When it comes to owning and operating your own carwashing or detailing business, there are plenty of decisions to make. Each one plays a crucial role in your success, and the property you choose can “make or break” it. The two common options for selecting your property are owning or leasing. Each has its own pros and cons, and you will want to do plenty of research before deciding.
A traditional “owned property” consists of a buyer purchasing real estate from a seller, allowing for control and flexibility to use the land and all building(s) at the buyer’s discretion. Meanwhile, a leased property is when the property owner, or landlord, signs a contract that allows a tenant to occupy and control the property for an agreed-upon period. The lease may also include any stipulations set by the property owner and is valid as long as both sides uphold their parts of the contract.
One of the biggest perks of owning your property is the flexibility it offers. For one, you don’t need to spend time negotiating a lease. This can also help cut down on the time it takes to get your business up and running.
Owning a property offers a financial buffer. As the COVID-19 pandemic proved, you never know what the future holds. If unforeseen circumstances affect your profits one month, you won’t have to worry about paying rent and can focus on bouncing back.
Additionally, having your own property provides more possibilities for your carwash business. You can be as creative as you’d like and capitalize on whichever model you choose —whether it be an express carwash or full-serve model.
Ultimately, you control your land and can modify your business as needed, including adding services or technology over time to give your business a competitive edge.
Finally, owning rather than leasing increases the value of your business since you also own the real estate it operates on
Of course, each option comes with its own limitations. In order to own a property, you must start with more capital. Therefore, owning may be more suitable for individuals in comfortable financial positions who are willing to invest a large sum of money. They should also be flexible on property agreements and restrictions on the land surrounding their carwash.
On the other hand, those who are seeking a smaller investment or do not have as much capital might want to consider a leased property. In some cases, leasing can allow you to make your investment back more quickly and may even offer a higher ROI in the long run.
Leasing can also offer flexibility now and in the future. Subsequently, your commitment to the real estate only lasts as long as your lease term, so you are not “locked in” to a permanent location. On the other hand, signing a lease can save current real estate owners from having to relocate if they’d like to sell the property but remain in the space.
Perhaps the most obvious drawback of leased properties is that you do not own the land. Leasing is a great option for some but does not add as much value to your business as owning the property would. Depending on your agreement, you may also not have the ability to sublease, or you may need to go through an approval process with your landlord in order to do so.
Every lease comes with its own restrictions, making for a complex and time-consuming negotiation process. Based on your final agreement, you may need to operate with specific restrictions and will need to get approval for certain changes and additions to your property such as signage and technology.
When it comes to cost, you will also have to consider that a leased property means adding rent to your monthly operating costs; plus, less asset coverage could make financing for the rest of the business more difficult and include less favorable terms.
Some leases may require a personal guarantee from the business operator, meaning that if the business is unable to repay a debt, they will be obligated to repay it from personal assets.
Of course, there are all kinds of lease agreements out there, from specific terms like payments and specifications to the length of your agreement.
Which option is best for you?
Both owned and leased properties have their own strengths and will continue to thrive with the correct strategy and resources. Those who value owning the real assets may elect to own a property, while those looking for a lower investment with just as much opportunity for growth may want to consider a lease.
Some future options for investors could involve separating real assets into a real estate investment trust (REIT) with its own value-optimization strategies. Meanwhile, regardless of the decision to buy versus lease, the resilient carwash industry itself will continue to provide owners with strong operating cash flows and recurring revenue streams.
There really is no “best” or “one-size-fits-all” option when it comes to choosing a real estate model. You should take the time to list out your short- and long-term goals and consider the resources you have at your disposal. You will also need to take your financing options into account. In fact, the amount of capital you are able and willing to invest alone could be a deciding factor.
Russ Reynolds, CEO of Spotless Brands, has a proven track record of growing companies and supporting the growth of local businesses. At the helm of Spotless Brands, he is leading the charge to help ambitious carwash operators nationwide bring their businesses into a new era through capital investments, technology innovation and operational support. With a wealth of experience in business strategy, sales and marketing, supply chain management and technology, he most recently served as CEO of LYNX Franchising, LLC. Previously, he served as CEO and president of 725-unit Batteries Plus, where under his leadership average store sales nearly doubled and gross margins increased by over 20 percent. Before that, he spent 14 years with GNB Technologies.