How to Buy & Operate a Car Wash for Sale
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
There are over 290 million cars in the US, and that means plenty of demand for vehicular maintenance, repair, and cleaning. Assuming each person washes their cars once a month, that's over 3 billion car washes every year. You can take advantage of this expansive industry and create a profitable business for yourself through purchasing a car wash for sale.
Here, we'll illustrate what you need to know when buying a car wash for sale. We'll cover the costs and risks of operating a car wash, discuss car wash profitability, and run through the basics of buying commercial property.
What's the Average Cost of a Car Wash for Sale in the US?
As is the case with other types of commercial property, the cost of buying a car wash for sale can vary significantly depending on the state, location, size, and presence of additional amenities (e.g., convenience stores, vending machines, and others). Generally, hand-wash outlets cost less to purchase than facilities with automatic washing bays.
An absolute low-end estimate on a hand-wash car wash facility is around $100,000. However, car washes in high-demand areas with advanced automatic washing equipment can easily cost $1 million or more to purchase.
If you're having trouble finding a good car wash for sale, consider working with a car wash broker. Car wash brokers are commercial real estate brokers that deal specifically with car washes, convenience stores, and other types of special-purpose real estate. An experienced car wash broker can find car wash businesses for sale and negotiate sales contracts for you.
Independent Car Washes vs. Franchise Car Washes
According to recent research, about 98% of all car washes are owned by independent, small-to-medium-sized businesses, but owners can opt for franchise opportunities. With a car wash franchise, you pay a franchisor a fee to use their name and branding.
Franchising can be beneficial because you get access to the franchisor's pre-existing brand name, reputation, and corporate infrastructure/support. The main downside of franchising is that franchisees have to run operations according to the franchisor's standards and have to pay a percentage of sales in royalties.
Most car wash franchises require franchisees to have a particular net worth to open a franchise, as well.
How Much Profit Do You Make From a Car Wash?
Profit margins at a car wash can vary throughout the year, but a healthy operation can generate a 10% profit margin—a bit higher than the cross-industry average of 7%. According to Glassdoor, the average car wash owner in the US has an annual income of about $64,000.
Keep in mind that franchised locations also need to account for any franchising fees or royalties before calculating profits. Royalty percentages for car wash franchises can range between 2% and 10%. For example, Fleet Clean USA franchise fees are 2.5% of revenue, while royalty fees for Spiffy are 7% of revenue.
What Can I Sell at a Car Wash?
Many car washes make additional income through selling car wash accessories or convenience items. Technically, you can sell whatever you want at a car wash, but some of the most popular items would include:
- Wash towels;
- Glass cleaner;
- Sponge packs;
- Air fresheners;
- Car interior wipes;
- Car shammies;
- Tire cleaner/foams; and
- Car finish wax.
Car wash customers often wait in the lobby while their cars are getting detailed, so many car washes also generate revenue through vending machines to sell customers food and snacks while they wait.
What Are the Disadvantages of a Car Wash Business?
Investing in a car wash business has high potential returns but also a lot of associated risks. Aside from the typical pitfalls of buying commercial real estate, some of the disadvantages of buying a car wash for sale include the following.
#1 – Seasonal Activity
Car wash activity can be seasonal and tends to slow down throughout certain times of the year or periods of economic uncertainty. For example, car wash activity can slow during a recession as consumers look to save money on gas and other travel costs. Also, car wash activity tends to be slower during the winter.
#2 – Expensive Repairs
Car washing equipment can be extremely expensive to buy and repair. For instance, the equipment for an automatic car washing bay can cost up to $200,000 to buy and install. Even replacing a simple tunnel brush can cost over $1,000.
#3 – Tax Difficulties
Car washing is still largely a cash business, and accounting for all revenue for taxation purposes can be tricky. The IRS closely monitors cash-based businesses for money laundering. Failing to keep accurate financial records could draw IRS scrutiny.
#4 – Environmental Concerns
Car washes handle potentially harmful chemicals and produce large amounts of wastewater that consists of dirt, gasoline, grease, and other environmentally damaging materials.
Government agencies, like the EPA, and other local authorities heavily regulate car wash waste disposal, and violating regulations can incur significant legal and financial penalties.
How Much Should You Invest in a Car Wash?
Acquisition costs for a car wash will vary heavily depending on the size and type of wash (i.e., hand-wash or automatic). From the perspective of real estate financials, car washes have an annual real estate cap rate of about 4.5% to 7%. You can use this baseline to determine whether a particular location is worth investing in.
One of the main options to finance a car wash investment is an SBA 504 loan. The 504 loan program provides long-term fixed-rate loans for businesses to buy commercial property and equipment. The maximum limit for a 504 loan is $5.5 million, but you can't use 504 loans to invest in commercial real estate.
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