Pushing Dirt

My line of work is primarily marketing industrial real estate in Maryland, Washington DC and Virginia, but never shy about a new challenge, I’m going to be marketing a portfolio of car washes soon. I met with the owner today and learned a lot about the industry. These can be incredibly lucrative investments with fewer management hassles than one might imagine.

Car washes today — in Maryland at least — are trading in the neighborhood of a 10% capitalization rate, or 5 to 6 times gross earnings. These are exciting returns, and significantly more attractive returns than can be found in other commercial product types of comparable age and condition.

Some rules of thumb: Expenses run about 1/3 of gross revenue. Where gross revenue for a self-service bay (i.e., you wash the car by hand) might run $1,500 per month, a first automatic tunnel will generate $12,000 per month gross. You can add more automatic tunnels, but each successive tunnel will generate roughly 1/2 the revenue of the last…so in this example, $6,000 per month for the second tunnel and $3,000 per month for the third.

Third parties will provide equipment maintenance on an hourly basis. The properties need a daily cleaning and someone to collect the quarters every other day. Not particularly management intensive, and no worries about losing a major tenant.

Also exciting is the fact that car washes can be financed with SBA financing - 90 percent leverage, where traditional commercial real estate in today’s market requires a 20% to 40% down payment.

Unfortunately not many of these car washes change hands, and they require personal involvement to collect the money or to find someone particularly trustworthy to collect the money — or risk a lot of quarters “spilling on the floor.”