Real Estate Considerations for Aspiring Auto Shop Owners
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.
The global automotive repair market generated nearly $790 billion in 2021 and is expected to grow to $1.6 trillion by 2031. This growth is driven (pun-intended) by the growing number of cars on US roads, greater total miles driven, and a higher number of older vehicles sticking around.
Rising auto loan rates also mean that more are buying used and pre-owned vehicles, resulting in rising demand for auto repair and maintenance.
Buying an auto shop for sale can be an extremely viable business in a country that runs on cars, yet doing so carries its own sets of challenges and risks. Here, we'll cover what aspiring auto shop owners should know when buying an auto shop for sale.
We'll discuss auto shop properties, revenues, and profit margins. We'll also talk about some real estate considerations you shouldn't overlook when buying special-purpose real estate.
Let's get started.
How Do Auto Shop Owners Make Money?
Auto shop owners make the majority of their money by offering auto services, such as repairs and replacement and selling automotive parts and equipment. Common services auto shops perform include:
- Auto maintenance;
- Wheel balancing;
- Tune-ups;
- Body repairs;
- Upgrades;
- Inspections; and
- Emissions testing.
According to data from ZipRecruiter, US auto shop owners make an average annual salary of $87,992, with the top 3% earning more than $149,000 a year.
What's the Average Markup on Automotive Parts?
Typical markups on automotive parts are between 66% and 100%. Auto repair shops often buy parts wholesale in bulk, so they can charge a decent markup on individual sales. Try to set retail markups to reach a 50% to 55% profit margin on auto part sales.
Auto Shop Real Estate Zoning
Auto shops are commercial property and require either commercial or industrial zoning. If you're planning on buying land to construct an auto shop, you need to make sure the lot is zoned for the correct use.
Some municipalities may allow auto repair shops under a certain size in residential areas. Make sure that your real estate team thoroughly researches local zoning rules before buying commercial property so you know exactly what kind of auto work your shop can perform.
Rezoning an existing commercial property to convert into an auto shop is possible, but you may run into difficulties with rezoning requests.
Is Owning an Auto Shop Profitable?
Yes, auto shops can be profitable and relatively recession-resistant simply due to the fact that America literally runs on cars. Total profits will depend on overhead and operational costs. Auto shop costs and revenue also depend on the city and state in which you operate.
What's a Good Profit Margin for an Auto Repair Shop?
Ideal profit margins for labor and auto parts differ: Average profits for auto parts run between 20% and 30%, while profit margins for labor hover between 50% and 60%.
However, parts-to-labor ratios have increased in the past decade to about 100%, meaning that, for every $100 in labor sales, there's $100 in parts sales.
What's the Most Profitable Auto Repair Service?
Auto shops provide a wide range of auto repair services, some more profitable than others. Below are just a few of the most common and profitable repair services auto shops offer.
#1 – Diagnostics
Diagnostics have become much more difficult as modern cars incorporate complex computers and sensor systems to operate and detect problems.
Reading a modern car diagnostic system requires special tools, so most consumers can't do it on their own. About 50% of all modern cars that undergo repairs have some kind of diagnostic testing performed on them.
#2 – Oil Changes
Auto shops sell over $1.6 billion in oil change services every year, with an average profit of $39 per oil change and a profit margin of about 35%.
#3 – Tire Replacement
According to Statista, passenger vehicle tire replacement sales were over $38 billion in 2022. As more drivers spend more time on the road, total tire replacement activity is expected to increase.
Cons of Owning an Auto Shop
Auto shops are generally recession-resistant, but they're not without their own sets of risks and challenges.
#1 – High Startup Costs
Between finding a facility, modifying the space, buying repair equipment, and paying for staff and product inventory, auto shops have fairly high startup costs. Similarly, large auto shop equipment, like pneumatic lifts, can require expensive upkeep and repair.
#2 – Competition
According to a 2019 study, about 70% of auto repair shops are independent and not owned by a larger auto shop franchise. Further, about 37% of auto shop owners say their largest competitors are specialty repair chains.
#3 – Customer Trust
According to a 2016 survey, two-thirds of US drivers don't trust auto repair shops and expect them to charge for unnecessary services to make more money.
As such, a difficult aspect of starting a new auto shop is building the requisite trust to secure a regular customer base. Auto shops thrive on repeat business as acquiring new customers is almost always more expensive than retaining.
Leasing an Auto Shop
Many auto repair shops rent commercial space instead of buying due to the high costs of property acquisition. The main benefit of renting a garage is that you don't have to deal with the costs of owning and managing non-liquid real estate, freeing up business funds for other purposes.
Monthly rent for a garage will range from $1,500 for a one- to two-bay garage to over $15,000 a month for a large facility with multiple bays.
Whether you're looking at leasing or buying auto repair shops for sale, you should consider hiring a commercial real estate broker. An auto shop broker can identify good properties with good real estate financials, explore financing options, and negotiate any sales or lease contract.
Is Buying an Auto Shop for Sale a Good Idea?
Yes, buying an auto shop for sale can be an excellent idea from the perspective of a commercial real estate investor. Auto repair demand is high due to the high number of drivers, and, as cars become more advanced, the industry will need to keep up.
Find & Connect With Commercial Agents & Brokers Near You for Free on MyEListing.com
MyEListing.com maintains one of the largest databases of commercial agents & brokers in the country. Use it for free to find an agent or broker near you!
Other recent articles
Article Search
Share
All Article Categories
