90% Cash on Cash Returns with Self Service Car Washes
Self-serve car washes can make for a pretty interesting investment - aside from maintaining the property and ensuring everything is in place for customers to have a good experience, there isn't much required of a property owner on a day to day basis. But is it everything it's made out to be? Today, we're diving into self-serve car washes as an investment with Dan Schiermeyer.
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Key Takeaways:
Self-serve car washes can provide high cash-on-cash returns, often 30-90%, through improvements like adding credit card readers and changing wash timers.
Locations with high traffic and growth are ideal, as are sites that have been undermanaged and offer opportunities for operational improvements.
Common value-add improvements include updating signage, credit card capabilities, and in-bay automatic equipment.
Self-serve car washes provide diversified revenue streams from multiple bays and amenities compared to single-tenant tunnel washes.
Ongoing management involves daily cleaning, equipment maintenance, and cash handling but can become relatively passive once optimized.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls on how to confidently buy your first commercial property today at www dot c r e launch pro.com. Welcome back to the commercial real estate investor Podcast. Today we are sitting down with Dan shear Meyer to talk to you all about investing in self serve car washes. It's been a hot trend for probably the last, you know, six to 12 months in the commercial real estate world because apparently these deals can cashflow pretty well. And Dan has figured that out. He's doing a great job of it. So we're gonna dive into what that looks like with him at Dan. I guess back in the spring, maybe early summer, at an event here in Nashville. He's a member of go abundance with me. And just an overall good guy. If you like skydiving, apparently he is the man. Everything I see him posting on Instagram is all about skydiving, which I will just absolutely never do. Maybe we'll get into that too. But, Dan, that was a brief introduction of yourself. Tell us a little bit more about you.
1:13
Yeah, thanks. Thanks for having me. I'm based out just north of Charlotte, North Carolina Lake Norman area I got in the car washes a little over three years ago after some single family investing and have enjoyed the commercial side of it.
1:30
So what what got you into car washes? I mean, coming from single family into commercial real estate. I mean, car washes is kind of an interesting first step.
1:38
Yeah, it was a it was not planned to kind of just fell in our lap. So it was during COVID My brother's a professional dirt bike mechanic and he's known some riders that have made a lot of money. And they put money in car washes. So one came for sale in our local area and he's like, Hey, we should look into this just because I had been doing real estate stuff in the past I was like, Alright, let's take a look. Talk to the brokers looked at it and it looked like it made sense like it was cash flowing from day one with the debt we could get. And we just saw a lot opportunity to run operations better in just near the area there's tons of growth coming so I couldn't see that business would go down.
2:17
So let's let's talk about investing in self storage facilities from a are not self storage, self serve car washes, I'm probably going to make that mistake again. From a high level and then let's get into you know, like breaking it down. How do you find these How do you underwrite them? How do you look at it but overall, I mean, why is is the self service carwash sector of commercial real estate a good investment?
2:41
So this is how they operate. Typically the Self Service carwash is they have Bay's people come in and do it themselves typically aren't really employees on site. So they're easier to manage. And there's, there's like the big tunnel car washes, which are always they always touch your vehicle. Some people like those because it's convenient, but other people are always going to come and wash them their car themselves, or it's just equipment, equipment, vehicles that just need to do a quick rinse so they just pop in and do it makes it easier for like when there's neighborhoods all around instead of taking a pressure washer out at home in the driveway, they can just drive down the road, spend five bucks and clean their car just as good.
3:22
Nice. Yeah. So what what kind of cash flow can you expect to get from from a carwash?
3:27
I think it all definitely depends on the area. Like, when we look one of the big things we looked at when we were looking at ours is just like I was went to the planning department just looked at all the projects, all the housing developments that were coming to like the street that ours is on has about 20,000 cars a day. Our cash flow has gone up significantly because we've done some some big improvements. So it's, I mean, when I first underwrote it, it was like 30% cash on cash, and now we're doing like 90 95% cash on cash years
4:00
later. That's not too bad. No. That's great. That's so go ahead.
4:07
I was gonna say definitely depends on the area and the amount of traffic that's on the road. That's by it. But there's definitely a way to draw attention to him. That's not on the super high traffic road.
4:16
Yeah, so when you're looking for one of these projects, I mean, one how do you find them and two, how do you determine that a location is a good spot to buy one of these right? You're probably not building these so you're buying something existing but what's what's the difference between you know, an A plus location and a D location?
