Car Wash Investing: What are the Tax Benefits?

In this episode, Thomas and Ryan sit down with Kriss Berg, a seasoned entrepreneur and car wash investment guru, to delve into the lucrative world of car wash investments. Chris shares his journey from e-commerce to car washes, revealing why he chose this unique industry and how it offers significant tax benefits.

Car washes may not seem like the most glamorous investment, but for Kriss Berg, they’re a game-changer. As an experienced entrepreneur with e-commerce businesses, Kriss has leveraged car washes not only for their cash flow but also to drastically reduce his tax liability. In this blog, we’ll explore his journey, the car wash business model, tax benefits, and tips for anyone considering this unique investment.

From E-Commerce to Car Washes

Kriss Berg began his entrepreneurial journey in construction and solar before transitioning to e-commerce. While his online businesses were successful, he wanted something tangible to invest in—a “side gig” that offered stability. After exploring options like self-storage, he discovered car washes through a commercial real estate agent.

His first car wash was underperforming, with no online presence and outdated operations. Kriss and his partner purchased it for $650,000, implemented basic improvements like adding Google Maps and raising prices, and saw a 70% revenue increase in the first year.

The Car Wash Business Model

Car washes operate on a simple, yet profitable model:

• Self-Serve Bays: Customers clean their own cars, often using cash.
• Touch-Free Automatics: Machines handle the cleaning, with options for memberships to generate recurring revenue.
• Payment Options: Introducing credit cards and tap-pay systems boosts average spending per customer significantly.

“By converting more transactions to credit cards, we increased our revenue dramatically,” Kriss explains. “It’s a simple but effective strategy.”

Tax Benefits of Car Washes

One of the most surprising aspects of car washes for Kriss was their tax benefits. Car washes qualify for 100% bonus depreciation, allowing owners to write off nearly the entire cost of the property (minus land value) in the first year.

“In 2022, I deducted over $1 million, offsetting income from my e-commerce business. I haven’t paid taxes since 2021,” Kriss says.

Unlike traditional real estate, car washes don’t require a cost segregation study. Everything—equipment, building, and improvements—is considered 15-year property or less, making it eligible for bonus depreciation.

Challenges of Car Wash Ownership

While car washes offer excellent returns, they come with unique challenges:

• Crime: Car washes can be crime magnets due to their cash-heavy nature.
• Maintenance: The equipment requires regular upkeep, making them more active than typical real estate investments.

“This isn’t a passive investment,” Kriss explains. “Car washes sit at the intersection of real estate and business operations, so you need to put in some work.”

Financing Car Washes

Financing car washes is relatively straightforward because they’re cash-flowing real estate. Kriss typically secures loans with 75-80% loan-to-value (LTV) and uses SBA programs for deals requiring lower down payments. Banks focus on the business’s ability to service the debt, making strong cash flow essential.

Advice for Aspiring Car Wash Investors

Kriss offers several tips for anyone considering investing in car washes:

• Start Local: For your first investment, buy a car wash near your home. Proximity makes managing operations much easier.
• Look for Neglected Properties: Many mom-and-pop owners neglect their car washes, creating opportunities for investors to add value.
• Explore Off-Market Deals: Commercial real estate platforms like CREXi and LoopNet are good starting points, but talking directly to agents often uncovers off-market opportunities.

The Future of Car Washes

Kriss sees the car wash industry as stable, particularly in the self-serve and touch-free sectors. While tunnel washes have been overbuilt by private equity, smaller car washes continue to offer reliable cash flow with minimal risk of disruption.

“This is a boring business, and that’s what I love about it,” Kriss says. “Cars will always need washing, and the business isn’t going anywhere.”

Why Car Washes Work for Kriss

Car washes have proven to be a triple threat for Kriss:

• Cash Flow: They generate steady, predictable income.
• Appreciation: Improvements and better management significantly increase their value.
• Tax Savings: Bonus depreciation offsets income from other businesses.

For Kriss, car washes are more than just an investment—they’re a strategic tool for building wealth and minimizing taxes.

Car washes might not be flashy, but they’re profitable, tax-efficient, and steady—a perfect addition to any investor’s portfolio.

Transcript

Intro: 0:00 – 0:28

Host:
You’re now listening to the Tax Smart REI Podcast, the number one tax podcast for Real Estate Investors.

Thomas:
Hey, thanks for tuning into this week’s episode. Today, we’re joined by Kriss Berg, the “Car Wash Guy” who pays almost no income tax. We’ll discuss why he chose to invest in car washes, the business model and financing, how he uses car washes to offset taxes on his e-commerce business, the future of the car wash industry, and much more.

Kriss’s Background: 0:28 – 2:15

Thomas:
Kriss, thanks for joining us today! Can you share how you got started in the car wash business?

