Commercial Real Estate News / Buying / Triple-Net Lease (NNN) Gas Stations for Sale: What You Should Know Before Buying

Triple-Net Lease (NNN) Gas Stations for Sale: What You Should Know Before Buying

Published: 08-08-23 Category: Buying

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Interested in buying commercial property? Gas stations can be an interesting alternative investment with great potential.

The gas station industry generated over $101 billion dollars in 2020 alone, and the ever-present need for gasoline means that gas stations and convenience stores are relatively recession-resistant.

Here, we'll cover everything you need to know before buying a gas station, including features to look for, questions to ask sellers, and potential gas station profits.

Let's get started.

Net Leases and Gas Stations

Most gas stations operate on triple-net (NNN) leases. NNN leases are great for investors because they pass much of the financial responsibility on to the tenant: The landlord can sit back and collect passive income while the property tenant handles the majority of operational costs.

The typical breakdown for a NNN commercial lease is the tenant pays base rent in addition to paying for property taxes, insurance, and building maintenance. The only thing the owner is responsible for is basic, critical infrastructure, like structural repairs.

The benefit here is investors can offset a good chunk of operating costs, allowing them to keep more of the money they make from rent. Gas stations have a lot of operating costs, so NNN gas stations can be a good deal for investors.

What to Look for When Buying a NNN Gas Station

Below are some of the most important factors to consider when looking for NNN gas stations for sale.

#1 – Location

Triple-Net Lease (NNN) Gas Stations for Sale: What You Should Know Before Buying

As is the case when buying any commercial property, the location of the gas station is incredibly important. The best gas stations will be nearby busy roads that receive a lot of traffic throughout the day, such as a location that's near the main street of a town or city.

Location also determines gas station accessibility. For instance, corner lots in the city might be more accessible than a gas station off a highway exit, but the highway might see more drivers. Lastly, location will set the cost to buy the property.

#2 – Bonus Depreciation

Gas stations are eligible for 100% bonus depreciation. That means you can write off all capital improvements if the building is a qualified “retail motor fuel outlet.” A retail motor fuel outlet is a property where any of the following three are true:

The property generates more than 50% of its revenue from gas sales;
50% of the property's floor space is devoted to gas sales; or
The property is less than 1,400 square feet.

Basically, bonus depreciation means you can immediately write off some gas station assets instead of partially writing them off over time.

#3 – Inheritable Assets

The previous owner might not own all of the gas station's assets. Many owners lease these assets from other companies, and those leases may not be transferable when the owner sells the property.

Be sure to read through any contracts so you know exactly what you'll inherit when you buy the property. It helps to work with a real estate broker to go over any transaction paperwork to hash out which assets come with the purchase of the property.

What Questions Should You Ask When Buying a Gas Station?

Be sure to ask the seller the following questions when buying a gas station.

#1 – Have There Been Any Environmental Issues?

Gas stations are notorious for environmental contamination, and a history of contamination can completely tank your investment. You would have to shut the building down and fix the problem before you could lease it out. Be sure to do a thorough investigation of the site's environmental history.

#2 – How Diverse Are Sales?

Most gas stations don't just sell gasoline—they also sell food, drinks, and other convenience items. Gas stations can also have other sources of revenue generation, such as car washes, tire air, and auto maintenance services. The more diverse the sales, the better you can manage any fuel price volatility.

#3 – What Are the Local Demographics?

Two other concerns to ask about are competition and local demographics. For instance, buying a gas station right down the road from a well-established BP or Exxon station might not be a good idea.

#4 – How Safe Is the Area?

Crime is always a concern when buying commercial space, and a gas station is no exception. Gas station robberies make up about 21% of all business robberies, so it's in your best interest to invest in a gas station in an area that has low property crime and theft rates.

#5 – Is the Station Franchised or Independent?

Franchised stations get to use the logo and branding of a larger franchisor, so they may be easier to make money with right out of the gate. The downside is that franchised locations are ultimately under the control of the franchisor. In contrast, independent gas stations have much more flexibility in terms of designs, sales, and business operations.

How Profitable Are Gas Stations?

Perhaps ironically, most gas station owners don't make that much money from fuel. Instead, most gas stations make money from sales of food, drink, and alcohol.

According to a study of over 10,000 gas stations from Projection Hub, the average gas station has a gross profit margin of about 18%. Of course, that number can depend on several things, like:

Total number of daily visitors;
Price of gasoline per gallon;
Average amount of gallons sold per day; and
Additional merchandise sales.

An average profit margin of 18% is pretty high and puts gas stations in the same league as various other high-profit-margin industries, like pharmaceuticals (18%), investment management (21%), and tech/software (19%).