Car Wash Asset - What Am I Missing

11 Replies

Gross revenue of ~$75k, NOI of ~$35k, valuation based off 4.3x gross-revenue, not 5-7% cap rate. Better Cash flow monthly?

My realtor called me recently with an interesting investment opportunity - a local car wash. It is a 4 bay manual car wash with 1 bay as an automatic drive-through type wash. My question is around cash flow of this asset class. Apparently car washes are valued off a multiple of gross revenue (somewhere between 3-5 for this type, it seems, market dependent). 

Whats interesting is that when you look at this P&L next to that of a similar gross-revenue multifamily or self storage facility, it is VERY similar. Gross revenue of about $75k, NOI of about $35k. What I dont understand is the sale price of a multifamily or storage facility will be off a Cap rate of, in my area, 5-7% (sale price of about $550k+). This car wash is listed at $320k (4.3x gross revenue). Obviously a loan for $320k would require less capital and less amount in monthly payments than a loan for $550k ... increasing your cash flow. Again, top line revenue similar, expense amount similar...

What am I missing here??? Assuming you would want to manage both just as much, why not buy the less expensive asset that produces just as much cash flow??

In short: the car wash will be more work per day, week and month. Everything you described pencils out in a basic sense. 

From a work perspective, it’s a little different. You’re fixing broken hoses, pumps, etc. Emptying garbages. That kind of thing, the good news is most days (not all) you can decide when you or someone else goes to check on stuff. Pros and cons.


Another thing to consider is financing. Car washes can be harder to get financing for. Plenty of wash owners use SBA loans which can help you with less of a down payment, but often are tied to the prime rate so it’s a rate that can rise and fall. I got the joy of closing on mine and almost immediately watching the prime rate, this my loans interest rate rise. 

I’d say dig in. Cash flow can be better than a traditional apartment building. 

I don't think you're necessarily missing anything but the carwash is likely more operationally intensive (I'm guessing). Also, the lower revenue multiple you're buying the carwash for is great now for cash flow but when you sell, you'll get less for whatever income you were able to grow it by.

Thank you for the replies and insight! 

@Dave Carpenter appreciate the thought. Congratulations on yours! Appreciate the advice on how the operations / management of it may differ. As well as getting funding, thats helpful.

@Michael Le Great point - my interpretation I took away is that perhaps if you value cash-flow more than equity/valuation increase, a car wash may be a good option. But potentially less of a clear path to substantially grow revenue and when you do, its off of a smaller multiple. Thus, if you are able to grow revenue / NOI by the same amount in an apartment or storage facility, the valuation would be higher given the cap rate calculation.

Ultimately, the reason is trades for lower multiples is the sensitivity to revenue variance. Economy drops and car wash revenue drops, MF is less sensitive in that sense. MF has more availability to raise rent, increase NOI. not a lot of ways to increase revenue on the car wash, so its basically a fixed NOI.

@Ronald Rohde , while I’m not expert, what I’ve read and seen is that car washes are pretty resistant to economic factors. It’s broadly considered a spur of the moment purchase, thus not tightly tied to the economy. I would argue that in many markets washes have the opportunity to increase sales through customer service, marketing, or product changes in the same way an apartment building can increase rents. I’ve had some success with that myself (raise prices and see average wash price go up). Either way increases revenue. 

I think a function of why it’s valued a bit differently is because it is a more uncommon and unknown market. SBA even sees a wash and property as a more unique asset and adjusts their loan accordingly. As I was told, this is in large part because there are not many alternative options for a car wash building. Certainly compared  to a warehouse or office space.


Just a few of my opinions.

@Drew Petro

A large part of the value of a car wash property is the equipment, which has a useful life of 10 years. After 10 years the equipment needs to be replaced or the property will lose a lot of business and all profitability to properties with brand new equipment. Additionally, cost of maintenance and repairs are much higher than most more conventional property improvements.

An industrial building has a useful life of 60 years. So if an industrial building will cost 300,000 to replace new that’s a “expense” of $5,000 per year. If a car wash equipment will cost $300,000 to replace, that’s an expense of $30,000 per year.

