Pushing Dirt

Here’s a how-to. Let’s say you’re going to start with duplexes….

I’d pick a particular neighborhood that interests you — or cal it a submarket. I’d build a conclusive database of duplexes and four-plexes in that neighborhood. This will take some driving around. pick small enough a geography to start off with so that you’re not overwhelmed.

For each property I’d track asking rental rates and availability - that will get you a vacancy rate and an understanding of market rents. I’d use tax record data — often search able for free on the internet — to gather comparable sale data and build a list of owners. I’d even take pictures. I’d dump all the information in a contact management program.

I’d start canvassing the owners of the these properties asking them if they’d sell. Phone is best but you start with an introductory letter if you like. Properties not marketed by a broker often sell for less!

Track their responses. Some sellers will be extremely unreasonable! It will take persistent and patient follow up, but I’ve observed new investors have a lot of success with one variation of this method or another.

There’s no magic easy method to finding deals, and focusing only on property listed with brokers is going to give you a lot of heartburn (agents are paid to get sellers the most money possible and most are good at it!)

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.”