How to Scale Commercial Real Estate Podcast with Sam Wilson On the New York City Podcast Network

How To Invest In The Car Wash Business And Real Estate

Looking to invest in a new lucrative opportunity Whitney Elkins-Hutten is here to talk about how car washes can be a low-maintenance high-yield investment She discusses the different types of car washes their potential profits and how to scale this type of asset This is a niche investment that is worth considering for those with a real estate background and an interest in commercial properties Whitney is the Director of Investor Education at Passiveinvesting com She is a real estate maven who after purchasing her first rental in 2002 and hitting a home run then nearly losing it all on her second deal took control and figured out how to invest in real estate the right way She realized that success must leave clues So she studied and replicated the very personal finance and wealth creation strategies the wealthy use to create financial freedom Today Whitney is a partner in 700M of real estate including over 5000 residential units MF MHP SFR and assisted living and more than 1400 self-storage units across 7 states and experience flipping over 3 0M in residential real estate 00 01 – 04 16 Buying the Business and the Real Estate Listen to our previous conversation with Whitney Why Whitney and her team are jumping into the car washing space The different types of car washes Converting self-serve and full-service car washes to an express car wash service Controlling the asset s full potential 04 17 – 15 19 Getting into the Car Wash Business Why institutional players are not getting into the car wash business The problem that passiveinvesting com solves Opportunities in the acquisition space Building a management company to work with vendors Having both the business and the real estate in the portfolio Choosing not to do a blind fund The price range of a car wash business and the potential return Leveraging loan funds 15 20 – 18 13 Creating Value for the Business and the Customers Optimizing the operations Consider perks and subscription plans Whitney on the car wash business in a recession environment 18 12 – 19 15 Closing Segment Reach out to Whitney Links Below Final Words Tweetable Quotes If you just buy the business and you don t have the real estate you re not controlling the actual full potential of asset – Whitney Elkins-Hutten This is really a space that s ripe for disruption If you think about it the carwash space you know it s estimated to be I think the number is like 27 8 billion of revenue a year and it s growing just shy of 4 annually – Whitney Elkins-Hutten —————————————————————————– Connect with Whitney and visit passiveinvesting com if you want to know more about the car wash space Email her at whitney passive investing com or check out her calendar Connect with me I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below Whitney Elkins-Hutten 00 00 It s worthwhile to note that there s other groups that are starting to kind of come up with carwashes And what makes this really unique what we re doing here at passiveinvesting com is that we re actually buying the business and the underlying real estate And I think an investor has to be really careful about that Because if you just buy the business and you don t have real estate you re not controlling the actual full potential of the asset Intro 00 22 Welcome to the How to Scale Commercial Real Estate Show Whether you are an active or passive investor we ll teach you how to scale your real estate investing business into something big Sam Wilson 00 34 Whitney Elkins-Hutten is the Director of Investor Education at passiveinvesting com and Partner at 700 million in real estate including over 5000 residential units and more than 1400 and it cut off there for some reason that truncated your bio here Whitney I m butchering it 1400 what Self-storage units Fantastic And you know what we re gonna talk about none of those things today you ve come on the show before I don t know what maybe four six months ago I don t have the episode right in front of me which was a great time just chatting about really your experience in real estate up until that point in time So if you want to look back in the show you can find Whitney s previous interview But the thing we re going to talk about today and really highlight and focus on is a really nuanced and niche investment you guys have taken on Can you tell us about it Whitney Whitney Elkins-Hutten 01 17 Well yeah I guess I actually now you ve pointed out to me I need to update my bio because now we ve started partnering on carwashes And so right who would have thunk it We re so proud to bring on this investment class for investors a lot of people you know don t think of car washes as their first you know piece of real estate they might invest in The unique thing about car washes is that you can actually invest in the business and the real estate at the same time and achieve a nice yield especially in this like cap rate compressed environment Sam Wilson 01 48 Tell me the nuances of the car wash Is there I mean when I think of a car wash I think of the ones where you like you know you get in you put it in neutral And that drags you through and you come out the other side And then I think of the ones where you know they have the big signs like don t wash all the mud off your ATVs here in our carwash where you pull in and spray it off with a little wand and you put your quarters in the slot Which one are you buying Are you buying both Give us the breakdown Whitney Elkins-Hutten 02 12 Yeah so there s really three different types of car washes and you ve hit on two So the coin-operated carwash or the self serve-type of car washes Number one I think a lot of us might have grown up with that where you pull a car into a bay stick of quarters and you ve got the brush and you know pumps up then you ve got your water one you know your child is like chasing around the bay trying to get you wet right