Does more parking add value to a property?
Hello BP community!
We recently purchased a 4-plex with a driveway that is big enough to park 4 cars but only two units have a parking space (otherwise, they'd all be blocking each other in). The parking spots were allocated by the previous owner as follows:
Unit 1 - parks on the street and has stated to us that she doesn't like the parking situation.
Units 2 and 3 have a parking spot in the driveway.
Unit 4 moved in on March 1, and his lease notes parking is on the street. No complaints from him so far.
When there is a parking ban in effect (which happens often with Rhode Island winters), all four tenants park in the driveway until the ban is lifted.
We've been looking into expanding/widening the driveway to allow one parking spot per unit but the quotes are higher than I expected (ranging from $3500-5400), so now we're rethinking whether or not it's worth adding more parking.
We have the money to pay for it, but it would be out of our own pocket, as we haven't owned the property long enough to have built up the CapEx savings. We're leaning towards not making any immediate changes, but is that being short-sighted? Is this an added value to the property other than keeping one tenant happy?
I appreciate any thoughts or similar experiences that others have had. Thanks!
Two of my SFRs are on residential streets where nearly every house has a driveway ... except my properties. Initially, I too wondered if the lack of a driveway might cause delays in finding tenants.
While some applicants have mentioned they wished the houses had driveways, I can only think of 1 or 2 in 5+ years who have said that was a factor in not pursuing the rental. In my market, I always have multiple applicants eager to rent so it's never been a concern for me. Most of my tenants in those houses are like your tenant in Unit 1, they may mention the lack of a driveway, but they don't base their decision on that.
You can ask your tenants that you're considering adding parking, but only if they would be open to an increase in rent for street parking. Otherwise, depending on how your leases are staggered; it may not ever really make sense. FWIW, we pay about $4-6/sf for concrete pours in Metro Detroit.
I think the additional parking adds value. But talk with your accountant first. I wouldn't pay for it out of pocket. You may want to give a loan to your company (guessing you've got the property in an LLC), then the company would pay for it. If the existing driveway needs "repairs" you could expense the whole thing(?). Again, talk with your CPA.
@Nancy DeSocio my recollection is that you paid a sizable amount for that property. My advice is not to do the parking right now, because I can pretty much guarantee that within the next year or two something will come up on the property that will make you wish you'd saved the $3500+ in reserve for higher priority items.
Keep it on the "nice to have" list and just deal with the current parking situation until you have so much money that you feel you have some left over for improvements after all the necessary reserves have been satisfied. (If you don't know what I'm talking about, Google replacement reserves rental property.)
Unless you have money to burn of course. Then do the driveway, do an interior redecoration of all the units/common areas, and invite me out for coffee (your treat ;)
Thank you all for your input! We are inclined to leave it as is, and the responses here seem to support that.
@Shaun C., of the two tenants that would get the parking, one is on a lease until next March, so I can't increase his rent until then. And increasing rent for just one unit won't offset the cost, so as you noted, this might fall into the bucket of maybe never making sense (financially).
@Anthony Thompson, definitely a good point that once it's spent, I can't get it back for something that really is needed...and we definitely will need it for improvements as soon as one unit turns over. But I still have a couple of dollars to burn to treat you to that coffee for the sound advice :)
Thanks again to everyone who chimed in...really appreciate your thoughts!
Originally posted by @Nancy DeSocio:
Thank you all for your input! We are inclined to leave it as is, and the responses here seem to support that.
@Shaun C., of the two tenants that would get the parking, one is on a lease until next March, so I can't increase his rent until then. And increasing rent for just one unit won't offset the cost, so as you noted, this might fall into the bucket of maybe never making sense (financially).
@Anthony Thompson, definitely a good point that once it's spent, I can't get it back for something that really is needed...and we definitely will need it for improvements as soon as one unit turns over. But I still have a couple of dollars to burn to treat you to that coffee for the sound advice :)
Thanks again to everyone who chimed in...really appreciate your thoughts!
You are more than welcome to increase rents whenever you and your tenant agree through a signed lease addendum, which is why you'd want to ask them about it and see if they're open to it. I wouldn't move forward with it unless both agreed to a $15-25/m increase.
I believe having off street parking does give more value, as I would not buy a house that doesn’t have it and would pay more for similar property with parking and most tenants rather have a place to park in any situation. Sometimes there is no place on the street to park. But you have to factor the cost as it’s an investment. I’m always into if I wouldn’t live here why would I want my tenants to, but that’s just me 🙂
Thanks for your perspective, @Carlos Tavares. It's definitely the "investment" aspect of this that is a challenge, as it would be years upon years to recoup that money. But I agree with your line of thinking and have the same philosophy of wanting to provide tenants the same basic amenities that I would expect!
