Gotta love disposable income (in the middle of a recession)....Do I even need to write more?

Here's what all the brouhaha is about - would you pay $300,000 for this?:

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Since there are more than enough comments by readers on the Boston Globe and Boston Herald sites trying to answer that question (most of them idiotic as usual so take a look if you're in the mood for a chuckle), you probably don't need my opinion on it, so I'll keep it brief and take a slightly different approach.  As for the personal decision to spend $300K on a parking space (uncovered, by the way) behind 48 Commonwealth Ave, well, let's just say this is still America and if you've got the money, who am I to tell you what to spend it on?  I can probably think of other things to blow $300K on, but if parking is what you're into, enjoy!

 

But from an economic perspective, does this purchase make any sense?

First, if the spot was 20' x 10' (a very nice sized parking space), then this buyer just paid $1,500 per sq foot for land!  That equals the price per foot of a handful of exclusive Boston luxury condo buildings!

I assume the buyer paid cash for the spot, but let's use a typical investment property cash flow example....if you put 25% down on this purchase, you're looking at a loan amount $225,000.  Even at today's low mortgage rates, you're looking at a monthly payment of $1,250 or so.  This spot could typically rent for $300-$350 per month, so in this scenario you are looking at a loss of $900 per month!  Nothing like praying for appreciation I guess.

Then what could a buyer count on for appreciation?  To give us an idea, here are average prices for parking spaces in the Back Bay since 2004 (according to the LINK multiple listing service):

2004 - $65,000

2005 - $63,000

2006 - $130,000

2007 - $105,000

2008 - $111,000

2009 - $146,000 (not counting this $300K sale)

Although not steadily upward each year, over the 5 year period, that's a whopping 125% increase in average price for parking spaces!

Parking prices have clearly risen very fast in the Back Bay, and haven't show much sign of slowing down (bubble, anyone?).  We are talking about prices more than doubling in the past 5 years even with the recession.  But I find it almost an impossibility that this trend will continue over the next five years.  I really can't imagine a scenario where this spot will be worth $600K in 2015.  But who am I to say? 

If prices do continue to rise at this rate, the buyer is looking at a sizable return on investment of maybe 25% per year.  But if this turns out to be a parking space "bubble"....well....we've seen how that ends before. 

What are your thoughts?  Comment below!

 

 

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