. Now it’s always a consideration.

      As for the rate, I came up with that from my experience as a property manager and Realtor. But you could look into other comparable garage rentals online for prices based on square footage.

      The biggest thing I left out in the article is the advantage of the higher appraisal. My first property with added garages appraised for more than double than it did without them. So when refinancing, that can be a pretty positive thing.


    • Dave Van Horn

      Hi Wesley,
      Good question. It depends on the size of your network. Although I did put a few ads on Craigslist here and there, most of the time I just rented out the garages by word of mouth or through my regular property management company. Since I used to work as a painting contractor, I knew a lot of contractors, who often need storage. Property management companies may need storage for maintenance supplies. You can also help out other real estate investors, as many rehabbers need storage for their equipment.

      • Jay Kadlec

        Does anyone ever use the garage for business activities? Say the painters contractors who rent it out setting it up as a painting shop? Does that pose as problem since it’s zoned as residential?
        Thank you for posting btw, great thing to consider!

  3. Steven Wiltz

    This is very intriguing. I have a couple of large lot residential rental properties, zoned commercial, that I have been agonizing over milking more cashflow out of. I think this is it. Do you have any other collected information on garage investing?

    • Dave Van Horn

      Hi Steven,
      I don’t know of much information available on garage investing, besides what I’ve learned through trial and error, although garages and storage centers may be covered in some commercial real estate courses. But, I do know that there are real estate brokers, who specialize in certain things (i.e. RV storage, boat storage, regular storage centers, etc.).

  4. Amit M.

    Can you give us some details on the contracts that you use and how you qualify people?

    I actually demand credit report, pay stub, and car reg. + insurance. It seems like a PITA but there is liability in storing a car, and I want to deal with honest people.

    Also how about payments? I try to get people to pay 3-6 months in advance, as getting small amounts monthly is a PITA.

    Overall, it is a PITA dealing with several separate garage rentals and coin op laundry (I have one as a pilot study, but will be adding it to two more buildings.) at least with the laundry I can collect all machine coins the same day, plus I found a bank (bless their soul!) that will just weigh the coin bag. Putting hundreds of quarters in those paper coin wraps totally sucks!

    But at the end of the day, I will be getting an extra $1400 a month form these little profit centers, which are all extra income. So it’s worth it, but I’m trying to make it as hassle free as possible.

    Appreciate any tips you and others may have. Cheers!

    • Dave Van Horn

      Hi Amit,
      Thanks for your comment! I was using a regular residential lease, and today my property manager screens the renters as she would with any other residential tenant.
      I understand the annoyance of collecting the smaller payments. Have you considered making it quarterly payments instead of monthly?
      Also, many banks and stores have a machines to count coins, where you don’t have to wrap it up and no one has to weigh it. Might be something to utilize.
      I hope this helps!

  5. Thomas A.

    I was thinking that I’d have the users pay a membership to use the garage. There would be a card key so you could use it any time of the day and they would have to clean up the place when they’re done. There are definitely some liability issues to think about.

    • Greg Hering

      There is a place locally that has workshop with woodworking and welding equipment. It operates as a non-profit but it uses the monthly membership model.

      If you are renting just the space, it seems like you would have to have a systems to reserve timeslots. Otherwise you could have three people show up at 9a.m Saturday. You would also have to define “clean up”. Putting used oil in the trash would be “clean up” to some. To you, “clean up” better mean haul the oil off the property with it their responsibility to dispose of properly. If not, you have just bought environmental liability.

      The concept could work but you are moving away from a real estate transaction to an automotive sector business plan

  6. I recently purchased an old car wash with plans of flipping into more of a shop to run my business out of. I put new metal across the front of building, enclosing the wash bays, with a walk door and windows and roll up garage doors on back of bays. I plan to keep one bay (there are 3) for my self and connect the other two from the inside and rent that space of 2 bays out. Also, my business is a sign & design business, so whoever rents out that space I will provide a free sign for their small business. Any more thoughts or loops I’ll have to jump through in order for this to work? There is sheet metal between the bays…firewall?? Car wash bays can be separated into garage spaces! 🙂 Thanks!

  7. Dave Van Horn

    Hi Josh,

    Great plan! It sounds like you’re getting creative with a commercial space.

    I’m not so sure about the Firewall. I wasn’t required to put one in, but then again there was no one living in the building. Also, it may be more of a local code.

    You may also want to consider trying to separate the utilities if at all possible to save extra money.