4:33
Yeah, so in a plus locations in a in a town where probably not as much crime, high amount of traffic. Some of the other ones that are I would say more a D It's kind of out in the sticks. Probably just a self service like ours also hasn't been very automatic. So having an in Bay automatic also drives more traffic. Definitely, definitely the type of clientele you'll have. If you don't have cameras, you're definitely going to have more theft and vandalism. So it's the apparent appearance of the site definitely makes it makes a big difference.
5:08
Okay, and how are you going about fighting these kinds of deals? Are you just driving around town and looking at design? Yeah.
5:14
It's like, once you, once you get one nail stick out what in the past that didn't stick out at all. So as soon as she does, I understood the operations Rs, go pull into another one and just take a look like, oh, they don't even have credit card readers Oh, like they don't have, they don't offer these functions. They're vacuums don't even work. There's trash everywhere. So as soon as you pull into one makes it easier to spa opportunity. Or you could say, oh, this is a really nice carwash there to have everything, all the upgrades that I've done.
5:45
So do you do you? Do you break the pricing down on a price per day basis? Or kind of how do you like, what's your metric? Right? So when I'm looking at hotels, I know, you know, hey, $50,000 a key is a pretty good price. Whereas you know, $150,000 a key. That's probably the juice has been squeezed out of that. Do you look at car washes the same way?
6:06
Yeah, so I mean, the way the pricings broke down, it's kind of hard to individualize it by baby just because it's a big cash business too. But cell service bay, those are pricey. Usually, I usually started with two to three $3 to start automatics, they have the different price packages. So those usually range from like six to $18. I don't have like a per Bay price. It really depends on the location, the land, how old the equipment is. What the buildings made out of like, some of them are just all metal walls with plastic. Some of them are brick buildings, so you know that the structure is going to last a lot longer. Yeah, I don't have I haven't thought figured out how to how to underwrite it by like a per day basis on what it should what it should do. Yeah, see, like well established.
7:01
Let's just break it down on like, let's just break it down on like your last deal then. So, you know, how much did you pay for your last deal and how many how many bays were there?
7:10
So ours is it's five self service bays and one in Bay automatic. We purchased it for 825,000. Grand was my first commercial deal probably overpaid a little bit for it. But it's still cashflow at the time, especially with the debt we could get. So we have five self service bays that bringing money in by automatic six vacuums a vending machine, and then we added in like tire compressor, an ice vending machine. And at the time, when we first bought it, it was the NOI on it was it was doing 125,000 a year in gross revenue, and the NOI was around 72,000.
7:50
Okay, so that's not too bad. I mean, we're talking about $140,000 a day on your, you know, per per Bay pricing there. And, you know, I would imagine if you're gonna be underwriting this, obviously, you're gonna wait the NBA automatic, a little bit more heavily than you would the self serve base, just because your equipment in there can be very expensive, right? Yep. But you said you said it was a $72,000? No, why on an $850,000 purchase price, and $125,000 purchase price. Yeah, I mean, that's, that's an 8.7%. You know, I mean, gross cap rate, right. You gotta take it or No, I guess it. Yeah. I mean, that's, that's, ya know why right there. That's APR 7%. cap rate? That's a great deal.
8:29
Yeah, yeah. And it was just from when we bought it, then with the debt we had, like it was cash flowing from day one. We had some some benefits on like, the loan, we used an SBA loan when we purchased it. And because it was during COVID. And the Cares Act, we had some benefits there. Like our first six months of mortgage payments were waived. So that allowed us to like it's not bad. Instead of having to sit on like operated for six to nine months to build a cash reserve and do improvements we wanted to do we were able to do all our improvements, like right away because we had an extra six months
9:05
mortgage. Yeah, so when you're when you're buying a cash flowing asset, obviously, it's great that it's cash flowing day one, but you want to push that value as much as you can. So when when you're looking at these these self service, carwash deals, what are the first things that come to mind of just immediate value add improvements to where you could probably squeeze another dollar per per wash out? Yeah, so
9:26
the first thing I look at is do they have credit card readers? I mean, in this day and age, everybody uses credit cards and ours had credit cards in the NBA automatic and the Self Service didn't have credit cards on the vending machine or the vacuums. So technically, we weren't a cashless site like you had to do you wanted to use a vacuum you had to have $1 You had to have quarters. So that was one of the first things we did is just add credit card readers to everything. Next Big Thing in the self service bays, there's two different methods for how the credit cards are transacted. So it's there's it's count up or count down the swipe With countdown, you swipe, it gives you six minutes and it beeps at you with a minute left, that beeping with a minute left, people will just try to finish washing their car in a minute, instead of just hitting the button to add another dollar or two. So we switch that to count out. And our average price per customer in the self service bays went from $4 to $7. Just because it wasn't beeping at them anymore. So that was an average of 800 1200 transactions a month in the self service base was like an extra $47,000 a year just for switching switching the method. So that is like pretty amazing. This is one of the first things I look at if they don't have credit card readers. That's a huge value add. And then switching to count up timers. Another huge value add.
