Selling a parking space: brilliant or foolish

[Aristippus]

Looking for insights. I live in a 75-unit building that only has 12 parking spaces; I own one of the 12. However, I have no car and no plans to get one; I bought the parking space thinking I would get a car, before I realized how easily public transportation meets my needs here. The space also enhances the value of the property, but I have no intention of selling for at least 15 years, if ever. Right now I'm renting it out, for a fee that covers about 60-70% of what the space is costing me in mortgage payments, fees, and taxes.

Now, I also have some debt; I have another thread about that. It occurs to me that I could sell the parking space (it would sell for $30k, and I already have a potential buyer) and use the proceeds to pay off all my debt and have money left over, either to bank or to pay down my mortgage. Two questions:

1) Does this seem a good plan? Is there some problem with it I'm not seeing?

2) If I sell the space, I'll still be paying on it as part of my mortgage. Can I still deduct that mortgage interest?

Thanks in advance for any insights!

[krantcents]

Your mortgage interest is deductible no matter what for now. It is difficult to assess selling the space or not. In New York City, a parking space would have a value of an apartment. In other cities, far less. I am little surprised that the rent doesn't cover your cost. Over time, the rent should increase versus selling. The fact that there are only a few spaces for a 75 unit building makes me think it does not have much value. You haven't discussed the interest rate of your mortgage. Have you refinanced lately. If you sell, you can pay down your mortgage.

[disneysteve]

Selling the space is certainly worth considering. I had actually considered buying one as an investment a number of years ago, though I ultimately didn't because the numbers just didn't work.

Is it possible to get a higher rent that would actually match your costs? The problem with selling the space, as you mention, is that it enhances the value of your property. Selling the space could make selling the property harder down the line.

As far as I know, you will still be able to deduct your mortgage interest. That isn't based on the value of the property so decreasing the value doesn't change the deductibility on the loan.

[Aristippus]

Thanks! Regarding questions asked:

- Mortgage is at 4.75 (a jumbo mortgage, or whatever they're called now). All of my debt is at rates under 8%, but all higher than 4.75.
- $150 is the going rate in my neighborhood for renting an unsecured street or alley space, which is what I have. That rate will go up over time, but probably slowly. $30k is also the going rate for selling it and, as I've said, I already have a potential buyer.

[jpg7n16]

What is the likelihood that you could sell the spot today, pay off your debt, invest, save up $30k, and buy a spot back later on? (if/when you wanted to sell the home)

$150/month ($1800/year) on $30k is 6%/year, but if you have fees and taxes, that eats away at that return. Especially since you should be claiming that $1800/year as income, your true rate of return will be much less than 6%. Probably more like 3-3.5%.


Though one supply/demand thing I'm thinking is - if you've already got buyers lining up at $30k, then that's not the going rate. The buyers must think it's a bargain at $30k, and would likely pay more - like $35k or so.

But that's just the business man in me Don't mean to cost you a sale by trying to get max value.

[Aristippus]

Originally Posted by jpg7n16

What is the likelihood that you could sell the spot today, pay off your debt, invest, save up $30k, and buy a spot back later on? (if/when you wanted to sell the home)

I'd say pretty reasonable. Bigger question is whether a space would be available; with only 12 spaces in a building of 75 units, that seems unlikely.

$150/month ($1800/year) on $30k is 6%/year, but if you have fees and taxes, that eats away at that return. Especially since you should be claiming that $1800/year as income, your true rate of return will be much less than 6%. Probably more like 3-3.5%.

No, my true rate is actually negative, since I've only paid for 20% of the space; mortgage on the remaining 80% plus taxes on space plus condo fee on space probably come to $225/mo. Figure $200/mo of that is deductible at a tax rate of 25 or 28%, so I'd say I'm actually losing $25 or so a month on the space ($225 -(150+200*.25)).

Though one supply/demand thing I'm thinking is - if you've already got buyers lining up at $30k, then that's not the going rate. The buyers must think it's a bargain at $30k, and would likely pay more - like $35k or so.

But that's just the business man in me Don't mean to cost you a sale by trying to get max value.

Point taken, but I need to sell the space to someone else in the building; I'd rather not push a neighbor to the wall on this.

[disneysteve]

Originally Posted by Aristippus

Point taken, but I need to sell the space to someone else in the building; I'd rather not push a neighbor to the wall on this.

