A few years ago, a local contractor recommended that I look into the car wash space as he knew I liked alternative investments.
He was in charge of building a handful of express car washes for a national chain in our area.
He personally knew the owner and informed me that he was getting an unbelievable return on his investment.
Typically real estate investors mainly focus on:
- single family homes
- short-term rentals
- self storage
But there are other opportunities out there which is why we’re going to take a closer look at the car wash market and why it might be a good investment choice for you.
Let’s get going with a few stats…
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Car Wash Industry Stats
Here’s a few car wash industry statistics to open your eyes to the potential of this particular area:
- 66% of United States car owners get their vehicle washed 1-2x each month.
- Every day over 8 million cars get washed at car wash businesses
- The car wash industry generated $5.8 billion in revenue in 2021.
- California leads the U.S. when it comes to revenue ($1.6 billion) received from all types of car washes.
- There are 113,000 car wash establishments globally in 2021.
- A self-serve car wash can generate up to $41K/year.
- Tunnel car washes or in-bay automatic car washes make more money than self-serve washes.
- 32% of car wash revenue comes from vehicles being washed in winter; 25% from spring to summer months and 18% in the fall (interesting)
- 29% is the average profit margin per car so for example, the average $15 wash has a profit of $4.35.
- More than 2 billion cars are professionally washed in North America per year.
- 9,048 of the 16,976 U.S. car washes are owned and operated by small business owners instead of corporate conglomerates.
4 Main Car Wash Types
There are four main different types of car washes:
These types of washes is where a car owner can use a wand or other tool to wash their own car.
Most of the ones I used in high-school and college had coin-operated machines so that you can vacuum the inside of your cars.
If you want minimal day-to-day involvement, lower maintenance costs and little to no labor costs, then this might be a good investment choice.
#2. Roll-over or In-Bay Automatics
This is where you drive your car into a bay and automatic equipment moves around to wash it.
An automatic car wash is usually found at gas stations or at a convenience store because they generally require less space and labor than other types of car washes.
In-bay washes are typically more environmentally friendly than tunnel washes using only 10 to 50 gallons of water per car on average.
#3. Express Car Wash (Tunnels)
Modern tunnel car washes allow vehicles to be moved through a tunnel (i.e. conveyor belt washes) as equipment washes them.
These offer the most profit potential with easier scalability due to the lower maintenance and lower payroll burden.
Typically more cars can be washed compared to the other main types because more than one vehicle can be washed at a time.
On average, they use 14 to 60 gallons of water to wash each car. Occasionally car wash investors are repurposing an existing car wash and turning it into an express wash.
#4. Full-service car washes
Full service car washing businesses are the most labor intensive as vehicles are driven into a tunnel by an attendant and then washed.
After it’s cleaned, the exterior is hand dried while the interior is cleaned by hand.
Some of these washes also offer higher priced detailing versus their baseline cleaning and vacuuming services.
Car Wash Consumer Trends
In the past, I used to wash my car at home but as time has become more important to me, I’d rather pay to have it washed.
I’m not alone.
According to the industry experts at the International Carwash Association (ICA), the average American would also rather have someone or something (equipment) wash their vehicles.
This has been a growing trend for the past several decades.
From 1996 to 2014, people who chose to wash their car at home vs a car wash facility dropped from 52.4% to 28.4%.
During that same period, people who chose to wash their car at a professional facility grew from 47.6% to 71.6%. This number grew to 77% in 2019 and is projected to continue to steadily increase.
The ridesharing (Uber, Lyft, etc.) trend has also created a whole new customer base for car washes. These drivers wash their cars multiple times a week to maintain customer satisfaction.
How Much Does Opening a Car Wash Cost?
If you decide to become an active (not passive) owner, then the first question that must be answered is, “How much does it cost to start up a car wash?”
Most of the factors that will affect your total investment costs will mainly depend on where you’re going to open your car wash.
If you’re planning on building from the ground up and NOT buying an existing wash, some of the main costs to consider are:
- construction expenses
- equipment expenses
- land acquisition
Most of these costs change based on factors such as location so it’s imperative it’s to research the going rates in your area so you can figure out the amount of capital needed.
Here’s some of the primary expenses associated with opening car washes:
#1. Land acquisition
Just like anything else in real estate, it’s all about the right location. As you can image with a car wash site, you’re going to want to focus on a site selection that’s near frequently traveled areas close to other businesses and highly populated neighborhoods.
Also, you’re going to want to think about not only acquiring enough land to physically build on, but also for potential expansion as your operation grows. Land prices tend to rise so getting what you’re going to need now and possibly the future early on can save money.
One of the things you should think about before purchasing a location is to make sure that it’s zoned properly. If not, you’ll have to initiate the re-zoning process and apply for a special use permit.
Don’t forget other costs involved with business ownership such as:
- business insurance policies
- property taxes
- business license
Other fees you’ll more than likely incur may involve:
- impact and traffic studies and construction permits
Similar to land costs, the cost of construction varies based on location. Some of the construction costs to consider are:
- concrete (parking lot)
- sewer and water
Typically you’ll find that building expenses tend to run higher for automated car washes versus self-service.
Depending on the type of car wash you open, the equipment prices can vary.
Usually self-service car wash equipment tends to cost much less than for automated car washes. This is due to the fact that automated equipment tends to be more complex.
No matter which type you plan on opening, here’s some common equipment needs:
- Washing systems (i.e. conveyor tunnel or self-service wands)
- Water system
- Payment processing system
Potential Returns For Passive Investors
If you’re like me, a busy professional that doesn’t have time to actively own a car wash, then more than likely you’d be more interested in as a passive real estate investor.
This is what I’ve done via my favorite type of investment, real estate syndications.
See the video below for more details:
Express washes have a huge opportunity to provide consistent cash flow (which is what we all want, right?) and growth through improving operational inefficiencies and utilizing a robust marketing strategy.
This is no different than buying an underperforming apartment complexing, renovating, gradually bumping rents to increase the net operating income (NOI).
Depending on the deal and location, passive investors can expect to receive annual cash flows of 10% cash-on-cash returns and over 25% annualized returns. A little better that what you’re probably getting in the market, right?Join the Passive Investors Circle