Here at Beat the Banks we’re seeing increasing numbers of consumers who have been tempted to put their self-invested personal pensions (SIPPs) into ‘non-traditional’ investments like car parking spaces. Advertised as low risk and high return, such investments appear very attractive. In our experience, however, these claims are sadly misleading.
How does it work?
Investors are persuaded to buy spaces in car parks in the UK and abroad – we recently heard of a company selling spaces as far afield as Dubai. The investor then leases the space out to a tenant, usually a property management company, for a set period of time. This tenant then sub-leases the space out to one of their customers on a yearly basis.
These arrangements are marketed as an easy, low risk point of entry into commercial property investment, with individual spaces costing around £25,000 for a six year lease. Most promise a guaranteed minimum rental yield of 8% in the first two years with some estimating up to 12% return by year five.
On first impression it looks like a good deal and the organisations advertising such investments are keen to stress the guaranteed above inflation returns along with the seemingly low risk nature of the investment.
They point to the ever-increasing number of vehicles on the road leading to rising demand for parking, which in many urban areas already outstrips supply – a trend they say is set to continue.
It’s a convincing sales pitch and to pressure investors into signing up quickly, these companies often employ scarcity tactics like time-limited offers. Nobody wants to miss out on a good deal so people end up parting with their hard-earned funds without doing background research or taking independent advice. This, unfortunately, is where the trouble begins.
Making promises they can’t keep
Despite the assurances of low risk and promises of good returns, these car parking space schemes are simply another type Unregulated Collective Investment Scheme (UCIS) not authorised or regulated by the FCA. Unfortunately this means investors are not protected by the Financial Ombudsman (FOS) or the Financial Services Compensation Scheme (FSCS).
Typically also carrying significant sales commissions of up to as much as 40% they are therefore unsuitable for most private individuals looking to invest their pension funds. The recent Park First scandal is an example of just how disastrous they can be.
Generally the investor is required to sign a multi-year lease – six years in the cases we’ve seen – meaning you (and your money) are locked in for a considerable period of time. If after the first two years of guaranteed return the yield drops, there is very little you can do to get out.
Also, like any type of investment there’s the possibility of unscrupulous individuals operating scams, particularly with regards to parking spaces abroad. Without travelling to Dubai to see the car park for themselves, investors cannot undertake proper due diligence to be certain their parking space even exists. It’s easy to imagine how devastating it must to lose your life’s savings at the hands of scammers like this.
If you’ve lost money to a car parking space investment scheme our team at Beat the Banks may be able to assist. You can call us on 0800 193 1234 for a no-obligation chat or fill out the enquiry form below to see what our specialists can do to help you.