10:45
Do you make any site improvements? Like do you? Do you repaint the building? Do you change the signage? Is there anything physical like that that you have to do?
10:52
Yeah, so that was one of the first things we did as well. There's a street sign. So our wash was built in 2007, another set of partners bought in 2016. We bought it in 2020, the street sign had been the same since day one it was open. So we just basically took everything off and rewrapped it put a new logo on it. So just so it's stuck out to the people driving by they're like, Oh, what's that
11:13
that's, that's a new sign. So just try to catch people's eye. We did put some new signage in the bays, just with new logos and stuff, updating contact information. It's a big thing with car washes, there's
11:24
a lot of them, somebody lose $1. And they caught try to call the number and because they're disconnected number, they don't get their dollar back and then they never come back. So we make made it very easily accessible so people can get a hold of us so we can refund them. If there's an issue or if something's broken, they can let us know. So we can get it fixed quicker.
11:42
That's great. So it seems like it's a relatively passive type of investment. But I would imagine there's still some day to day or week to week, maybe even month to month management issues that you have to deal with what is the what are the operations look like?
11:54
Yeah, so the biggest, biggest thing that we pride on ours is like keeping it clean, like you don't want to have trash is overflowing, you don't wanna have muddy bays. So I have a helper that comes out and he clean takes the trash out at least once a day sprays down the base. So just somebody looking over it daily, you don't have to do that. But if it's clean people are more likely to come back. On a weekly basis, usually you do have to count cash if you still still accept cash, just because the readers can only hold so much. And then there's just checking the equipment. So because I own a wash, I actually wash my car a lot more frequently now. But it's a good way to test that all the functions are working. Because when functions don't work, then people get upset. So that's, that's more of like weekly, monthly tasks. And then there's some more like quarterly or yearly stuff like now now that the weather is getting cold, you have to check and make sure if it's going to get to freezing temperatures that it's going to run water, that's called weeping. You got to make sure that's all all set up, and it's going to work when it gets cold.
12:56
Yeah, you definitely don't want to have any broken pipes at a carwash to be a big pain to deal with. Now no cash flow is is the cash flow is pretty attractive, obviously. I mean, you're talking about 30 to 90% cash on cash returns just by making a handful of improvements. But the tax benefits are also pretty outstanding with self service car washes because of the equipment. Can you touch on that?
13:17
Yeah, yeah. So we were able to write off like all the equipment, year one, and then we we actually replaced our inveigh automatic equipment. So that was a upwards of $170,000 purchase that we were able to write off that whole year. So yeah, I haven't had to pay tax on the business and won't have to for the next few years, at least, just from some of the capital capital improvements we've done.
13:41
Yeah, I mean, that's one of the reasons why car washes can be such an attractive investment. I mean, yes, the cash flow is good. I mean, depending on what you're buying, I mean, you could go for a, you know, triple net Tuttle style deal and not getting that much. But if you're buying the Self Service ones, I mean, you're able to depreciate not only the building, not only the the infrastructure improvements, but also the equipment on the site. And you know, that equipment can be very, very expensive. How do you budget when you're going through a project for handling, you know, replacement of the machinery, or any of the equipment that you've got on site and what typically needs to be replaced?
