New Construction vs. Renovation
Find out which option is right for you

Whether you’re a new investor or a seasoned carwash veteran looking to expand your operations, the option to build a new carwash or renovate an existing wash is often a tough decision. We at National Car Wash are faced with this decision almost daily and have experience in both situations.

Part of making the decision to build new or renovate involves recognizing the positive and negatives of new construction and renovation.

Plusses of construction

Building a new carwash usually allows operators the opportunity to choose locations that are often better than those of existing washes. Often, an existing wash is in a part of town where retail business has left. An example of this is how WalMart upgrades its stores to WalMart Supercenters, leaving existing locations behind in favor of bigger sites. Many times the amount of land needed is on the other side of town or at least a considerable distance from the existing store. The entire marketing area changes when the WalMart relocates. This is even more evident in smaller towns. Satellite businesses such as restaurants, specialty stores and carwashes are left in a waning business district. We have seen this happen in many locations.

It is very important to obtain the best location, a location that no new investor can better without being economically unfeasible. Developing a new location also allows you the flexibility build and configure a wash according to your specifications. You can determine the number of automatic and self-serve bays according to demographics and lot size. You also get to choose the brand and type of equipment you wish to use.

New construction also generates excitement within the community. Everyone wonders what is being built, particularly in small towns and communities. It becomes a marketing tool itself, and everyone will try it. When they do, the services must be in top form to bring them back as repeat customers.

Smaller towns and communities usually do not have the bureaucracy found in their larger counterparts. An operator will usually be dealing with one or two people in the codes department and will not have the local codes and laws that restrict development. Also, smaller towns usually welcome new development for infusions to their economy.

Minuses of construction

New construction can be very frustrating, particularly in a large city. The bureaucracy of zoning, planning, utilities and codes can send you spinning. Different departments often do not communicate well when you are trying to get clarification and approvals of certain items, resulting in long delays. It often takes months to have your project heard and approved before planning and zoning commissions.

During the approval process, one has to deal with many issues such as local codes and laws and environmental issues such as stormwater detention and even endangered species. The following are some issues we have had to deal with in the past:

• Build a six-foot masonry fence around the perimeter of the carwash property.
• Catch all rainwater and run it through a downstream defender before we release the water into a muddy ditch.
• No wash bays, automatic or self-serve, can face residential property.
• No carwash can be within 200 feet of residential property.
• If located “near” residential property, the carwash can only be open 8 a.m. to 10 p.m.
• We have to build storm-water detention ponds, but codes do not want them to hold water because of the threat of West Nile Virus.
• We have had to place bonds that cover demolition of the carwash when we go out of business.
• Provide six queuing spaces per self-serve bay.
• Provide an environmental survey that had some environmentalists search a drainage ditch for a certain type of endangered crayfish.
• Landscaping requirements have become extensive.

Another negative aspect of new construction is that building a new carwash leaves your competition intact. If you have a better location, no doubt you will control the market. However, your competition will have some business. That business, however small it may be, is your profit.

Plusses of renovation

If you purchase an existing carwash with the intent of renovating, you are essentially purchasing your competition. Also, you have purchased a cash flow that begins immediately after closing. This is more financially desirable than paying interest on a construction loan for not only the construction period but interest on the land for months while the building permit approval is in process.

We have run across areas where a new carwash will not be permitted, and this seems to be a growing trend. This trend does increase the value of any existing carwashes in the area. If acquiring an existing wash in one of these areas, you will have the knowledge that no one else can enter the market and build a new wash to compete.

In our experience, getting permits for renovations on an existing carwash is much less intensive than with new construction. Preexisting conditions on the property for items such as storm-water detention, landscaping, setbacks and any other zoning conditions are “grandfathered” in. In other words, new laws and codes do not apply to a renovation if the footprint of the wash does not change. In our experience, as long as the footprint of the carwash did not change more than 25 percent, the new codes and zoning laws are not enforced. We have demolished carwashes and essentially built them back new and added an automatic bay in some instances. This saved us much trouble and money over starting the permit process on a new wash.

Minuses of renovation

The worst part of purchasing an existing carwash is overcoming the previous owner’s business reputation. Often, the carwash you purchase is not in the best condition and has been operated poorly. That is usually why it is for sale in the first place. The stigma associated with the carwash can be hard to change. If a customer has lost money at the location several times or has had multiple bad experiences with the quality of wash, it is hard to get that customer to return. To really make an impact on such a location, a major facelift or makeover is required. A new roof mansard, wall panels in the bays or masonry work are examples of aesthetic changes that differentiate the new, renovated wash from the old wash. However, these improvements require dollars.

The carwash equipment in run-down locations is usually poorly maintained and antiquated. An operator may also have to deal with equipment he is not familiar with or simply does not like. It is always a good idea to upgrade the equipment by replacing meter faces and vacuums and adding new functions and lighting. Adding an in-bay automatic or replacing the existing one is also a decision that has to be made.

Upgrading equipment usually requires building renovations. If you want to add an automatic bay in an existing self-serve bay, the bay is often not wide enough and usually not long enough. Also, utility limitations for electricity and water require additional capacity to be sufficient for the load of an in-bay automatic. Again, such projects can become quite expensive. If not studied extensively, the cost of renovation can become as expensive as building a new carwash.

The decision of whether to purchase an existing carwash or build a new one must be considered along with several factors. There are situations where one may be more advantageous over the other. Our company has done both. The following are criteria which should be considered:

Although the criteria are shared, they may have different meanings and influences on the decision-making process. We have found that our new carwashes gross twice as much as carwashes we have renovated. That’s not to say the carwashes we have renovated are not profitable. They usually have less debt services and expenses. However, a new carwash will appraise between $1 to $1.5 million, and the land appreciates at an increased rate. In comparison, when there is no more debt service on a carwash, the one that grosses more should be more profitable, right?

We have purchased several existing carwashes over the years. We’ve renovated them, and the cash is flowing. It is a cashflow decision. Recently, we attended a foreclosure auction where we purchased an old carwash for 25 percent of what was owed the bank. When we can make acquisitions such as this and have the cash flow, we are happy. One acquisition was an old Super Wash on a WalMart outparcel. We have renovated the self-serve, adding lights, meter faces and functions such as foam brush, tire cleaner, wheel cleaner and triple-foam conditioner and the self-serve sales have quadrupled. We are in the process of replacing the automatics and expect the same result.

Cash flow is king. Every carwash operator has to make tough decisions on a daily basis. Our company makes decisions on cash flow, whether the carwash is existing or will be a result of new construction. However, cash flow being equal, we would rather build a new wash in a new location. 

Tim Jones is the vice president of operations for National Car Wash, a chain of self-serve carwashes based in Nashville, Tenn. He can be e-mailed at tim.jones@ncwwash.com.

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