Ask an advisor: Should we buy a $40,000 parking spot?
By Nathan Place
April 5, 2024 5:02 PM
A garage space can be a great convenience in a big city, but their prices are often sky-high.
Pexels/Pixabay
Welcome back to "Ask an Advisor," the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.
In the United States, owning a car is widely considered a necessity. According to the U.S. Census, 92% of Americans own at least one vehicle. And it's expensive: The average price of a new car is $47,338, according to the car review site Edmunds.com, while the average used car costs $27,297 — and that's not even including the costs of gas, insurance and upkeep.
How necessary is it to pay for all this? That depends on where you live.
While life in most suburban and rural areas would be almost impossible without a car, the story is different in America's cities — especially one in particular. In New York, the sheer denseness of the environment and walkability of the street grid mean residents can live without wheels. As a result, car ownership is far lower — only 46% of New Yorkers have a car, according to the lending company TitleMax.
To own an automobile in this pedestrian's paradise, one must find a place to put it. And in a city as dense and chaotic as New York — and let's not even get started about alternate-side parking — that's not easy.
One couple has the option to escape all that stress, but for a hefty price. The two media workers could buy a parking spot in their building's garage, but the space costs more than the price of many cars. Would it be worth it? Should they look at the space as an investment, or as a waste of money?
Here's what they wrote:
Dear advisors,
My wife and I live in New York City, and our building has the rare benefit of including a parking garage. Unfortunately, it's absurdly expensive — each spot costs $40,000, and there's a $180 monthly "maintenance" fee on top of that.
So far, we've refused to give into this highway robbery, but we've suffered the consequences. Two years ago, our car was destroyed while it was parked on the street, smashed into by a drunk or reckless driver. Apparently this is quite common in our neighborhood — another car was also destroyed in the same crash, and its owners told us this was the second time this happened to them in just a few weeks. Our street is littered with totaled cars.
Sooner or later we want to buy another car, but it doesn't seem worth it unless we have somewhere safe to park it. There are also commercial garages in our neighborhood, but they cost $400-$500 a month, which seems like a waste of money. Should we bite the bullet and buy a space of our own? One friend told us to look at it as an investment — someday we could sell it, and a parking spot in Manhattan is only likely to go up in value. We could technically afford it, though it would take a big bite out of our cash savings. Should we park $40K in our garage?
Sincerely,
Spotless in the City
And here's what financial advisors wrote back:
Go for it!
Carol Fabbri, certified financial planner and founder of Fair Advisors in Lakewood, Colorado
As a former New Yorker, I feel your pain! I lived on the Upper East Side for several years and parked my car on the street because I didn't want to pay for parking. It was broken into five times. I was just out of college and driving a beater car, so parking on the street was the right choice, but it sounds like you are in a very different place financially. If you are going to stay in New York for over 10 years, bite the bullet and pay the $40,000. It is a lot, but you'll actually own something, the ROI is 10 years and, as your friend said, the value is likely to increase.
Hit the brakes
Rodney Loesch, CFP and partner at LifeGoals Strategies Group in Kansas City, Missouri
My first question is, do you really need a car? I have had friends move from more geographically expansive areas to New York, and they found after three or four months of fighting expenses and parking lot damages that Uber and Avis were better choices.
Make sure you can resell
Daniel Galli, CFP and principal at Daniel J. Galli & Associates in Norwell, Massachusetts
Taking into consideration the fact and circumstances of living in New York City, I would consider purchasing the parking space. However, I would strongly recommend that you consult with an attorney to ensure your ability to sell the parking space to whoever and whenever you wish. In the long run, the parking space could be considered an asset. The most critical factor lies in how long you will continue to live there. It makes sense if you'll be around for three to five years. However, it's critical that you have the flexibility to sell the space if you wish without penalty.
Win-win
Noah Damsky, chartered financial analyst and principal at Marina Wealth Advisors in Los Angeles
I think this is well worth the purchase. Forty grand for the parking spot plus $180 per month is about equal to the price of rent at the $500-per-month commercial garage.
It is a big bite of your savings, but if you have owned your property for a few years, you may have enough equity to get a HELOC (home equity line of credit) and borrow the full $40,000. That way, with interest, taxes and the monthly fee, it will come out to roughly the same cost per month as the commercial garage, except — your friend is right — you'll own the spot and have an investment that you can sell down the road.
This investment might even be more scarce than your unit in the city! Not to mention you'll be making a financially good decision, and one that will also give you peace of mind that your new car will be safe. Nothing feels as good as a win-win decision like that!
Think it through
Jing Zheng, CFP and founder of Neat Financial Planning in Falls Church, Virginia
This depends on your current living situation and future plans. If you're contemplating moving within the next five to seven years, investing $40,000 in a parking spot may not be economically wise. It would take approximately 12 years to recoup your investment, without even accounting for inflation and opportunity costs. Before making a decision, it's also crucial to explore the resale market for parking spots. How likely is it that you could sell the spot if needed? Is renting it out an option should you decide to move? If there's uncertainty around these questions or your duration in the neighborhood, it might be prudent to hold off on purchasing and reevaluate the option later.
However, the convenience of having a parking spot, particularly if you have or are planning to have children, should also be considered. It might alleviate your daily stress significantly. If the security and convenience of a parking spot bring you peace of mind and you can comfortably afford it, then investing in one could be considered a wise use of your resources.
Retirement Reporter, Financial Planning
