How to Own a Gas Station: Going Beyond Fuel Sales
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America runs on cars, with about 92% of Americans owning at least one motor vehicle. All those vehicles require a ton of gas—and indeed, US households burn through over 135 billion gallons of gasoline every year. To meet this demand, gas stations in the US generate more than $738 billion in annual sales.
If you're looking for a way to capitalize on America's love of the road, buying a gas station for sale can be one way of doing so, if direct property ownership is your thing. Investing in gas stations for sale can be lucrative, but it's not without its difficulties.
Here, we'll cover the basics that prospective gas station owners should know about owning and operating a gas station. We'll discuss gas station ownership, gas station profits, and the potential disadvantages of selling fuel in the United States.
Let's get started.
How Profitable Is Gasoline?
It might surprise you, but most gas stations barely turn a profit from fuel sales. Gas extraction is resource- and labor-intensive, so gas prices are largely determined before the fuel even gets to the actual pump.
Here's a rough breakdown of the economics of selling a gallon of gasoline:
- At least 50% of the cost of gas goes to the drilling company;
- 15% of the cost goes to the refiners;
- 10% goes to transportation companies; and
- An additional 15% goes to taxes.
That leaves about 10% of the price of a gallon up to the discretion of the gas station owner. That 10% needs to cover both profits and costs. Needless to say, many gas stations actually end up losing money from gas sales.
That's why it's crucial that gas station owners supplement gas sales with other sources of income, like convenience store sales, car washes, and other services. These alternative sources of income generate the majority of gas station revenue.
Does Owning a Gas Station Make Money?
It varies significantly depending on the city and state, but the average annual revenue for an independent gas station in the US is about $1.3 million. The average gas station owner-operator takes home an average of about $70,000 a year.
What Are the Cons of Owning a Gas Station?
Gas stations are a stable funtion of the American economy, but buying and running gas stations for sale can be extremely difficult. Below are just a few of the challenges that gas station owners usually contend with.
#1 – Seasonal Fluctuations
Like many other industries, gas station activity is seasonal. More people tend to drive and take longer trips when the weather is nicer, so activity is often higher during the spring and summer seasons.
Gas station activity is also highly susceptible to other economic factors, like fluctuating gas prices and economic recessions.
When gas prices are high or the economy is in a downturn, fewer people go out, and thus fewer people spend money on gas. For example, the COVID-19 pandemic had a massive negative effect on global gas demand.
#2 – Environmental Concerns
Compared to other types of industrial and special-purpose real estate, gas stations for sale are at a high risk of environmental contamination. Chemicals in gasoline can leach into soil and groundwater reservoirs, which can require significant effort to clean up.
Owners need to account for proper waste disposal and containment in business budgets or risk hefty environmental fines and clean-up costs.
#3 – Competition From Chains
About 60% of US gas stations are independent businesses, but owners face fierce competition from corporate chains and franchise gas stations. Additionally, the total number of gas stations in the US has fallen by over 40% between 2013 and 2020 as consumers use more efficient vehicles and switch to electric cars.
Can I Lease a Gas Station?
It may be hard to find a completed commercial facility to buy, or it could be difficult to find land on which you can build a new station. In both cases, leasing is a viable option. There are two main options for leasing a gas station: leasing a completed store or getting a ground lease to build a gas station.
#1 – Leasing a Completed Gas Station Store
If you have your eyes on a completed facility, you can ask the owner about leasing the space so you can operate your own gas station business. Leasing a completed facility is usually the more cost-effective option, as gas stations take a lot of time and money to build. Completed facilities should already have all the necessary equipment you'll need, like storage tanks and gas pumps.
Most likely, renters will have a triple-net (NNN) gas station lease, meaning the renter is responsible for paying rent, insurance, property taxes, and maintenance. The main downside of renting vs. buying commercial space is that renters don't have complete control of the property and must usually run any potential alterations by their landlord.
#2 – Gas Station Ground Lease
Say you have plans to build a new gas station but are having difficulties finding financing for land. In that case, you could look into a ground lease. With a gas station ground lease, the owner of the land parcel gives the lessee the right to build and develop the land.
If you're having difficulties finding commercial property for sale to build a gas station, you can work with a commercial real estate broker. A broker can help you find a plot of land with excellent financials and help you negotiate any sales or lease contracts.
Is Gas a Good Business?
It depends. During good economic conditions, buying gas stations for sale can provide steady business when supplemented with convenience store sales and other services. However, gas stations will have to weather periods of economic volatility. The key is making sure that your other gas station services can make up for any shortfalls in fuel revenue.
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