Are gas stations a bad investment?
Los Angeles, CA · Member since 2017 · 73 posts · 56 votes
Are gas stations a bad investment?
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Peter TverdovBusiness Member
Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votesI think you need to step into reality. Gas powered vehicles are not going anywhere anytime soon.
Gas stations are a good investment if you have convenience stores on them and if they're off a major highway where a premium can be charged on the gasoline. Owning a gas station is a very hard business from what I understand. Most make 1-3 cents off each gallon of gas. Their money is made on the convenience store or autobody shop. Like everything in real estate, location is key.
32 Replies
- 8yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Gas stations are still located in car convenient corridors. I like the covered land play with charging stations in the future. "EV autonomous fleet human repair or inspection" station.
My opinion is that the transition to electric cars will take longer than most people would like, (myself included) but with fuel efficiency increasing and more EVs on the road my guess would be that location will become more important than ever. If you are near a tourist attraction or major highway you'll probably be fine through the transition. The stations that I see having a tougher time are going to be the ones in neighborhoods. because most EV owners would charge at home unless on a road trip.
- New to Real Estate · Dedham, MA · Member since 2017 · 85 posts · 21 votes8y
We still like our SUV's/trucks and that's why car makers are going away from sedans. There's much more time/room for gas efficiency before gas stations are going to be a bad investment. Location would matter more than anything else as with everything else.
- 8yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
I think you need to step into reality. Gas powered vehicles are not going anywhere anytime soon.
Gas stations are a good investment if you have convenience stores on them and if they're off a major highway where a premium can be charged on the gasoline. Owning a gas station is a very hard business from what I understand. Most make 1-3 cents off each gallon of gas. Their money is made on the convenience store or autobody shop. Like everything in real estate, location is key.
I think gas has a long time left. I own an ATM and people still use it, even though the economy runs on non-cash payment methods. If people still use ATMs I think gas stations have a lot of life left. Maybe duplicating the process elsewhere in the country where prices make more sense.
- In my area we are seeing a trend in corporate owned gas stations that own and custom build their stores. They offer quality food and dining areas areas as well. There are very few small independent owned gas stations that are surviving and that would be more of my concern for me. I agree with others that the land will still hold value and I don’t see the electric car thing affecting this segment very much.
- Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes8y
The winning EV technologies have not yet been decided (including whether gas-powered vehicles themselves will ever become obsolete). Besides recharging a rechargeable battery (fast charge, no waiting), there are hydrogen fuel cells (refill the hydrogen tank with hydrogen) vying for consideration. It's the land along high-traffic corridors that's of real value (consumers want convenience).
Search for "gas stations" (or whatever topic you want) on REIT Magazine to follow what public real estate is considering.
- 8yAlexander FelicePro MemberGuy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
the world is trending away from beef as well. in a 100 years we may all be eating synthetic beef that never came from a cow........but you would still buy a McDonalds today if you could right?
Also, you have the land as well? that's worth it right there. Gas stations are the best real estate locations of all
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
@Account Closed electric cars have a long ways to go. I don't have the exact numbers, but I think for the whole USA, electric represent around 1% of new car sales and California is closer to 5%. That may seem like a lot, but the number of electric cars sold is still less than the increase in overall gas cars sold. Also keep in mind this is NEW cars sold, existing cars on the road will run 15 years, so when you look at what is on the road today and foreseeable future, it is most all gas. Fuel economy on gas cars is improving every year and emissions are near zero in some cases. Electric cars cost more to purchase and operate over their life time than gas cars. Until that problem is solved, they will not replace gas cars. Keep in mind that Tesla is selling luxury cars to wealthy people. The average American drives an SUV and those are all gas and will be for years to come.
Here is the more important fact. Gas stations don't make their money selling gas. Ever notice how everything they sell in a gas station is 5X the cost you would pay some place else? That is where the money is. They want to get you in the door to sell overpriced goods, which is where the money is made.
Talk to your dad about this, instead of thinking you know better. I bet the old guy has some good wisdom to share.
- Investor · Oak Park, IL · Member since 2014 · 316 posts · 150 votes8y
The fact that your Dad has made some money in gas stations shows he has valuable knowledge most of us do not have. See if what he knows is still valid and what has changed. Great locations and operations (think Quik Trip) are a goldmine, some more out-of-the way locations may be white elephants, possibly with soil contamination. Use and build on this specialized knowledge and experience.
