Car Wash Update! 55% Cash on Cash, Would I Do It Again?

Commercial Real Estate Investing From A-Z

Almost two years after investing in a few car washes, what are the results? Would I invest in car washes again? What are the pros and cons? Is there any upside in this asset class?

You can read this entire episode here: bit.ly/3cnH25O

The last time I spoke about the car washes they were going great. We had 36% cash on cash returns. And last year we had a full year of managing the entire thing. And we ended up not with a 36% cash on cash return, we ended up with a 55% cash on cash return on that deal. I want to note a couple of things:

1. I was managing the whole thing myself and not paying myself. There is no management fee there. If someone were to underwrite this deal, they should definitely put a management fee. For example, when I buy a self storage facility, if it’s managed by a mom and pop, and they don’t have a management fee, I have to underwrite it with a management fee. I wanted to let you guys know that fact.

2. This also includes the credit card that we installed on all locations. I think we spent 60 or 70k. Yes, it was an absurd, we got screwed by this particular vendor. This includes that as a “downpayment” because it was out of pocket.

We had a 55% cash on cash on our entire first year, our first full 12 months. Amazing, right? Well, after that, I decided I do not want to do car washes anymore. Why? Because it took my entire year, I was not able to learn how to manage it, or how to have a system in place for it to be somewhat a passive investment. I am not local, and that added to the issues. And that is not where the issues ended, I realized that we were getting significantly robbed, 1000s of dollars have been missing.

Now I need to figure out how to exit them because cannot sell as a carwash anymore, because the income is not matching, and at the same time, I decided to exit these properties as soon as humanly possible. What is the first thing that I thought I could do to exit all of these car washes?

1. I could do a build to suit, I could go out to retailers and figure out who would want any of these locations and we would build whatever their heart desires, and then we would lease it to them and either keep the property, or exit.
2. Another option was to sell it as land. One of the carwashes has an extra piece of land in the back. If we look at the value of the entire thing with the land, it does make up for the mission NOI and it’s basically the price of the carwash, that is currently in the market as land.
3. Another option was that the two remaining are actually not only zoned for retail, they’re also zoned for multifamily. So for the one that has a piece of land in the back, we could tear the carwash down and build a multifamily building.
4. The last property doesn’t have extra piece of land. So that one I might sell to somebody local, completely separate from everything else.
5. 
   

In the meantime, what I decided to do is to partner up with somebody local, whom I trust, he is a vendor that has been great up until now with everything. I’ll give him a percentage of the NOI and he will take care of everything. We’re going to have weekly calls to make sure that nothing falls through the cracks. The idea is for us to bring the NOI back to normal, make some improvements, even increase the NOI from last year, and then sell the very last carwash, if that will be the only one remaining.

If you like the cash on cash and you want to figure out how to manage a carwash remotely, how to hire and have the best employees and how to make sure that the employees follow all of the steps, car washes are for you. However, if you want something more on the passive side, carwashes is 100% not for you.

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