then you ve got full-service carwashes think of these more of the type of single bay maybe double bass that are attached to like a gas station or something like that Again not very scalable model but they definitely can be a little you know some moneymakers we re actually investing in what we call a car express carwash So these are the think of the ones like you were talking about the long bay where you have the long tunnel And you know you pull up your car somebody grabs it from you they like backing it out and then they flip it around the back they loaded in the bay We re not even doing that I mean this is all self-serve And you know you can you know back in my car and then you can put it in the bay and it s driven by how long that tunnel is and how quickly can you move the cars through and still do a great job for the customer Right You can whip a car through an express tunnel But if you re not doing a great job of getting that car clean guess what Customers not coming back So there s a fine balance here You know really the express tunnel carwash is or you know have the you know the most potential for profit because there s really a lot of low maintenance to them and very low payroll burden on these types of assets And there s even the opportunity to take some of these other type of car washes the self-serve carwash and the full-service car washes and convert them into more of an express carwash But you know it s worthwhile to note that there s other groups that are starting to kind of come up with carwashes And what makes us really unique what we re doing here at passiveinvesting com is that we re actually buying the business and the underlying real estate And I think an investor has to be really careful about that Because if you just buy the business and you don t have the real estate you re not controlling the actual full potential of asset Sam Wilson 04 16 Yeah and that was going to be one of my next questions for you on this But before we get to really the nuance of splitting of the business and the land that goes with it let s talk a little bit about branding And is there a national chain that you guys are branding under Are you starting your own brand Is there what s the word I m looking for like a franchise that you guys are working through What is that Whitney Elkins-Hutten 04 39 You know this is really a space that s ripe for disruption If you think about it the carwash space you know it s estimated to be I think you know the number is like 27 8 billion of revenue a year and it s growing just shy of 4 annually and a large majority of that growth is actually occurring in the express car wash business Now if you depending on where you live you might have seen like brands like Zippos or Mister Car Wash but majority of these types of car washes are still owned by mom and pop operators And why is that Well if you think about it the large players institutional players aren t getting into the space because they can t make it passive There s not a management company that can take on this type of asset So what we re doing that s very unique is that we re actually solving that problem by building our own vertical management company within the business So what that s going to allow us to do is actually you know create tons of operational efficiencies for the business as well as for investors but be able to scale the business to about 100 to 150 locations and then wrap this all up together for a nice exit Sam Wilson 05 47 That is cool I like that And then would you guys retain the management company when you and then just do third party means that part of the plan Whitney Elkins-Hutten 05 56 Anything is possible at this point in time So we are you know we re definitely in the build phase the growth phase of this portfolio So you know really focused on operationalize how many operational efficiencies can we create you know on the labor front just even like thinking about the chemical front How do we standardize training across all the locations How do we standardize the service across all the locations And you know once we kind of have that nailed down then we ll be able to really fully assess what we do the management company Sam Wilson 06 29 Yeah no that s really interesting How are you finding opportunity in this space Whitney Elkins-Hutten 06 33 Well that has led to our acquisitions team But again remember a majority of these locations are actually mom and pop locations So they ve might have bought into like a small franchise or tried to you know take over a property on their own you know they struggled you know a lot of times what we re finding is these locations that we re buying they re struggling with the actual optimization of the business One they re trying to run the business themselves and never hired themselves out of the business They actually did bring on a team they don t have standardization and training And then even if they achieve that they re relying on their distributors to help them optimize the actual tunnel and the chemicals within the tunnel Now what s wrong with relying on a vendor to do that The vendor you got a conflict of interest going on there So you know again when we re building out this management company we re really trying to we re still gonna work very very closely with our vendors to you know work on pricing and optimization but we actually as a management company get to control end and end product of that tunnel Sam Wilson 07 36 That makes a heck of a lot of sense Let s talk then about your finding your see your funding opportunity Presently run already mom and pop owned car washes Have you guys are you considering building ground up Whitney Elkins-Hutten 07 50 Again you know right now there s still just enough opportunity in the acquisition space for us to build a large part of the portfolio scale it up very quickly in this arena we ve already brought on nine this year So yeah it s there They re there right They re already built-in primo locations So without having to take on that build