- Los Angeles, CA · Member since 2017 · 73 posts · 56 votes8y
@Joe Splitrock Definitely some great points, from those above as well, thank you.
I'm open to admitting I'm wrong about my perspective on this, just wanted to see what others think, this thread has been very insightful.
We're finding many here for sale in California, the issue is most have expiring lease terms within the next few years or so with no indication of an extension of the lease.
- Investor · Oak Park, IL · Member since 2014 · 316 posts · 150 votes8y
@Account Closed are you able to understand why leases are not being renewed? Is the nature of competition changing? Are the big operators with volume getting a bigger piece of the pie? What income can be generated from food marts (lottery tickets, junk food, cigs, sports drinks, etc). What about service bays?
- 8yJo-Ann LapinPro MemberLoan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
We are in a transitional stage with gas stations in general. So this goes back to regular numbers and of course location . I for sure believe that has gas stations will be around for many more years they will have change and adapt with our new technologies and value add.
- Los Angeles, CA · Member since 2017 · 73 posts · 56 votes8y
@Mike Nelson All great questions.
We don't yet know if they'll exercise any lease extensions. I suppose as time gets closer to lease expiration, we'll get a clearer idea of whether or not they'll extend, but brokers haven't told us why they haven't this far out (many are expiring within the next 5 years).
Gas stations here in California are doing very well. My dad is a CPA by trade and almost all his clients who own/operate gas stations have been doing very well for the past few years. From what I understand, however, low oil prices have been very hard on the big companies.
Depending on location, many food marts out-sell the gas part of the property. I know of a few stations that lose money on the sale of the gas, but make it up with very high monthly food mart sales. Service bays and car washes only add to this.
I stay away from them. Nothing to do with gas vs. electric, my issue is that you're buying an improved plot of land that has tanks that regularly contain tens of thousands of gallons of petrochemicals, underground. I don't need that kind of headache, from thinking about leaks to EPA Phase I's or worse.
Granted, lots of people make good money developing, owning, and/or redeveloping these sites, but they're not for me.- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
Some posters in this thread I think might be in a bubble somewhat. I transact nationally for NNN with clients and look at over a thousand properties a week.
A lot of people in California I would think almost more than other states are into this (green movement) thing. To a degree in other states people recycle and do other little things but most will not turn their life upside down to live like the greenies do.
California has lot's of issues as a state but you can see trends on some things for early adopters. The point I am making is in GA for instance I do not know of any electric charging stations although there may be a few somewhere versus in Cali there are likely a lot. Electric just does not have the top end power of gas currently or the distance that I have seen.
I do not see this mass movement towards electric and a national change is way,way off from happening. People and companies do not change habits overnight. It is a very long process as those use to a certain way want to maintain the status quo and as the younger generations come along they are more quick to embrace something new and a different way to live. People that have lived a certain way for a very long time get comfortable and do not like changes as much.
With gas stations it is usually true that gas makes little to no money for profit. it's all about the inside of the store. People think when gas prices per gallon go up that the gas store operators are making a killing off of them. They tend to feel this way when the stories come out of gas stations charging way more in times of gas shortages. We actually have laws in GA that can make that a crime to do so.
In Houston Texas they are one of the main oil and energy places in the country. There is a balance to price per barrel. Typically if prices drop below 60 a barrel the companies are tightening belts and laying off execs and workers because the losses are mounting up. Houston was hit harder at the city core when that happened. Consumers love it because gas is cheap and they spend money elsewhere on businesses boosting certain segments of the economy.
When gas is 60 to 90 a barrel is typically the sweet spot where there is enough profit for oil companies to keep balance sheets fairly healthy with some profit and consumers pay a certain price per gallon that is not what they would desire but are still comfortable with.
Above 90 a barrel the oil companies tend to do very well but the price per gallon of gas rises heavily and economies across the U.S. can be affected greatly. People are then having most money going to gas so they cut back on eating out, buying clothes,movies,etc.,etc. Certain pockets like Houston do better as companies with fat profits expand hiring of execs but the country as a whole doesn't do well. I have noticed gas prices rising but still in high 2's to low 3's per gallon where I am at. If it went 4 plus I think news stories would start up on gas again.
