"I am very interested in property investment, but have no idea where to start...." Does it sound familiar to you?
In the beginning, many of us are overwhelmed by the different options of investment properties, especially when it comes to property management.
In comparison, it may be easier to run a parking lot and look for vacant land as the options for parking lot investments are more simple.
In this article, we will explain how to run a parking lot, and the pros and cons of purchasing land to convert into a parking lot as a property investment.

Converting Land into a Parking Lot for Property Investment! What are the Pros?

Firstly, we will explain the pros of purchasing a land for property investment and converting it into a parking lot.
There are three main merits of running a parking lot for property investment.

Initial Cost is Low

In the case of apartment and condominium management, the amount of initial cost can be huge with investing and constructing a building.
Even buying an existing lease property may come at a high price.
Compared to those options, the cost is relatively low for just turning a vacant land into a simple parking lot.
You still have to pay for the cost of ground leveling and asphalt pavement, but it is lower than constructing or buying a leased property, and it is also a merit that you can start running it quickly.

Narrow Land Works Too

Parking lot management is a recommended investment option for those who want to purchase land, but the land is too small or narrow to construct a building.
Even though the land may not be suitable for residential use due to the small size and unusual land formation, it works if there is enough space for parking a car.
As opposed to the apartment and condominium management, you don't have to investigate whether the land falls under any building or zoning restrictions.
There is high demand for parking lots, even if it is located some distance away from the train station.

Low Disaster Risk

The disaster risk is one of the concerns at the start of real estate investment as Japan is prone to natural disasters.
In the case of a leased property, the repair cost can be very expensive if the building is damaged by a natural disaster such as an earthquake.
In comparison, the cost to repair a parking lot from a natural disaster such as an earthquake is low.
Overall, parking lots may be a good choice for a beginner to start a property investment as the natural disaster risk is low.

Converting Land into a Parking Lot for Property Investment! What are the Cons?

There are two main demerits of running a parking lot for property investment.

Tax Burden

Tax is one of many concerns of property investment. In contrast with constructing a building on land, there is no benefit to run a parking lot in terms of tax incentives.
Specifically, a tax deduction is applied for residential land at the calculation of fixed property tax and inheritance tax, but it is not applicable to a parking lot.
Therefore, the taxation will be higher than the residential land as the estimated value for a fixed property tax is calculated as a vacant land.
The same is applied for inheritance tax.
Contrary to the apartment and condominium management, it is a downside for investing in a parking lot as there are no tax incentives.

Profitability

How much you get in return (Yield) is one of the matters you may be concerned with the most.
With leasing property management, the efficiency of the land utilization is relatively high as it depends on the number of floors of the building and how you use it.
In contrast, profitability of a parking lot may be low as it is limited to the ground area of the land.
It is wiser to calculate the yield thoroughly and then start the investment.

Converting Land into a Parking Lot for Property Investment! What are the Different Types of Parking Lots?

As you may already know, there are two types of parking lots, a monthly basis parking lot and a metered parking lot.
It might be difficult to choose which type to start with, so let us explain the characteristics and what to expect from each type of the parking lot.

Features of the Monthly Basis Parking Lot

The monthly basis parking lot is a system the tenant enters into a contract and pays a monthly fee to use the parking lot.
In contrast with a metered parking lot, the advantages of being able to run a monthly basis parking lot is there is no need to install a payment machine and pave the ground.
There are three types of monthly basis parking lot; a private management system, an outsourced management system, and a blanket leasing system.
In the private management system, you as a lessor, have to do everything on your own from advertising to collecting monthly rent from lessees.
On the other hand, those tasks including problem handling will be outsourced to a third management company in the outsourced management system.
Finally, a blanket leasing system means you exchange a contract with a third company and fully outsource the management and running of the parking lot.
In this system, you will acquire the fixed amount of the monthly rent regardless of how much the parking lot is occupied.
In the outsourced management system and the blanket leasing system, you should consider the running cost including the commission fee paid to the third management company, otherwise your income will be less than expected.

The Features of the Metered Parking Lot

The metered parking lot is the system of charging by time and receiving the fee from users.
Unlike the monthly basis parking lot, the income depends on how many times cars park there.
In addition, it is more common to outsource the management to the third company in the metered parking lot as it is difficult to manage on your own including advertising and installing the payment machine.
In terms of installing the payment machine, it is called the "self-management system" to pay the cost of the installment, and it is called the "the land lease system" to outsource the installation to the third party.
In the land lease system, you lend the land to the third party and receive the fixed amount of the rental fee same as the blanket leasing system in the monthly basis parking lot.
The metered parking lot may be suitable for a location close to busy streets and train stations as the users of the parking lot tend to park there temporarily.

Matters to Consider

As you come to understand the features and differences of the monthly basis parking lot and the metered parking lot, there are things to consider.
Illegal parking is a cautionary point of the monthly basis parking lot.
The issue of illegal parking in the vacant lot is more common than the metered parking lot as there is no locking plate to stop a car.
It may be better to take measures such as placing a warning signboard to caution against illegal parking, and installing a security camera.
The cautionary point of the metered parking lot is the initial cost and the location.
The initial cost tends to be more expensive than the monthly basis parking lot installation of the payment machine is required, and it is possible to go into a deficit depending on the profitability of the location and the cost of the management fee.
It is desirable to research the accessibility of the parking lot and calculate the expenses beforehand.

Summary

We have explained the pros and cons of running a parking lot for property investment, its features and matters to consider.
The merit of the parking lot management is that the initial cost and maintenance fee is relatively lower than real estate leasing, but the downside is that there is no tax incentive for the owner of the parking lot.
The positives of the parking lot management is that you can start easily, run a parking lot even with a small piece of land, and with the lower natural disaster risk, however the revenue is usually less than property leasing.
In this article, we have discussed the merits and demerits of the parking lot management comparing to the property leasing.
We hope this is helpful for you to determine whether the property leasing or parking lot management is better for your investment as it may vary depending on the location and the conditions.