Buying a car park

There are around  32 million cars on the roads of the UK.  Most of them are parked at any one time, and the simple truth is that cars spend more time parked than being driven. Motoring organisations say there will be 39 million vehicles on British roads alone by 2030. with finite space in urban areas for car parks, demand is expected to handsomely outstrip supply.

It could mean huge business potential for operating car parks.

Parking a car can be a very big problem for motorists - and a rewarding business for car park operators, especially in commercial areas. Car parking is always in demand in town centres. Suitable sites have a scarcity value New sites are rare as most local authorities now discourage people from driving into town.

Yet commuters and leisure visitors still prefer to take their car and, as lockdowns ease, many people are still wary of public transport. Car park values have mostly weathered the UK’s two recent recessions - and may well do so again.

The economics of the business are easy to understand. A small 50-car site charging £10 per day would generate  around £130,000 per year just opening weekdays.

The traditional tarmacked outdoor space may be adequate for short term use, but a purpose built multistorey structure is able to accommodate many more vehicles, and consequently, generate much more revenue.

You need sufficient size to accommodate as many vehicles as possible, easy access and a location where people will actually want to park, and where space is at a premium.

Close to town centres may be ideal - and so may be space close to a commuter rail station. 

But in most cases, location alone is not enough. Drivers may have several different places to park and they will make their decision about which to use based, not just on where they are, but h how easy they are ot use.  Motorists who have to battle unreliable pay machines or queue, are not likely to be repeat customers. Cashless technologies can create instantaneous savings and reduce operational costs. They also offer the chance for you to easily implement dynamic parking fees. This is where parking charges can be amended to reflect demand. When there is low demand for parking spaces, prices can be lowered - when there is high demand for parking space in your area, you can raise your parking fees to maximise the increased revenue opportunity.

Drivers will also appreciate security, good lighting and cleanliness - all of which mean costs. 

The annual maintenance cost for surface car parking spaces is between £500 and £1,000 per space per year. Costs will be higher for multi-storey structures.

Set up a new car park - or buy a bare site?

Buying an existing car park operation will be straightforward, and could be much like buying any other type of business.

The lender will want to see the accounts of the business - ideally going back a year or two - to be sure that the business is profitable. They will also want to see your own business plans to demonstrate that you can demonstrate your understanding of what could be possible.

One they are happy that your business will generate sufficient cash to cover the loan repayments, there should be little to stop you getting the funding you need.

Creating a new car park may be more of a challenge.

Once you have located your site, you will need permission from the local government for a parking permit. Th is can take between a few weeks to a couple of months to get parking permission depending upon the location.

Your plans will have to meet all car park regulations and the points laid out by The Department for Regional Development in Transport Plans. The standard planning module for a parking bay is 4.8m x 2.4m, although the footprint of a car is around 1.9m to allow for door clearance. 

Even with the most basic surface car park, land will need to be resurfaced, and you will need additional security equipment and lighting, along with a payment system.

Construction and maintenance of surface car parks could cost between £1,000 and £5,000 per space. 

The average multi-storey car park is likely to cost between £7500 and £8000 per bay to build. Tarmack, signage, security cameras and pay machines will cost money - but the crucial cost will be buying or leasing the land itself.

This will vary across the country. London leads the ranking of the most expensive region to build a parking garage in. This was also true for other public building constructions in the UK and seems unsurprising given the city’s standing as a commercial and financial hub.

The lending you need to buy a car park 

A commercial mortgage is one of the most common forms of finance used to buy commercial property and operates much like a residential mortgage, with a large loan secured on the property itself.

This may be easiest if your property is a developed site rather than a bare plot, which is seen as having less value - although this rule may not apply if the site is likely to have a value in the future as a building plot.

Generally, commercial mortgages are for 15 years or more and, as with a residential mortgage, the premises will be at risk if you are unable to keep up your repayments. Rates for a commercial mortgage are arranged on an individual basis and lenders will look at your project, your accounts and projections to ensure that it has good prospects for returning a profit and set interest rates based on the level of risk they believe it presents.