Kriss:
I’ve been an entrepreneur for 21 years. I’ve worked in construction, solar, and now e-commerce. A few years ago, I wanted a side gig that was more tangible than e-commerce, so I explored options like self-storage. I eventually found a car wash through a commercial real estate agent. The owner wasn’t optimizing the business—it wasn’t even on Google Maps. My partner and I bought it for $650,000, and within the first year, we grew revenues by 70%.

The Car Wash Business Model: 2:15 – 6:16

Thomas:
What does the business model for a car wash look like?

Kriss:
It’s simple. People clean their cars in self-serve bays or use an automatic, touch-free wash. Many customers still use cash, but we’ve introduced credit card and tap-pay options. Credit card users spend more—$9 on average compared to $2.70 for cash. We’ve also added memberships to the touch-free bays, similar to large tunnel washes.

Ryan:
Are these franchises?

Kriss:
No, we target mom-and-pop operations. These are often treated as passive investments, but they can thrive with more attention and better management.

Challenges of Car Wash Ownership: 6:16 – 8:28

Thomas:
What’s the most challenging part of owning a car wash?

Kriss:
Crime is an issue—car washes are cash-heavy. One location we bought had been out of business for months after someone used a front-end loader to break in. Maintenance is another challenge, as these businesses sit at the intersection of real estate and active management.

Financing Car Washes: 8:28 – 11:10

Thomas:
How do you finance car washes?

Kriss:
Financing is straightforward because car washes are cash-flowing real estate. We’ve secured loans with 75-80% loan-to-value (LTV). SBA programs also work well for car washes and can allow for down payments as low as 10-15%.

Tax Strategies Using Car Washes: 11:10 – 14:13

Thomas:
This is a tax podcast, so we have to ask—how do car washes help you save on taxes?

Kriss:
Car washes qualify for 100% bonus depreciation. Unlike other real estate assets, everything on a car wash property—except the land—is classified as 15-year property or less and is immediately depreciable. In 2022, I deducted over $1M, offsetting income from my e-commerce business. I haven’t paid taxes since 2021.

Business vs. Passive Real Estate: 14:13 – 17:32

Thomas:
Are you buying the real estate and the business, or just the real estate?

Kriss:
We buy both. Being active in the business lets me offset my other income with losses. If I only owned the real estate and leased it out, it would be considered passive, and I wouldn’t get the same tax benefits.

Ryan:
That’s a crucial distinction. Owning the car wash as an active business makes the tax benefits much more impactful.

Future of the Car Wash Industry: 17:32 – 22:00

Thomas:
Where do you see the car wash industry heading?

Kriss:
The big trend has been tunnel washes, often overbuilt by private equity firms. On the self-serve side, the industry is steady. Cars will always need washing, and customers appreciate the touch-free option to avoid damage.

Tips for New Car Wash Investors: 22:00 – 27:00

Thomas:
What advice would you give someone looking to invest in a car wash?

Kriss:
Start by looking on commercial listing sites like CREXi or LoopNet, but also talk to agents about off-market deals. Many good opportunities aren’t publicly listed. For first-time buyers, stay local. Managing a car wash remotely is much harder, especially when starting out.

Automation and Efficiency: 27:00 – 29:30

Thomas:
Have you automated any processes in your car washes?

Kriss:
Yes, we use point-of-sale systems to track every transaction and prevent theft. We’ve also invested in better chemicals and equipment to improve customer satisfaction, which boosts repeat business and memberships.

Real Estate vs. Car Washes: 29:30 – 35:00

Thomas:
How does owning a car wash compare to traditional real estate investments?

Kriss:
Car washes combine real estate with active business management. This hybrid model offers tax benefits and opportunities for value-add improvements. Unlike passive real estate, car washes require more involvement but can generate higher returns.

The Future of Kriss’s Car Washes: 35:00 – 37:00

Thomas:
What’s next for your car wash portfolio?

Kriss:
We plan to grow to 10-20 locations in the next decade. The goal is to build a cash-flowing chain we can refinance or sell to a strategic buyer.

Final Advice for Aspiring Investors: 37:00 – 39:30

Thomas:
Do you have any final advice for listeners considering car wash investments?

Kriss:
Look for neglected properties in your area. Many mom-and-pop owners are tired of managing their car washes and are open to selling. With the right improvements, these properties can become profitable quickly.

Closing Remarks: 39:30 – 40:00
Thomas:
Kriss, thanks for joining us today! Where can listeners learn more about you?

Kriss:
You can find me on Twitter (or X) as @krissbergtweets, or just search “Car Wash Guy.”

Thomas:

Thanks, Kriss! For anyone interested in car washes, check out Kriss’s resources, and we’ll see you next week on the Tax Smart REI Podcast!

If you’re interested in how we can optimize your tax situation, reach out today.

Disclaimer: This podcast summary and transcript were partly generated and may contain some errors or miss key points from the audio recording.