For your dad I would look at his existing assets he owns and the size and shape of each lot. Decades ago you saw more of these small gas stations with maybe 6 pumps. Today QT , Racetrac,etc. build these monsters on 2 to 3 acres of land. They have about 20 pumps or more and a huge inside food and beverage area. People buy quick lunches on the go and fill up gas quick for workers constantly on the move. If your dad's parcel sizes are smaller than typically they are of no interest to the national chains unless an adjacent parcel can be bought increasing the size they need for optimal site layout.
While another gas station might not go there another type of retail asset might like a bank etc. Older gas stations had single layer tanks instead of double insulated so chances of environmental contamination is high. Your dad needs to check his leases and see if corporate national company is on the hook for guarantee and is there a provision in the lease where tenant is responsible for environmental clean up of the site? If this is a franchisee operator with no personal guarantee they can just bankrupt the remote LLC on the lease and walk away. Gas today is a loss to break even leader. You see that with a new Costco, Kroger, Wal-mart being built that provides gas stations in the parking lots. They offer cheaper gas typically by a few cents and savings if they buy so many goods in the store with a membership. Psychologically they know consumers think they are saving on gas while buying store items anyways. The store makes profit on items consumers do not typically know the cost of. Example people might know gas cost, toilet paper etc. down to the penny to save but when they need a small box of finishing nails for 1.50 they do not know it costs the store maybe 10 cents. So the store makes money where the consumer does not know profit and pricing as well.
If your dad has smaller than 2 acre parcel size for each lot he might check with zoning to see if density has changed over the years for his land. Typically as more land goes away and population increases the city and or county amends zoning to allow higher density per acre and go up because nowhere else to absorb the growth if sprawl is maxed out. If multiple stories can go up from single that used to be allowed then NOI can increases exponentially on the same plot of land.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joel Owens:
Some posters in this thread I think might be in a bubble somewhat. I transact nationally for NNN with clients and look at over a thousand properties a week.
A lot of people in California I would think almost more than other states are into this (green movement) thing. To a degree in other states people recycle and do other little things but most will not turn their life upside down to live like the greenies do.
California has lot's of issues as a state but you can see trends on some things for early adopters. The point I am making is in GA for instance I do not know of any electric charging stations although there may be a few somewhere versus in Cali there are likely a lot. Electric just does not have the top end power of gas currently or the distance that I have seen.
I do not see this mass movement towards electric and a national change is way,way off from happening. People and companies do not change habits overnight. It is a very long process as those use to a certain way want to maintain the status quo and as the younger generations come along they are more quick to embrace something new and a different way to live. People that have lived a certain way for a very long time get comfortable and do not like changes as much.
With gas stations it is usually true that gas makes little to no money for profit. it's all about the inside of the store. People think when gas prices per gallon go up that the gas store operators are making a killing off of them. They tend to feel this way when the stories come out of gas stations charging way more in times of gas shortages. We actually have laws in GA that can make that a crime to do so.
In Houston Texas they are one of the main oil and energy places in the country. There is a balance to price per barrel. Typically if prices drop below 60 a barrel the companies are tightening belts and laying off execs and workers because the losses are mounting up. Houston was hit harder at the city core when that happened. Consumers love it because gas is cheap and they spend money elsewhere on businesses boosting certain segments of the economy.
When gas is 60 to 90 a barrel is typically the sweet spot where there is enough profit for oil companies to keep balance sheets fairly healthy with some profit and consumers pay a certain price per gallon that is not what they would desire but are still comfortable with.
Above 90 a barrel the oil companies tend to do very well but the price per gallon of gas rises heavily and economies across the U.S. can be affected greatly. People are then having most money going to gas so they cut back on eating out, buying clothes,movies,etc.,etc. Certain pockets like Houston do better as companies with fat profits expand hiring of execs but the country as a whole doesn't do well. I have noticed gas prices rising but still in high 2's to low 3's per gallon where I am at. If it went 4 plus I think news stories would start up on gas again.