14:17
Yeah, so on the self service side, it's basically there's the high pressure guns and the hoses, that stuff wears out over time just from people using them, they'll get kinks in them or they'll spring a leak. That stuff gets changed out probably once or twice a year. And then they're like the foaming brush. It's all just little consumable stuff that you have to replace but it's really not all that expensive. Probably say we spend maybe three or $400 in each bay a year just replacing the hoses and stuff in the engine bay automatic now those are there's more maintenance you have to do just because the machines running. But we just budget like 25% of Are cashflow that comes in just to have basically in a rainy day fund if anything was ever go wrong. It's like It's like single family always putting money for those capital expenditures like roofs and stuff. We're doing the same thing.
15:12
As right, so how much? How much do the How much does equipment cost in the end be automatic.
15:18
So, it ranges you can actually buy used equipment for pretty, probably 75 to $100,000. If you're gonna buy all new, it goes $120,000 up pretty quick. And all depends if you want to do just touch lists, if you want to do soft touch if you want to do a combination machine, which is what we did, because we wanted to offer more a better product. And then also like a pay station, our old pay station only had four wash packages and our new wash as a different wash packages because it does both soft duchy of touchless. So that's another $20,000. So yeah, we spent I think it was right around $175,000 update in May automatic in the pay station. But are these? It's been totally worth it.
16:04
Yeah, yeah. No kidding me with that cash on cash. It's tough to argue against it. Do you think that those kinds of deals are still out there? I mean, you said you got this kind of in the height of the pandemic? Can somebody go out in 2024 and find a carwash like that?
16:16
Yeah, I 100% thing. So I've found other ones. Some of them have been mismanaged, and they're trying to get 2021 prices on it. And they just don't have the the numbers to back it up. I'm sure you've seen that as well. I know you've looked at some. But I know in little rural towns, there's there's car washes everywhere that there's still tons of value at that you can do. It's just finding finding an owner that will have a reasonable price and finding an owner that's run it and actually has good books and records so that you can actually make bankable.
16:52
That's the toughest thing that I've found with these is that a lot of the car washes are owned by mom and pops. They've owned him for 30 years. They keep things on a paper ledger. I mean it is it is wild. A you have to be a basically an FBI agent to figure out what's going on in these properties.
17:09
Yeah, yeah. Luckily, luckily, this one that we got, they had good books and records. But I've looked at quite a few and there's just an income, like doesn't break it down by what the income is. And then there's barely any expenses, and they just wrap everything in the one like supplies and you're like, Well, how much was chemicals? How much was utilities? So it makes it makes it tough to underwrite them sometimes?
17:31
Yep, exactly. Now, over the past couple years, you know, these tunnel bear the tunnel car washes have really picked up in popularity. I mean, it seems like they are popping up on every corner. And you know, the layman with a you know, hey, why would somebody go use a self serve carwash, when you've got these tunnels popping up everywhere? Can you talk about what the future of self serve car washes looks like compared to tunnels and why somebody might invest in one over the other?
18:00
Yeah, I mean, a tunnel is like it's a whole different operation, it's typically a business, they're only going to be open for certain amount of hours a day. So nine to nine or whatever, you do have to have employees to staff it. So you don't really need employees to staff a cell service wash. And then the clientele I just think is different, like the tunnel is people are convenience, they just want to pay their monthly membership and go through. But it's a completely different product. I don't really know of any tunnels that are touchless. So we have a lot of people would, they're nice vehicles, and they do like ceramic coating and stuff, they'll come to us because that we have cell service bays where they can wash it themselves, or they can use a touchless automatic. So I think it's a different different type of clientele. And there's there's also people that just always want to wash their car themselves. They don't want something touching their car, they want to be the one that doesn't themselves, but they they'd rather drive down the street and pay a couple bucks and take the pressure washer out of hell.
19:00
Yeah, there's a huge price discrepancy too. I mean, that's what I've noticed on on the investment sales side, you know, you can go pick up a self service carwash for, you know, 800 to a million bucks, sometimes it's a million five just depends on how much revenue is doing. But you know, these the tunnels, they're five to $8 million again, and they're it's a totally different structure, you don't get the tax benefits because typically, you know, it's Mr. carwash that it's on a triple net lease and they get all the tax benefits. You just get the building write offs instead of the equipment to which can make a big difference for certain investors.
19:31
Yeah, I think I think the tunnel is it's kind of like the big multifamily deals, I think there's gonna be some, some hurt people. And that was in the next few years because they've just been building them and they're not going to be able to refinance it or they're not going to get the numbers they wanted, because they're not going to get as many members as they were underwriting for. So I think tunnels are going to suffer in the next two to three years.
