Car Wash Businesses For Sale: Are They a Good Investment?

Investor interest has recently grown in a popular new class of net lease investments: car wash properties. Demand for car wash businesses continues to grow due to the vast number of cars on U.S. roads. These businesses also have a considerable advantage over other many types of retail—the internet cannot put them out of business. In other words, the only way to wash a car is to drive to the local car wash.

Car washes have no shortage of potential customers. In fact, the United States has almost one car for every resident with 284.5 million vehicles registered in 2019, according to Hedges & Company. In other words,  that’s 284.5 million vehicles that need to be washed and maintained regularly. Plus, Hedges reports that U.S. residents buy about 17 million cars and light trucks each year. 

As a result, more than 2 billion cars are washed and cleaned annually in North America, per International Carwash Association (ICA) data which translates into retail sales of approximately $15 billion in North America each year.

Most importantly, car washes cannot be outsourced and can only operate as a brick-and-mortar location, i.e., vehicles must be washed locally. And each year, more people rely on the convenience of a car wash rather than hosing and cleaning their cars on their driveways: The percentage of U.S. drivers that report most frequently washing their vehicle at a professional car wash has increased from approximately 48% in 1994 to more than 77% in 2019, according to the ICA. 

Investing in a Car Wash

As an investment, a car wash business for sale can be attractive to a prospective entrepreneur because it is still an industry dominated by independent owners. Overall, the majority of U.S. car wash locations are owned and operated by small- to medium-sized independent car wash companies. The market is still highly fragmented, with the 100 largest conveyor car wash (full-service businesses) companies accounting for 13% of total conveyor car wash locations. The largest single operator owns less than 2% of all locations. However, the industry has been consolidating as large operators such as Mister Car Wash, International Car Wash Group and Zips are opening locations at a faster pace in recent years. Approximately 75% of the properties currently on the market are leased to one of the top 10 largest operators in the country.

Starting a car wash business has several advantages like the enduring need for affordable, accessible vehicle cleaning and maintenance which makes a car wash appear to be a safe investment. However, disadvantages include expensive repairs when equipment breaks and in some markets, lulls in revenue during the off season. Before investing in a car wash business, researching the market where the car wash is located is important to determine the pros and cons of car wash ownership.

The Three Types of Car Wash Businesses

When considering a car wash purchase, it is crucial to understand the three basic car wash business models: full-service conveyer enterprises, express drive-through sites and self-service establishments with bays. In total, there are 63,000 of all types of car washes in the U.S. with the express drive-through being most popular with 29,000, according to the ICA.

The “tunnel” wash or automatic car wash uses a long building for soaping and rinsing as each vehicle travels on a conveyor and later is dried and vacuumed by employees waiting at the end of the tunnel. A tunnel car wash would be ideal for an investor looking for an automatic car wash for sale. Full-service car washes or hand car washes typically charge $14 or more for a wash with a labor-intensive process that often includes multiple add-ons such as detailing, fuel, a convenience store or a lube stop. The average annual revenue for these large car washes is $686,250, according to Brandon Gaille, a small business and marketing expert.

This is also the costliest way to enter the business—these businesses are usually priced over $1 million, and typically produce the highest revenues and profits. With employees to manage and a seven-figure cost, it is by far the most demanding of the car wash models. Owners of these businesses are often a corporation or partnership with two or more owners each investing capital, borrowing ability and management time.

Much smaller installations are the express, drive through arrangements with customers staying in the car during the wash. Generally, there is no hard labor involved except perhaps the customer’s do-it-yourself vacuuming at the end. Customers typically pay between $3 to $12 for a quick wash and these locales depend on a high number of customers to make their sales goals. The average, annual revenue for drive through car washes is $139,000.

Finally, the third type is the “self-service” model using individual bays with wash wands and soap brushes that the customers use to clean their cars’ exterior. These are the least costly to purchase and also the lowest revenue producer. Some also feature coin-operated vacuum cleaners for cleaning the interior.  Average annual revenue for a two-bay operation is $41,000 are are ideal investment opportunities for those looking for a coin car wash for sale self serve car wash for sale.

Location, Location, Location

You’re probably asking yourself, “where do I find a car was for sale near me?” Location is something that is frequently overlooked by potential buyers. Understanding how the area around the business will impact revenue can help determine the right car wash to purchase. There are three things to consider when it comes to choosing a location for your car wash.

Proximity to residential and commercial buildings

First, an easy-access entrance and exit for the customers is vital. Second, the likelihood of people stopping to clean their cars increases if the car wash is on the way home from work. And lastly, car wash businesses tend to have more success if they are located in a higher-than-average traffic area in a neighborhood with a good mix of both residential and commercial properties. If the car wash in question has at least two of these three qualities, it is likely a sound investment, according to experts.

Where the car wash is located in the U.S.