For your dad I would look at his existing assets he owns and the size and shape of each lot. Decades ago you saw more of these small gas stations with maybe 6 pumps. Today QT , Racetrac,etc. build these monsters on 2 to 3 acres of land. They have about 20 pumps or more and a huge inside food and beverage area. People buy quick lunches on the go and fill up gas quick for workers constantly on the move. If your dad's parcel sizes are smaller than typically they are of no interest to the national chains unless an adjacent parcel can be bought increasing the size they need for optimal site layout.
While another gas station might not go there another type of retail asset might like a bank etc. Older gas stations had single layer tanks instead of double insulated so chances of environmental contamination is high. Your dad needs to check his leases and see if corporate national company is on the hook for guarantee and is there a provision in the lease where tenant is responsible for environmental clean up of the site? If this is a franchisee operator with no personal guarantee they can just bankrupt the remote LLC on the lease and walk away. Gas today is a loss to break even leader. You see that with a new Costco, Kroger, Wal-mart being built that provides gas stations in the parking lots. They offer cheaper gas typically by a few cents and savings if they buy so many goods in the store with a membership. Psychologically they know consumers think they are saving on gas while buying store items anyways. The store makes profit on items consumers do not typically know the cost of. Example people might know gas cost, toilet paper etc. down to the penny to save but when they need a small box of finishing nails for 1.50 they do not know it costs the store maybe 10 cents. So the store makes money where the consumer does not know profit and pricing as well.
If your dad has smaller than 2 acre parcel size for each lot he might check with zoning to see if density has changed over the years for his land. Typically as more land goes away and population increases the city and or county amends zoning to allow higher density per acre and go up because nowhere else to absorb the growth if sprawl is maxed out. If multiple stories can go up from single that used to be allowed then NOI can increases exponentially on the same plot of land.
Joel go test drive a Tesla you will be a convert... and there are Tesla super chargers in your area.. unless you drive over 250 to 300 miles per day.. for home owners its as simple as putting a plug in your garage same plug as a dryer.. plug it in at night your done.. ready to go next morning.. also in PDX were I live the rate goes to 4 cents a kilo watt.. I get a full tank of energy for 2 to 3 dollars.. that last most the week spend less than 20 a month on energy to drive both our cars and we are busy real estate folks..
now if your always driving cross country.. then stopping at super chargers which are on EVERY major freeway.. will add 15 to 30 minutes per 300 miles.. but most stop for pee break and snack anyway.. and the super chargers are all at those type of locations and many have free wi fi as well. I think you will see this trend gain speed.
I am at my Vegas place this week and they are ( Teslas's ) all over the place.. my realtors in Charleston have one.. I Have two and going to buy my third for this place.. buying the little model 3 was just waiting for the one that's 35k.. and I can order it anytime now..
I am not saying gas will go away of course it wont' but electric is going to gain speed at a pace that I think will surprise you.. Porcshe is coming out with theirs BMW Mercedes Volvo they are all going to have extensive lines of electric. its here to stay and by 2030 probably majority of sales.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
Where I live in GA in a suburban area there is not an electric charging station in site that I know of. I think it is a chicken and the egg kind of thing.
People want to see electric chargers all over the place to know if they buy an electric car the access to recharge will be there. Car dealers want to see that also as a trend before stopping the gas builds. So until I see those popping up everywhere and the cost of electric is about the same as gas for a purchase I do not see mass change in use by consumers.
Personally I would love to see self charging cars using mini solar panels on the roof of a car that leave reserves for night driving. They have even talked about having solar at home and stores the electric for house and cars and then you can charge back what you do not need to the electric company instead of paying. Cost to do that has to come down a lot to make the most sense for consumers to adopt.
My office I own is 10 minutes from my house on a back road. I drive maybe 3 to 4k miles a year. Everything I need imaginable is within 10 minutes from my house. I have a 2018 Mercedes GLS suv currently. It is a gas guzzler but rides like a cloud. For me to go electric I would have to see much more auto options for purchase and stations locally. I am one of those types that does not like owning a (me to) car. I like to stand out and be original but I have always done that and not blended in with the herds.