19:54
Yeah, I agree. I mean, and you look at the way that a self service carwash operates compared to a tunnel You know a tunnel is, is I would compare it to a single tenant deal, right? You've basically got one tunnel that you're able to run your cars through. Whereas self service, you might have four 610 cell service bays. If one bay goes down and a self service carwash, you're fine. There's still other things for you to operate out of. But if that tunnel goes down, operations are shut down until that equipment is fixed, and that I don't like going from 100% to 0%. Cash Flow immediately.
20:26
Yeah, yeah. And I mean, tunnels, they can move a lot of vehicles like, I'm pretty sure Sam's can move like 120 cars in our, in my ma automatic, we only do 10. But like you said, I have, I have 13 points of revenue on site between the self service bays, the vending machine, the vacuums and all that. So if for what Yeah, it's like if one bay goes down. It's not the end of the world. And that's, that's another reason why I like, like, the self service is like an inch issue can happen. I can close the day. I don't have to attend to it right. This second. I can come back in a couple hours, or I can go fix it tomorrow. And that just shut the entire business down.
21:02
Yeah, Ron is saying the same thing. multi tenant versus single tenant. I'm taking multi tenant over single any day, baby. I mean, that's yeah, it's just it helps diversify your revenue streams. Yeah, right. Rod said just don't 10 tunnels. easy solution. I love that. Yeah, just come up with 50 million 80 million bucks. It's easy. Yeah, just do it. Good to see you, Rob. Thanks for jumping in, buddy. Yeah, man. I mean, I think self service car wash is really interesting. I've actually got a deal here in Tennessee, I need to talk to you about get your opinion on see if it's worth taking a stab at. I mean, the markets are really weird right now, obviously. And so doing any any type of commercial real estate is a little funky. But that being said, there's deals that are gonna be popping up out there, there's gonna be some owners that are retiring, or they're just tired of dealing with it, and they want out of it, and they're willing to take a haircut, which means it's a good buying opportunity. You know, I had somebody telling me the other day, you can, you can refinance out of a loan. You can't refinance out of a purchase price. And I love that because it's so true. Like, yeah, just deal with the 8% interest rates today, get a hell of a price and refinance later.
22:07
Yeah. Yeah. And if you can make a cash flow in today's market, like, you know, it's gonna be a good deal down the road when interest rates come back down.
22:15
Yep, that's that is exactly right. So what are your thoughts moving forward? I mean, is there anything out like, what what are your biggest takeaways? I guess, like, what did you not expect to happen when you start buying car washes that you're like, oh, yeah, that makes sense. But I never would have thought about that going into it.
22:33
Well, one thing is I never expected ours to do as well as it has just the it's blown numbers out of the out of the water every year. So I just never expected I thought we'd get like you get the pollen season where it's super busy. And this year, it's just stayed that busy all every month, and like October has been our record month, highest number sales, higher number of washers, so wasn't expecting that. Man dealing with the random issues that you'll get, like, stuff breaking randomly. That stuff you never expect, like last year, had a massive freeze. And I was out there on Christmas trying to fix stuff like that. That's the stuff then sucks. Okay. Bye. But, I mean, overall, it's also been great to be able to get it to a point where I can go on vacation for a couple of weeks and put somebody in place. And if something happens, like I can deal with it over the phone, I don't necessarily need to be there. I can walk somebody through it. So yeah, never. I thought it was gonna be a lot more had to be hands on. But it's definitely once you get it up and running and understand everything, it can definitely be a little bit more passive.
23:44
Yeah, that's great. Well, Dan, I know you've got a beginner's guide that you're putting together. I don't know if you've launched it yet. Or if you've if you've got that, you know, in the works still. But if anybody listening wants to get in touch with you for your journey or get their hands on that guide. How can they find you?
24:00
Yeah, so Instagram it's free fly kid and you'll see why all the skydiving stuff. Dan share Meyer and Facebook. I do have that that ebook available now. So I can send you a link. You can drop it in this video.
24:14
Yeah. Definitely do that. We'll put that in the show notes,
24:18
socials and I'll definitely get back.
24:20
Sounds good. Well, Dan, thanks for jumping on and talking us through through some self service car washes. Yeah, thank you. Awesome, guys. Hope you enjoyed this conversation and we will catch you on the next one.
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