As the search for income continues, many investors are turning to alternatives, with car parks becoming increasingly popular.
If you could find an investment guaranteeing 8% and based on 'hard' assets would you be interested?
With interest rates relentlessly hovering around zero, you probably would, but you might not immediately think of car parks as the place to look.
A growing number of disillusioned savers are choosing to put 'non-traditional' investments into their Self-Invested Personal Pension (SIPPs) and car park spaces are among the more left-field examples.
The rationale behind the idea is that as the number of cars increases - motor organisations say there will be 39 million more vehicles on British roads alone by 2030 - demand for parking will soar. However, as there is only a finite amount of space in urban areas for car parks, demand is expected to handsomely outstrip supply.
Investors can take advantage of this trend by purchasing an individual parking space and leasing it out to a tenant for a period of time. Often this tenant is a management company which then sub-leases it to customers on an annual basis.
Car park spaces can typically be purchased with a minimum investment of £25,000 for a six year lease and most offer a guaranteed rental yield of 8% for the first two years.
These investments are being pitched as a low entry level way of investing in commercial property and are marketed as 'tax efficient' and 'purchasable through SIPPs'.
Like any property investment, selecting the right location for your space is crucial. Places where demand for parking is at a premium because of weather conditions have proved popular in the past. For example, hot Dubai or rainy Manchester.
Property investment company, Platinum Knight, says investors can earn on average 9% per year by investing in a car park project in Dubai. It promises returns paid direct every six months which rise in each of the first five years.
Intelligent Investment offers parking spaces in central Manchester and, according to its website, guarantees a minimum rental return of 8%, which is projected to increase to 12% from year 5.
With eye-catching rates, investing in parking spaces may seem appealing but those interested should proceed with caution.
Importantly, while promoters of car park spaces claim they are 'SIPP-approved', investors shouldn't automatically assume their SIPP provider will accept them.
Car park spaces may be eligible to be held within a SIPP under HMRC rules - as long as they are used for commercial purposes only - but providers can chose to reject them for a number of reasons.
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