Some car wash buyers in states with cold winters may worry that there will be a sharp drop off in business during that season. Surprisingly, 32% of car washes happen during the winter, according to Gaille. Spring and summer are tied for second place in terms of popularity, with each garnering about 25% of all car washes. Finally, fall is considerably less popular, with only 18% of car washes happening during that season. On average, car wash establishments can expect high traffic in the winter and nearly half as much traffic in the fall.

Volume of traffic flows past the wash each day of the week

While it’s reassuring that the volume of business is elevated on a high traffic day such as Saturday, it is important to see what it is like on other days of the week too. For instance, if the car wash is only bustling on Fridays, Saturdays, and Sundays, then business may be light four days of the week. As a result, it is crucial to address any traffic concerns when deciding whether or not to invest.

Appraising a Car Wash Business

A car wash for sale might be a relatively uncomplicated business to operate, but determining its value usually can be a challenge. Various appraisal approaches are advocated, and the valuation problem is complicated by the question of whether real property is involved.

One popular industry guideline recommends to start by determining the market value of the assets including equipment, improvements and inventory. Determining the total requires taking inventory of parts and supplies at their costs and adding the appraised value of the property, buildings and equipment if the property is included in the sale.

To this value, the worth of the business must be added. That’s a figure usually determined by using a factor between two and three to multiply against the seller’s annual discretionary income. If the appropriate multiplier is closer to two or three, depends on the same factors taken into consideration when evaluating any business, such as location and condition of the equipment.

Advantage of Buying A Triple Net Lease Car Wash Property Instead of a Business

Instead of buying the car wash business, another option is to invest in a single-tenant triple net leased car wash property, which has emerged as a viable and sustainable alternative to common types of net-leased retail properties for private investors in the past few years. Car washes have increased in popularity recently due to strong demand for service-based, internet-resistant retail.

Why triple net (NNN) properties?

Single-tenant trip net (NNN) properties can provide some of the most reliable income streams in the commercial real estate investment industry. NNN properties provide investors with a relatively low-risk (and very low touch) option for creating a consistent, long-term revenue stream. In a triple net lease, the tenant pays an agreed upon, monthly rental amount in addition to covering a majority of operations costs associated with the property, such as: annual property taxes, insurance, and maintenance costs.

Triple net properties are attractive to many investors because they offer reliable returns over time, with little to no landlord duties because the tenant is typically responsible for costs and responsibilities of successfully operating their business in the location. 

In the past, car washes were typically either sold with the business and equipment to owner/users who desired to own a business or in a net lease portfolio to real estate investment trusts. Today, many car wash operators and merchant developers have determined that they can maximize value by arranging a long-term lease and selling the real estate to private investors who are interested in a fixed return. 

To demonstrate the increase in popularity in single-tenant net leased car wash properties, few of these properties in the U.S. were sold to individual buyers before 2017, according to CoStar. However, interest has grown considerably in the past few years.

In general, the trend has resulted in a viable alternative investment for private investors. There are advantages for the sellers as well. Car wash operators and developers report achieving an approximate 100 basis point premium in value when selling the property to private investors compared to selling to an institutional buyer, according to a article.

In addition, car wash properties provide buyers with a wide variety of benefits that many other single-tenant investments do not offer. Beside quick-service (QSR) restaurants, there are few options for passive investors who desire service-based retail under long-term (15 and 20-year initial term) leases with fixed increases and strong guarantees. Investors have more recently been attracted to car washes because of the intrinsic value of the property. 

Typically, car wash locations are fundamentally sound sites that are located at high traffic count intersections with dense surrounding populations. In addition, single-tenant car washes are usually sold for a lower price per square foot for the land compared to a quick-service restaurant.

In addition, the majority of net-leased car washes that are being sold now are express conveyor car washes. These offer quick service with an average ticket price between $5 and $10 per customer—a lower price range than a full-service car wash format, which, in turn, helps protect their revenue stream from economic downturns. At these express car washes, many customers pay monthly subscriptions for the convenience of obtaining unlimited monthly washes. Many of the properties listed for sale have a lease that is guaranteed by either a dominant regional operator or a large company, thus providing investors with a secure investment. 

Among its listings, Sands Investment Group offers several net-leased express car washes that are guaranteed by a large company or a dominant regional operator. These car washes are set close to major roads and offer favorable demographics such as nearby retail stores, companies and universities. They also offer long-term triple net (NNN) leases of 15-20 years and attractive cap rates that range between 6.25%-7.5%. For example, the Zips Car Wash in Knoxville, TN, offers an 18-year, triple net (NNN) corporate-backed lease and no landlord responsibilities. The car wash features many desirable investment features such as a location with high visibility on a prominent retail corridor that has multiple points of entry and a significant daily volume of traffic—over 44,955 vehicles pass by per day.

The future seems to be bright for car wash net lease opportunities as car wash operators begin to consider more sale-leasebacks that are geared to attracting the private investor willing to pay historic level premium pricing in today’s market. Demand should continue to stay strong as additional investors look for service-based alternatives in the form of car washes over the typical net lease investment.

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