- China, ME · Member since 2014 · 3k+ posts · 4k+ votes8y
@Account Closed I actually have a sub-specialty in selling gas stations here in MA. A few observations:
As an owner/operator, you can make decent income if you play your cards right. That means a good mixture of income streams, i.e., gas sales (averages about $0.20 profit/gallon), higher volume station (60K+ gallons/month), convenience store inside, repair bays with inspection stickers (feeds the repair business) and used car sales.
Here in MA, the state is not issuing new inspection sticker licenses, so the value has skyrocketed. There's a complicated process to go through to transfer one, and I've heard prices ranging from $75,000 to $200,000 depending on how busy the location is.
The environmental regulations will vary by state, but here in MA all single-wall steel tanks were required to be replaced by August 17, 2017. There is no requirement (YET) to replace double-wall steel. Most stations will now have double-wall, non-corrodible (mostly fiberglass) underground storage tanks. There are also regular inspections of tanks and piping to keep up with.
Tank replacements are VERY costly, as are spills.
Traffic counts are a key to finding a good location. MA DOT has a website where you can search for the most recent traffic counts. The big chains (Seasons, Cumberland Farms, New England Farms, etc) typically look for locations at a traffic light and will sometimes build on a corner opposite a direct competitor if the traffic count is high enough.
Those same factors go into making the location successful for your lessee, which means that they can afford to keep paying your NNN lease.
I'm no expert on electric cars, but I think that they'll need service too. They'll certainly require inspection stickers, tires, brakes, alignment and other repairs.
A smart operator will get trained on them and have service and parts availability if they become a significant factor - and people who drive electric cars will still want their morning coffee and muffin, so I don't think the c-store is going anywhere either.
Fully electric cars are still only 1-2% of the car market. Short of the government pushing really hard to ban hybrids and efficient gas engines I think they’ll have a hard time exceeding 5-10%.
I bought a Chevy volt 18 months ago for $22k net after rebates and tax incentives. I’ve had to put 10 gallons in it so far but that’s because I drove to California to save a few thousand buying it. Yes, living in the small Las Vegas valley as opposed to my in laws farm country in the Midwest helps a lot too.
I woulda/coulda bougth a 2 year old Nissan Leaf for $10k but the wife wanted the gas engine to fight her range anxiety.
- Los Angeles, CA · Member since 2017 · 73 posts · 56 votes8y
I think you guys speak to both camps with regards to gas vs. electric. I can see how there would be great demand for electric, but cost definitely remains a huge limiting factor, as does options, variety, and tech advancement.
I guess a lot of this comes down to timing - would a recession coupled with high oil prices cause a sudden increase in demand for electric which would then facilitate a faster advancement of electric auto technology and adoption? I suppose that's a purely hypothetical scenario which would require a perfect storm of factors.
@Charlie MacPherson California and especially LA have the most stringent soil contamination laws and many gas stations have been retrofitted with double-wall tanks. But the most lucrative stations offer an amalgam of services which could be adapted to service electric cars.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yLol if you think EVs will become super popular anytime soon you’re in for a rough ride. Just look st the economics of the current EV business and you see it doesn’t work real well. It’s capital intensive and you make zero money. We will be lucky if electric cars are common by 2040
Originally posted by @Joel Owens:
...Personally I would love to see self charging cars using mini solar panels on the roof of a car that leave reserves for night driving. ..
Not even close to enough power can come from mini solar panels on the roof of a car for anything remotely related to driving.
Our 2010 Prius has solar panels on the roof and those panels run a little exhaust fan to keep the inside of the car from getting too hot when parked in the sun.
IDK the gas business other than the ones out here all seem to be in the multi millions ranges. As far as EV vs gas, out here the charging stations are all over and at wholefoods of course. I read somewhere Texas now has more alt energy jobs than carbon based jobs if that is a sign of the future of things. Good luck!
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes8yWesam S. So I think I’d keep at the strategy if I were in your shoes. I do believe that Tesla-ish stuff is the way of the future and also that we’re in the leading edge of that here in SoCal (go to the Midwest and you see a lot less). That said, I’d presume you have a playbook around finding quality property, finding a good tenant for the NNN lease, etc. Now, would I personally buy a gas today? No. Because I have no idea, track record, successes/failures to fall back on, etc. If I took a flyer on buying one I’d probably end up with one that your family passed on buying for a good reason!
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