A car wash is often sold to the investor as a passive investment that generates easy profits. You can be an absentee owner and just watch the public feed the money into the machine. Anyone can do it — doctors, lawyers, busy professionals, etc.! Your money is invested in something tangible (real estate) that you can touch and feel. You can drive by it and experience the pride of ownership! It all sounds great, but before you put up your life savings and sign up for a 20 year mortgage, consider these things that a broker won’t tell you about when you invest in a car wash:
1.) Absentee Ownership is a Myth
You have to be very hands on to run this business. The equipment breaks down all the time. You have people who complain they lost their change or bills, you have employees that don’t show up, and your car wash gets vandalized. You get sued from time-to-time and deal with a wide variety of other issues.
2.) Weather Seasonality is a Problem
If you are paying people hourly, it is nice to think that you won’t have to pay them since it is raining and the car wash is closed for the day. However, this is a major problem when it comes to attracting quality employees. Also, changing weather may result in having to pay people because the weather got worse over the course of their shift; and if you close prematurely because of a weather forecast that does not pan out, you might miss out on a day’s revenue.
3.) Consumers Have Shifted to Lower Cost Alternatives
The Full Service washes that sell for $3 million are more were all the rage in the 1990’s and 2000’s. You pay $15-$20 and sit and watch as your car gets cleaned and then shop for candy and car accessories in their enormous store. You sit and read the newspaper before eventually claiming your car and tipping the attendant a dollar after it is hand dried. Not any more. People just don’t have the time or money and have shifted to the Express wash where the price starts as low as $3 and includes use of the vacuum after the wash.
4.) Consumers Want the Latest Technology
Thanks to Apple, Google, and others, consumers have come to expect and demand a high level of innovation. Go to a car wash trade show and there will be new equipment displayed every year. The buildings themselves look sleeker and more modern. You cannot just count on buying a car wash and it looking the same and featuring the same equipment 10-20 years from now. Short of having a vastly superior location that cannot come close to being replicated, there is a good chance you will be left behind with customers choosing your competition.
5.) Commercial real estate Cap Compression Has Affected Car Washes
The real estate that makes a good car wash site might also make a great bank site, drugstore site, etc. With investors buying net leased single tenant retail properties at cap rates below 5%, the cost for well located retail sites has skyrocketed. You are going to overpay like never before for a great site.
Before you invest in a car wash, make sure you understand that everything may not be as rosy as your broker makes it out to be. Consider these 5 realities of today’s car wash business, before you pull the trigger.