Investors Are Writing Off Your Car Wash - Tax Motivated Buyers Turning The Net Lease Car Wash Market Red Hot

If your local car wash changed ownership before the end of 2022, it wasn’t an isolated situation. 

Net lease car wash transactions, at an average of $4.5 million each, contributed to an estimated $100 million in sales in the last four weeks of the year. While there are specific reasons for the rush at the end of the year, don’t expect a hot car wash market to simmer in 2023. 

“There’s a lot of inventory in the lease car wash market, and we’re currently working with a lot of investors who are looking to buy for profit or depreciation,” Jim Ceresnak, a director with net lease real estate brokerage B+E, told Benzinga. His company specializes in car wash dispositions and acquisitions. “It’s a good business model if done right. Tax-motivated buyers are the most motivated.” 

B+E offers triple-net-lease car wash properties at an average cap rate of 5.77%. The most common net lease alternatives, such as convenience stores, fast food restaurants, bank branches and pharmacies, are traditionally offered at lower average cap rates. According to B+E, triple-net-lease car washes stand out to investors — especially 1031 exchange buyers — against an increasingly crowded net lease field.

Check out: How To Invest In Real Estate With $100

Net lease car washes are similar to net lease restaurants or auto parts stores but haven’t been used as a tax strategy for as long. 

“About 10 to 15 years ago, branded car washes began to grow, and they started using sale-leasebacks. It’s become a much larger sector,” Ceresnak said. “It’s a much more manageable asset for net lease brokers who don’t want to buy 10,000 Starbucks. The largest we have is Mr. Carwash with 450 locations.” 

Car wash operators are scaling rapidly through a combination of greenfield development and merger and acquisition activity. Ceresnak says the car wash industry is growing so quickly that a few years ago, you could “count on one hand those who owned 100 units or more. Now there are more than 10, and dozens own more than 50.”

B+E says the trend will likely continue with more private equity groups investing in car wash platforms yearly. 

Like other real estate sectors, the hottest markets are in the Sun Belt markets, including Texas, Florida and Nevada, Ceresnak said. “At the end of the day, even with car washes, it’s still about location.” 

Despite high mortgage interest rates, more than 35 new car wash properties have been listed by B+E and others since Jan. 1. By the end of the month, just under 90 triple-net-lease car wash properties were recorded with an average lease term of 18.4 years, an average asking price of $5.2 million and an average asking cap rate of 5.77%.

Looking for a way to boost returns? Benzinga’s Real Estate Offering Screener has the latest private market investments with offerings available for accredited and non-accredited investors. 

Check Out More on Real Estate from Benzinga

• Bezos-Backed Startup Lets You Become A Landlord With $100
• Analysts Are Bullish On Industrial Real Estate: Here Are 2 Private Market Offerings To Gain Exposure
• Techies Will Soon Flood Austin Even Harder. Here's How To Invest In Its Real Estate Before That Happens

Photo by Zulfahmi Khani on Unsplash