Additionally, a car wash is much more of a business as well as real property,. It’s a lot like a part time job or small business with a real estate aspect.

The problem with the self service car wash industry from an investor’s viewpoint is that in some areas they’re regarded as “tax payers”, which means the property owners are holding the property for its future development potential and place a car wash on it to pay the taxes in the meantime. Means more completion from people who don’t mind operating at break even.

This particular car wash may be a good investment, but you have to account for real depreciation of equipment as a very real expense, and not just a tax advantage.

Originally posted by @Dave Carpenter :

@Ronald Rohde, while I’m not expert, what I’ve read and seen is that car washes are pretty resistant to economic factors. It’s broadly considered a spur of the moment purchase, thus not tightly tied to the economy. I would argue that in many markets washes have the opportunity to increase sales through customer service, marketing, or product changes in the same way an apartment building can increase rents. I’ve had some success with that myself (raise prices and see average wash price go up). Either way increases revenue. 

I think a function of why it’s valued a bit differently is because it is a more uncommon and unknown market. SBA even sees a wash and property as a more unique asset and adjusts their loan accordingly. As I was told, this is in large part because there are not many alternative options for a car wash building. Certainly compared  to a warehouse or office space.


Just a few of my opinions.

 Sure, I think your points are all true and valid. It all combines to create a much lower valuation for this property/use type.

Covered land play is pretty common for car washes as well. Until you get to full automatic tunnels, those can be cash cows, but also very expensive to start!

We avoid car washes for my clients to buy with NNN tenants.

The buildings are more special use and harder to repurpose if business goes dark.

A well located building that is a basic box can usually be readapted pretty easily to a bunch of different types of tenants. If a special use type place goes dark you tend to have to land the same type of tenant or expend extraordinary amounts of money to re-purpose.

I pay about 50 bucks a month for a Mr. Clean premium membership. I can go unlimited times from that amount through the drive thru part and then they custom detail and dry after words. I tip well each time so that can add to the cost if I go twice a month. Across the street is one of those do it yourself type things.

Look at the median income for the area and know the core customer and what they like. In more affluent areas you tend to have people pay for someone else to do things for you.  

@Don Konipol pol -- such a valuable thought! Thank you! "you have to account for real depreciation of equipment as a very real expense, and not just a tax advantage." The extreme use and wear of the equipment is a very real thing that you must plan for. Good insight. 

@Joel Owens - agree. I think it would interest two different types of investors. NNN lease investor are looking for more of a passive investment. Car wash is definitely more hands on, but has the potential for good monthly cash flow, if that is what you are prioritizing. Also agree with the idea of the "express wash" you describe... which is a big competitor to the DIY washes, as the cost per wash sneaks closer together. If I can pay someone $8 to wash my car for me, and its $4/$5 for me to do it, I may have someone else do it! You are very right, and needs to be considered.

@Drew Petro where do you stand on this opportunity right now? Still moving forward with it?

I’d add 2 quick points:

1. Most equipment has a practical life of more than 10yrs. I’ve got equipment that was installed in 2002 and is starting to get a bit worn out, however there are still parts readily available and the machines work just fine.

2. There are basically 3 types of washes. The simplest are self serve. That’s the spray wand where you wash the car your self. The there’s IBA (in bay automatic) these are the drive in and park. The third is the tunnel. Employees are required full time only for tunnels. Each model is very different and goes from least hands on (self serve) to most hands on (tunnel)

Just want to make sure we are all on the same page in these discussions.

One of the busier car washes in my area has two automated bays and two manual bays. I see the owner/operator at the car wash about half the time I drive by. He's cleaning, collecting coins, doing repairs, or something. It seems to me like it's quite a bit of work compared to a single-family home or self-storage.

By contrast, I just bought a self-storage facility. It's maintaining about 99% occupancy each month and requires about ten hours of work a month, most of which is just on the phone or computer and it will net twice as much as your car wash.