risk Sam Wilson 08 10 that valuing needs Is this I mean obviously a bunch of that operating income but there s got to be a way to underwrite and say hey it s here we can do X Y and Z to make it worth that How do you do that Whitney Elkins-Hutten 08 22 Right yeah so typically what we re doing with a multifamily unit self-storage you know mobile home parks you re underwriting net operating income When you have a business you re underwriting EBITDA Earnings Before Interest Depreciation Taxes and Insurance and Amortization So we are actually and I m sorry you know amortization not insurance piece that s actually an under a line item in the expenses So when you take the EBITDA essentially your profit your gross profit you know we re paying a multiple on top of that and so we re looking for car washes probably valuing the car wash it like eight maybe 10 EBITDA But it goes even a little bit deeper than that because we re looking to be in at 51 to 53 of the expected gross income on the property even though we re putting these guys into like you know 2 3 7 portfolios small portfolios together we have underwriting each property to stand on its own That really just helps mitigate more risk for the investor right Because you know our intentions is to do a large exit potentially IPO roll up to REIT you know those are a couple of different you know exits there but things just totally you know business totally tanks and we can t figure it out which just the wealth of knowledge we have in our team I don t see that happening Each carwash can stand on its own and a very attractive return number Sam Wilson 09 45 Right I like that And that is interesting Let s talk then about this splitting the business and the land or maybe there s you know two things going on There s a real estate play and then there s the business play When you guys buy these are you holding title to the business and of the land all in one or is it that the business then leases the real estate back from I mean how are you guys doing that I guess if I can get the words out of my mouth Whitney Elkins-Hutten 10 12 That s an amazing question And I really want to dig in further on that Because I you know on where I m at with working in with the investor I don t know that and I haven t been asked that yet But that s an amazing question But I can tell you what I can tell you is that we actually have both within the portfolio Right So you know I would imagine it s all wrapped up into the same LLC Sam Wilson 10 34 That s interesting Yeah Because I would have thought and again I know this is pure conjecture on both of our parts not like neither of us have the solid answer Because this is one of the businesses you know that I m involved in is the laundry business And in that we ve got both the actually I don t have it right now we are just on a lease for the one we own but looking to build the next few we do we re going to be new builds and I go Gosh when I do that I m gonna split them One company is going to own the land and lease it back from the company that owns the actual business because then someday if I want to sell off the business I may still retain rights to the land and just be a landlord I wouldn t have that option I didn t know how you guys were doing that So and then of course then you have to profitable companies and they have their own split on the whole deal to a different equation altogether But then I guess the last question for you your underwriting these is up to take a stand on their own but it sounds like you re also taking them down inside of a fund Is that right Whitney Elkins-Hutten 11 23 We re doing mini portfolios you know as we can group acquisitions together you know our first acquisition pool was two units or next acquisition pool was seven units So we re looking to group those together And it operates like a fund in a few different ways in that you get diversification multiple assets with one investment So if you re investing in say you know 200 000 it s split over two assets or seven assets you know so there s that The cool thing rather than doing this fund is that it s not blind So you actually get to see the assets at the beginning rather than sometimes when you a lot of times when you invest in fund if you re coming in early You re not able to see the actual assets that are being required you re having to invest on a hypothesis that the operator is making you know we choose not to do that with this type of acquisition And lastly you know because of that because the investor can actually see the assets you know inquire about individual metrics on each asset if they choose to there s more of an immediacy to invest I know for me this is getting down to investor behavior I know for me like when I m investing my own dollars I might be really excited by that investor bonus at the beginning for a blind fund But you know I m very conservative and I want to all let the fun acquire like a few assets before I actually go into invest That s just me Sam Wilson 12 41 Love it Yeah that s sage and hard-earned advice coming right there Tell me about pricing Like what s a typical range of a cost per express tunnel carwash Is it like 5 million bucks Is it 10 million is at one I have no idea Where are you finding the range of pricing is for these Whitney Elkins-Hutten 13 00 It depends on the location So you know the land since we re acquiring the land the land is also can be a large factor in the pricing So you ve got the actual you know again what we talked about eight to 10x gross And then we also have like the price in the land So our first acquisition you know that one is since close you know that one was an 8 million acquisition So that two of them yep Yeah As we grow the NOI just think about that you know we re looking to optimize the NOI on that property and you know exit at a 10x EBITDA Know when we go for an IPO So there s just a you know a nice ability to create some exponential growth for investors Sam Wilson 13 40 Yeah absolutely When you look at businesses