@Nancy DeSocio off street parking has value to tenants and it will help you retain and attract new tenants to have off street parking. It probably has value around $25 per month, maybe more. As @Shaun C. mentioned, you can add a parking addendum and increase rent that way. The tenant who wants a spot just needs to agree to pay $25 per month and they get a spot. I don't think $3500 is bad to add a couple parking spots. If you can charge two tenants $25 per month, that is $600 per year. Parking spots will last 25 years and your break even with the higher rent will happen after 5.8 years. When you do the improvement, mark it as a repair expense on your taxes and you can claim the entire $3500 as a deduction for 2018. A deduction will reduce your taxable income, so let's say you are in the 25% bracket, then you reduce your taxes by $875. So you are essentially paying $3500-875=$2625. Now your payback is 4.375 years to break even. Don't be afraid of spending money to improve your property. Between the tax benefit and increased income, this is improvement makes sense to me. You could wait a couple year to do the improvement, but they you delay the benefit. If you are holding long term, why not fix the issue now.
#2 All Forums Contributor
- Real Estate Broker
- Lake Oswego OR Summerlin, NV
- 58,858
- Votes |
- 39,960
- Posts
#2 All Forums Contributor
- Real Estate Broker
- Lake Oswego OR Summerlin, NV
@Joe Splitrock depends on the area and the customs..
I remember my first venture into a new subdivision in Charlotte and was staggered that you had all these new houses with driveways leading up to the front of the house but NO garage LOL.
and I Charleston were we are building parking is defiantly has value.. some lots that you can only park on are worth north of 100k for a small couple thousand sq ft.
other areas not so much.. I think its case by case and how the streets are etc..
In Portland some of the new construction in the city you CANNOT build parking off street.. WHY to encourage public transportation.. but you know what this does.. people have cars anyway and its a mess.
@Nancy DeSocio In situations where we had to widen driveways we have in certain cases used crushed stone instead of asphalt. It is much cheaper in our experience. Have you looked into that?
If you have the space why not do a compacted dirt then gravel compacted then rock. Or do crushed rock or road base and then asphalt. Bound to be cheaper than concrete. And since it’s formparking you’re not going to get a top of wear like a road
Originally posted by @Jay Hinrichs:
@Joe Splitrock depends on the area and the customs..
I remember my first venture into a new subdivision in Charlotte and was staggered that you had all these new houses with driveways leading up to the front of the house but NO garage LOL.
and I Charleston were we are building parking is defiantly has value.. some lots that you can only park on are worth north of 100k for a small couple thousand sq ft.
other areas not so much.. I think its case by case and how the streets are etc..
In Portland some of the new construction in the city you CANNOT build parking off street.. WHY to encourage public transportation.. but you know what this does.. people have cars anyway and its a mess.
You are right location matters very much. If there is a shortage of on street parking, then off street parking becomes more valuable. It also depends on the class of the property. More affluent tenants would probably drive nicer cars and would be more interested in off street or even garage parking. In my part of the country it gets cold in the winter. I only buy houses with double car garages that are attached to the house. That way you don't have to scrape your windows in the winter or walk outside in the cold to get to your car. Once my tenants have an attached garage, they never want to rent a place without one. Of course this is specific to my climate. In warm climates car ports or nothing at is more common.
That is interesting in Portland about off street parking on new construction. Off street parking is required in my part of the country to keep cars off the road as much as possible. Larger structures have requirements for minimum parking spots to prevent inadequate parking. Of course here, our public transit is more limited.
@Michael Noto, thanks for pointing that out. We did get one quote for gravel, and it was much less expensive, but also a shorter term solution since we won't get as many years out of it. Certainly an option though.
@Joe Splitrock, you make a good point that it pays off long-term. It's a C-class property in a C-class neighborhood. I'd say the street has more single-family homes than MF, and for that reason, there is always street parking. But it's certainly an inconvenience, esp on trash day, snow days, etc, so I see the benefit to having more parking. I hadn't considered the tax part of it, so thank you!
FWIW
In areas where street parking is "tough" I find tenants are willing to pay more per month for a designated space to park in. In a 4-plex that I manage we created two additional designated parking spaces. Each of them brings in $50/month. I inform all tenants that if no one wants them they convert to a first come - first serve space. Someone always wants the additional designated space.
-
Broker CA (#01878782)
- Pintail Property Management
My experience in this area is that I only get a minimal amount more additional rent. I have several properties where there was minimal or street only parking, and we didn’t get a staggering additional amount in rent when we provided additional parking. As for the overall value of the property when thinking resale, I tend to go with the opinion that it may widen your pool of interested buyers, but will not create a large amount of additional value. There are some cases where it is needed in order to keep turnover rates lower. I own a 5 unit that had one straight narrow driveway and to double, the street was narrow. Parking was a constant issue. I ended up buying a vacant lot and creating a parking lot. It has reduced the amount of nuisance calls and curbed turnover. That $15,000 investment has created $0 in additional monthly income and comes with its own list of maintenance expenses, but it was worth it for me because it helped the properly operate in a more streamlined manner.
#2 Contractors Contributor
- Severna Park, MD
@Nancy DeSocio go with the gravel for a while . Then down the road pave it or concrete . A year or two of driving and parking on it will compact it rather well .A good base is required for asphalt or concrete .
Most of my properties are gravel , when I want to dress them up I bring in a ton or two , and spread it with the loader , and it looks as good as new