Traditional (high street) lenders are likely to have the most attractive rates and will demand significant experience and trading history. They will also be conservative when it comes to the LTV they will offer.

We can offer access to the mainstream banks - but we also work with a range of lenders that are able to offer finance when mainstream banks have declined.

The Loan-to-Value will be dependent on the forecast cash flows of the business.

Because of the legal and administrative costs, it is uneconomical to borrow less than £50,000 with a commercial mortgage, and some lenders have a minimum of £75,000 or more, but there is no set upper limit.

Typical loan-to-value ratios for a new car park business with no trading history will be a maximum of 50% of the purchase price - as a comparison, owner-occupied businesses such as offices or shops can normally get a maximum loan-to-value of around 80%.

Repayment options are similar to those for the residential market, but interest rates will be a little higher.

The actual rate you pay will be set by the lender on an individual basis. An established business with good prospects should be able to secure the most attractive rate. There will be valuation, arrangement and legal fees.

Getting professional help with arranging a commercial mortgage can help you make substantial savings.

Repaying the mortgage

Commercial mortgage deals are either fixed-rate or variable rate. Fixed rate deals are usually between two and five years, offering you some security in your forward planning. On the other hand, taking a variable rate mortgage will allow you to benefit from any reductions in the base rate, but will also mean repayments may increase if the base rate increases.

You may also be able to choose a repayment mortgage option where you pay the capital and interest back each month or an interest-only mortgage, where you only pay the interest back each month. If you choose this option, the lender will seek evidence of an appropriate investment policy that will cover the outstanding capital at the end of the loan term.

What about a remortgage?

If you are currently running a successful car park business that you own, your property may have appreciated in value. This could mean that it could provide a source of funding to allow you to expand your business - for example by buying an additional site. 

You can do this by taking out a commercial mortgage on the property you already own, releasing funds to use as you wish. 

With the current low interest rates and high property values, it could be the simplest way to get the funds you need.

If you own the property outright, all the money you raise is yours to use in any way you wish - but you don’t need to have paid off a previous mortgage to remortgage. If you are refinancing an existing commercial mortgage, you can repay your original loan and use any surplus cash to help grow your business and remember, you may be able to get a better deal on your existing property and still release the cash you need.

In both cases, you repay the loan over the time agreed, and regain full title to your premises when the funds are paid off. The chances are that by doing so you will be able to take advantage of rates that are currently low.

How to arrange Commercial Property Refinance

Many commercial lenders will be able to provide property refinance, and most will have similar requirements.

Lenders will want to see a significant amount of financial information. They will need to understand your business and see balance sheets, statements showing profit and loss and cash flow data, and possibly details of your plans for the future. They may also need to see details of your personal finances, and will expect you to have a good credit history.

They will also want to confirm the current market value of the property you want to refinance. The condition and type of the premises will be important, and if the valuation has changed since you took out your original mortgage, this could have an impact on the loan-to-value calculation for a new loan.

While there are clear benefits to refinancing, there are drawbacks too, so it is crucial for businesses to think carefully about whether it is the best option in the long term.

Why Rangewell for your financial needs?

At Rangewell, our team is made up of finance experts with backgrounds in many sectors. We understand the challenges you face, so when you call us, you can talk to someone who knows the questions you may have - and the answers to them.

At Rangewell, we have the expertise you need. We know the lenders who can offer the most competitive rates for all types of property finance - including commercial mortgages. We can work with you to ensure that a commercial mortgage really is the solution you need, and look at the alternatives. We can sit down with you to understand your unique financial circumstances and devise a mortgage or remortgage application that meets the swift approval of targeted lenders.

Then we can help you refine your application and present it to the most appropriate lenders.

We can help you through every step of the process, and we know the lenders who can offer the most competitive rates for all types of finance.