Good point. There are 75 units and 12 spaces. That means there are 63 owners who don't have spaces or 63 potential customers. Of course, that also means that 63 people were satisfied buying a unit that did not include a parking space which bodes well to you selling your unit in the future even without the space.

[LivingAlmostLarge]

Can you explain your math? Was the space $30k? I would not sell but rent it out for cost to someone not in the building if necessary.

I'm really confused as to how much you paid for the spot. Put that in black and white to explain.

[Frugal]

I am honestly really surprised that a parking space could ever sell for 30 k! then again, I don't live on the East Coast, and I certainly don't live in that big of a city to even need a parking space. I do know parking is crowded on the street where I live. Who knew you could have a mortgage that involved a parking space? I had no clue! lol

[mcfroggin]

I'd argue to not sell the parking spot separate to the unit. It just makes your unit that much more valuable. If your unit and another similar unit were both on the market today, most buyers would strongly consider your unit just to have parking. Heck, I'd prefer a non-updated pad with a parking spot over another unit that is more updated.

What do you mean that the standard parking rate is $150? Are the other 11 parking spots only getting $150? Where did you get this average?

Is your space closer to the entrance of your building than others? Is it any more accessible than other spaces? I would attempt to find a reason to charge a higher monthly fee. I think you could do better.

[disneysteve]

Originally Posted by Frugal

I am honestly really surprised that a parking space could ever sell for 30 k!

One of my roommates senior year in college was from Queens, NY. After college, he was paying as much each month to rent his parking space as I was paying to rent my apartment. Parking is at a tremendous premium in many big cities. As I said, I had actually explored the possibility of purchasing a parking space as an investment a few years ago.

[LivingAlmostLarge]

It was $50k at a condo complex we were looking at where we live. So I'm curious what he paid for the spot.

[Aristippus]

Sorry to have been away; crazy busy week here. To answer questions:

The space cost us $29,500. Welcome to the East Coast urban living! As for the $150/month we're charging, that is consistent with both what a couple other folks in teh building are charging to rent out their spaces, and with what a space like ours (on-street, no security) goes for in this neighborhood (based on classified ads and a city-wide parking space rental website).

I do realize I kind of screwed up the math, though; I calculated the mortgage payment as if I'd borrowed the whole 29,500 instead of 23,600 (I put 20% down). So that means I'm clearing about $17/mo rental income versus mortgage payment; once I subtract from that my property tax on the space and condo fee for the space, then add back in the income tax deduction I get for mortgage interest on the space and property tax, it's probably close to a break-even proposition.

[DebbieL]

I think you will really regret it if you sell that space. I would never even consider buying a unit that didn't have a parking space, and I'm sure there are plenty of other people who think like I do. I would keep it if I were you.

[LivingAlmostLarge]

I'd keep it. You are selling it for what you bought it. Okay, and you rolled it into the mortgage. But when it's times to sell it could be a huge difference maker.

[danieldroga]

Selling is a good idea but it is better if you settle with rentals.

[Slug]

Keep it. Raise the rent as soon as you can so you have the peace of mind that it is profitable.

[CoryWM]

I personally would do a few things.

1st. In a community space, I would have a flyer that stated the space was for sale. Although make it 45k or some other high bid. This would be similar to a buy it now price on Ebay. It won't sell today or tomorrow. But maybe a year down the road, someone buys another unit and wants a parking space. You cash in that day.

2nd. Keep tabs on if there are any vacant parking spaces for your units. If 3 people have spots for rent, and yours is one of them. You may well be able to ask $200 for your parking space the next time it's open.

3rd. Evaluate how it would make you feel mentally. Sure you're clearing $17 dollars each month in profit. But would the weight of paying off your debts be a greater reward? Sometimes you can't put a price on mental health. If paying off your debts would put you into more of an accomplished mindset and continue to save for the future. This is very similar to having cash flow for a business. 30k in cash today may help you avoid having to borrow tomorrow at a rate you don't want to pay.

For me personally, I would be wanting to get out of this investment in the future when feasible. Since you're already invested in it, I'd be looking to maximize my return. The return here is not the $20 a month you make. It'll be the cash out price. You're just holding the spot until someone comes a long who really wants a unit with t a spot. They can use that to barter down the price of their unit, and then they barter you down to $40k. Everyone wins. Also you don't have to pin a neighbor to the wall, since it's a potential neighbor and not a current neighbor.