like this they typically have a higher cash on cash return maybe than say a multifamily project or even a self-storage for that matter I mean what and again I know you probably can t say exactly what it is on the air but like what s what s an expected range You guys are looking at you would say hey if it falls in this range it looks good for us Whitney Elkins-Hutten 14 02 Our first couple of acquisitions first 8 acquisitions you know pulled together you know cash on cash you know first year might be like again we always aren t underwritten very conservatively you know because we re you know having to optimize the asset first year might be somewhere between four and a half to 8 cash on cash as we stabilize all the units together and then we re ramping up as quickly as we can to 8 9 10 We are looking to hit 15 cash on cash by the end of five years Sam Wilson 14 32 Got it Okay Okay Cool That is absolutely You know fascinating last question for you on this leverage What sort of debts are available for this Whitney Elkins-Hutten 14 42 Yeah so we re using private lending we re looking very attractive 60 loan to value are you know on the last acquisition that we did I m just looking at the number We did a 4 15 interest rate fixed for five years with a 20 year amortization So it s very competitive private business funding Sam Wilson 15 02 No that makes all the difference in the world That s a lot Those are a lot better terms that I would have thought on the private lending side so that s absolutely awesome Whitney thank you for taking the time to break down the carwash base why do you guys see opportunity there And then how you re acquiring assets and then running them I think it s brilliant Is there any question I should have asked or any other last piece of information that you d like to share Whitney Elkins-Hutten 15 23 Well I think you know one thing you know as an investor when you re looking to invest in a project like this that definitely has a value add component what is the value add that you can create on a carwash So you know we ve talked about you know the actual tunnel and a lot of everything occurs within that tunnel and you know can you optimize the chemicals in the tunnel some of the chemicals on a carwash are extremely expensive but mom and pop operators might actually put that chemical on the car every single time that comes through we can actually optimize for that based on the membership and only apply it like one every four times that the car comes through So we have a lot of optimization with the chemicals in the tunnel we have an optimization with the payroll it can be run with you know maybe four to six full-time employees you know annually to very low overhead and cost that way And there s just a wealth of things that we can do you know with the vacuum housings you know perks that we can add subscription packages to the property or to the business And so you know I know one thing that investors ask me and they re like What happens if somebody comes every single day to wash their car you re like Okay if the subscription package the low switching costs 35 a month that average carwash a person washing a car uses 80 cents of water and chemicals on the car we ve got a nice healthy margin there So they would literally have to wash their car probably twice a day for the full month we started losing money on that subscription agreement Sam Wilson 16 51 And that s a lot of commitment for somebody to wash their car twice Now I ll be honest I used to live in Indianapolis and on snow days Man I love my carwash subscription because you get all that black gray brown muddy saltwater Man I go through four or five times in a day because I m on the road all day long But of course that was only you know three or four days of the year So they still got their money for me Whitney Elkins-Hutten 17 15 Well and you brought you tapped on a really kind of a great point here And that is you know we re talking a very interesting time in our economy Right So you know a lot of people a lot of investors are going what happens in a recession How recession resilient are these assets And so we ve talked about the optimization we ve talked about the subscription packages but you know investors asked me and they re like well wouldn t somebody just cancel their subscription First of all you know science or statistics or a tell us when somebody actually establishes the behavior of washing their car they don t break it right And especially at 35 a month that s a pretty low-hanging fruit compared to other expenses I love it But when you have a recession environment right and last point here is people actually take better care of their cars because they don t have to repair the car right Just like what you re talking about We live in Colorado you ve got that mag chloride like I don t want to have to like deal with the pain here in a couple of years I m gonna spend a couple of bucks and wash my car Sam Wilson 18 12 You got it I love it Whitney I know we re out of time Thank you for coming on the show today and breaking this down It s been tons of fun If our listeners want to get in touch with you what is the best way to do that Whitney Elkins-Hutten 18 21 Yeah a couple of places You can reach out to me directly at passiveinvestingwithwhitney com If you just follow the little form on the page and you ll land directly on my calendar You can also email at whiteney passiveinvesting com Sam Wilson 18 40 passiveinvesting com Got it We ll make sure we get that corrected and in the show notes properly Whitney thank you again for your time was great to reconnect Whitney Elkins-Hutten 18 48 Yeah it s you too Thanks Sam Sam Wilson 18 49 Hey thanks for listening to the How to Scale Commercial Real Estate Podcast If you can do me a favor and subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts whatever platform it is you use to listen if you can do that for us that would be a fantastic help to the show It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode