Investing in car wash real estate offers a compelling opportunity for substantial returns, but like any investment, it requires an understanding of the industry and market. This article provides insights and steps to effectively navigate the car wash real estate sector, focusing on market saturation, preparation, site evaluation, and distinguishing between real estate and business evaluations.
Market Saturation
Is the car wash market saturated? “I believe that we aren’t anywhere close to saturation yet – certainly not on a national scale,” said Veronica Attlee, managing director at Miracle Car Wash Advisors. “Consumer adoption, population, and traffic are metrics that still have to be met and will continue to drive that. Nonetheless, I expect that with rising competition, the inflated profits that have been driven by the industry’s early and evolving phase will contract and stabilize.”
According to Grand View Research, the U.S. car wash services market was valued at $15.2 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of 5.7 percent from 2023 to 2030. This growth includes tunnels, roll-over/in-bay, and self-service, reflecting ongoing opportunities for investment and indicating that the market is not yet saturated.
North America held over 51 percent of the global car wash market share in 2022 and is expected to continue its significant growth. Factors driving
this trend include increased consumer preference for professional car washes due to their convenience, faster service, improved effectiveness, and environmental benefits. This upward trajectory suggests that, while competition exists, the expanding market still offers ample prospects for new ventures.
Preparing to Purchase
Effective preparation is fundamental to success in car wash real estate investment. It is important to determine your goals, financial capacity, return requirements, and unique capabilities as it relates to owning and running the business.
On the list of important considerations for a car wash business, Melissa Croll, associate partner at Attlee Realty, emphasizes that site selection and location are key to a successful car wash business. She also highlights the importance of understanding the distinctions between the types of car wash models and acquiring in-depth knowledge of the industry. Important steps to consider include:
Understand the Industry. Gain knowledge about different car wash models, the technology, and their operational requirements. Key options include full-service, express exterior, flex service, in-bay automatic, and self-serve, each offering different operational and financial benefits. Be sure to engage and participate in industry training programs, events, and workshops, which provide valuable insights and a solid foundation for making informed decisions.
Review Legal and Regulatory Requirements. Research regulations, including licensing, environmental laws, and safety standards. Consulting with a legal expert can help you navigate these requirements.
Determine Purpose and Objectives. Prepare your business plan. Is your goal to create a legacy business or to create and grow the business for sale/exit? These determinations are foundational when formulating your plan.
Financing. Since there are many lenders, types of loans, varying interest rates, and loan terms, it is important to research and start this process early. If you intend to obtain financing, you will want to get with a lender early in the process to get pre-qualified since you will need this pre-qualification or capacity letter to substantiate any purchase offers. Once you have identified a car wash property, the lender will still need to evaluate the business to provide loan approval.
Locating a Car Wash to Purchase. There are many online places to search, but keep in mind that due to the sensitive nature of selling a business, many opportunities are not public. It is beneficial to have a professional broker or advisor, as they generally have knowledge and access to available and “off-market” opportunities. This process will require signing NDAs and reviewing preliminary financial information to evaluate the best opportunities.
Acquire a Site. Once you have identified an opportunity, you enter negotiations, submit a letter of intent, execute a formal contract, and perform due diligence. This is a critical and sometimes complex process; therefore, having a professional represent you and help navigate the entire transaction and transitional processes is important. The acquisition process requires thorough due diligence. You will need to conduct comprehensive research and obtain significant information about the property and business, such as financial records, lists and conditions of property and equipment, customer base information, environmental matters, employees, operations, and records.
Implement Business and Operations Plan. Implementing your plan will include staffing, operations, facility maintenance, and marketing. Additionally, you should initiate customer service strategies to attract and retain customers, such as facility improvements, loyalty programs, membership options, and more.
Site Evaluation: Key Factors to Consider
Selecting the right location is critical for the success of a car wash investment. When evaluating potential sites, consider the following:
Traffic Volume. Opt for locations with high traffic, ideally with at least 20,000 vehicles passing daily. This ensures a steady flow of potential customers.
Traffic Speed. Locations with slower traffic speeds between 30 to 45 mph are optimal, as they facilitate easy access and higher visibility.
Population Density. Target areas with a population of 30,000 or more within a three-mile radius will help the location maintain a strong customer base.
Residential Proximity. Choose locations near residential areas to ensure a consistent flow of customers who find it convenient to visit your car wash.
Proximity to Retailers. Sites near major retailers or high-traffic destinations attract more customers. The car wash should be conveniently located to take advantage of impulse buying.
Lot Size. Depending on the type of car wash, lot size ranges from 0.75 to 1.5 acres are required. This size accommodates the necessary infrastructure and ensures operational efficiency.
Competitive Environment. Assess the competitive landscape. High population densities can support multiple car washes, but understanding the competition helps position your business effectively.
Real Estate vs. Business Evaluation
When evaluating a car wash investment, it’s essential to distinguish between the real estate and the business itself. Each requires a different approach and set of criteria for assessment.
Real estate valuation focuses on location, comparative sales data, traffic patterns, and physical property characteristics. A business valuation involves analyzing operational performance, financial health, and customer base. Balancing these assessments ensures a well-rounded investment strategy that addresses both the property’s potential and the business’s operational viability.
Real Estate Valuation Keys
Location. Start by assessing the property’s location for visibility, accessibility, and proximity to major roads.
Lot Size and Zoning. Ensure the property meets zoning regulations and is sufficiently sized for operations.
Building and Improvements. Evaluate existing structures, equipment, and site plans and identify any necessary upgrades.
Comparable Sales. Research recent sales of similar properties to gauge the fair market value.
Business Valuation Keys
Financial Performance. Review financial statements (profit and loss statements, balance sheets, etc.) to understand revenue, expenses, and overall profitability. Analyze EBITDA (earnings before interest, taxes, depreciation, and amortization) to assess operational profitability and cash flow, excluding the effects of financing and tax implications.
Revenue and Profit Trends. Examine historical revenue and profit trends to gauge business stability and growth potential.
Customer Base. Evaluate the size, loyalty, and demographics of the customer base to assess market demand and retention strategies.
Operational Efficiency. Assess the effectiveness and efficiency of operations, including staffing, equipment, and technology, to identify areas for improvement.
Market Position. Understand the car wash’s position in the local market, including its reputation and competitive advantages.
Growth Potential. Evaluate all the above factors to determine opportunities for future expansion and growth.
Maximizing Success
Investing in car wash real estate requires a strategic approach, detailed market research, and a clear understanding of the industry’s real estate and business dynamics. As the market continues to evolve with new consumer trends and technological advancements, the future of car wash investments looks promising. Staying informed about emerging industry developments and adapting to changing market conditions will be key to sustaining and growing your investment.