    Good luck.


  8. Hello Dave Van Horn,

    Renting out the garage is a great idea. Our first rental property has a detached garage, which this theory could be utilized easily.


  9. Mike Parelli

    There is a huge need for parking in Port Chester, NY. I’m thinking even the smaller investor can make some good dollars. There are large developments and money flowing in.

    Anyway great article and thank you for sharing.

  10. Mike Nelson

    I had a two-car garage built at the rear of my two-flat in Wicker Park and rented out both spaces for $300/month and paid it off in three years. I was lucky to get a great tenant across the alley. I just had one of the larger garage builders tear down the old garage and build new. They did everything construction wise.

  11. Roy Seaberg

    When I saw the title I was actually thinking the big commercial parking garages. The ones that are several stories tall. I am not sure how you would make money from them. A lot of them are free parking but I have seen some where you have to pay like hospitals. You are charged by the hour I think. Never mind you already have to cover the bills from the doctors then have to cover parking too. I have heard about people owning a parking space in places in New York and not use them while renting it out for crazy money like 20 thousand a year or something. Usually I think the people that own the spaces it’s part of the apartment they live in and they walk or bike and don’t need it so rent it back out. If you have any insight on investing in parking spaces and/or commercial parking garages that would be cool.

  12. Jade Atkinson

    Storage is big business in Australia and NZ. In Sydney in particular, competition has driven down prices to store stuff long term. My family in NZ still has a storage unit in Sydney that we pay AU$129 p/m. Until my grandfather decides to move back to NZ (he is still working over there) and we ship everything to Auckland.

    • Dave Van Horn

      Not always the case, in my experience. I’ve had many tenants without cars or a need for a garage. Plus like I mentioned, the prefab garages on properties with a underutilized outdoor space isn’t uncommon either.

      But the concept of the article isn’t what tenants expect or even garages specifically . The main takeaway that I intended for readers was for them to think about the “highest and best use” of a property and how you can get creative to generate more cashflow/value. Garages were merely just one example.

      Thank for reading.


  13. Kevin Dickson

    When it comes to construction projects, garages are the easiest to get permitted. The local “Budget Garage” contractor can get the permit in one day. For a house or an addition to the dwelling space, this is taking 6 months in Denver.

    Xcel Energy is a bureaucratic mess, so it can take 6 months to get the electricity hooked up though.

    Another tip: coordinate with your plumber, and add a “sewer cleanout” in or near the garage. That makes it easy to dump the tanks on a RV. Backyard cleanouts are now required by most codes and are alway convenient to have because it prevents having to pull a toilet to run the line. In a pinch, an RV can be parked in the garage and used for temporary housing. For that reason, always specify an eight foot tall garage door. Careful though, RVs that will fit through an eight foot door are kind of rare.

    • Dave Van Horn

      You bring up a good point Kevin!

      Forgot to mention, I did go with the higher oversized doors when I was building (and I also had a reinforced concrete floor put in to handle heavy vehicles). I also had attic space put in as well. If you choose to go the residential storage route, the building requirements are can dramatically be more lenient in most jurisdictions.

      What’s cool is these little things can open up your garages to more types of tenants. So it can definitely pay to think it through before construction.


  14. Kevin Felmlee

    Hi Dave,
    I just had a question about your comments on “Maximizing” space in a rental such as converting dead space into another bedroom. I was considering this. I have a lot of duplex’s that have “open attic space” that could easily be a 4th bedroom. But my concern is would I be encouraging other issues with the large family tenants? I know some landlords love 2 BR units because they typically get couples or roommates vs 4 adults, uncles, nephews etc living there. So would like to hear your opinion on this thought too. thanks again.

  15. Joseph M.

    Thanks Dave,
    I’ve been renting out my garage for about 6 years now and haven’t had too many difficulties. The money that I made off of renting it allowed me to not only replace, but also extend my driveway for two additional cars as well. I currently rent it out to a older gentlemen who is storing a classic car he doesn’t want to leave outside. I think its a overlooked money making opportunity and I will definitely look to repeat this again on the next property I purchase.

  16. kevin girouard

    Great insight…I’m purchasing a duplex and it has a 30×40 cinder block garage…I’m thinking about renting space for vehicle and motorcycle storage…or do you think rent the whole space to one person? Or try and fill it with a few individuals .. thanks

  17. Tina Huffman

    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!

  18. 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.

  19. Mike Spero

    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?


Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here