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10 Reasons Why You Should Not Buy a Cheap Gas Station

False Expectation

Many prospective investors call us to discuss franchise opportunities and they express the idea of buying an existing gas station business that is listed for sale in multiple business brokerage websites for less than $200,000.

At a glance it seems a great bargain and what they envision is a ready-to-go business with semi-absentee operation, where an employee is hired to run the convenience store and supervise customers’ activities by the self-service gas pumps while the investor will dedicate just a few hours a week managing the finances and counting the money.

They are usually under the assumptions that there’s infinite demand for fuel and for that reason sales could not be easier and it will result in steady cash flow month after month.

What is wrong with this picture? Well… most of it!

This article will provide you a different perspective about the “fantasy” cheap gas station business described above. Now if you are a prospective E-2 Visa investor, please read this article twice!

On a side note, I want to be clear that a gas station can be a profitable business that provides a steady cash flow month after month. They are not the cheap gas stations that attract the attention of so many prospective investors, as described above. These so-called “cash cows” are extremely well located in high traffic areas, which comes with high cost of occupancy and they typically resell for more than 1 million dollars and there are many, many aspects you should investigate before buying one.

Here are 10 reasons why you should not buy a cheap gas station.

1. Small Margins: Gas profit margins are about 2% according to NACS, the leading global trade association dedicated to advancing convenience and fuel retailing. With such thin margins, gas station operators have very little room for error. It is safe to say that a gas station must offer ancillary services such as a robust convenience store and/or auto services such as oil change or car wash in order to survive. Low margins prompt longer hours of operations, often 24/7, and force single-store operators to actively work in the business (owner-operator), not because they want, but because they need.

2. Location and Changes in Traffic Patterns: Gas stations are location-driven businesses and, as such, its success heavily depends on being located at high traffic areas with easy access to customers and, ideally, in a region with limited competition (frequently not the case). Do not overlook the possibility of future changes in the traffic pattern as result of road work that could compromise the route drivers use to access the gas station location. Those events may spam many months or even years. Could this be an undisclosed reason for the discounted sale of that business operation? In the gas station business, if the location is not right or if the access to the gas station is compromised by road work, there’s not much you can do to overcome it.

3. Personal Safety / Workplace Violence: Cheap gas stations are often located in less desired neighborhoods. “Occupational-safety advocates say the clerks, attendants and cashiers who staff the counters at gas stations and corner grocery stores, often alone and late into the night, are among the most vulnerable to workplace violence and harassment.”, as noted by enterprisenews.com in its article entitled “Gas station clerks have a dangerous job”. Gas station attendant is ranked as one of the most dangerous jobs regarding workplace violence, not too far behind Law Enforcement Officers, according to an article published by Hirewise under the title “Workplace Violence: High Risk Jobs”.

4. High Competition: Gas stations heavily depend on being located at high traffic areas with easy access to customers. On busy intersections it is very common to see multiple gas stations competing for the attention of the customers which results in a price war that does not help any player. The website Marketwatch estimates in about 115,000 gas stations in the USA as of 2020. Just too many but the reality is that the number of gas stations has been decreasing for the past two decades. Ask yourself why! The decrease is attributed to the reduction in margins owners net and overall reduced fuel consumption. Do not ignore these market forces!

5. Environmental Issues: Among the costliest mistakes a prospective investor may face when considering buying an existing gas station is to only assess the condition of the installation above ground. In order to avoid the risk of buying a gas station that is leaking fuel, the prospective investor should contract a comprehensive soil testing, as a condition of purchase. The last thing you want is to endure the expensive clean-up costs of removing contaminated soil, and the loss of revenue during remediation and rebuild. So, if you want to do the transaction correctly, you will likely spend money in soil testing before you can determine if the acquisition is viable.

6. Outdated Installation: Cheap gas station business listings frequently (and conveniently) do not mention any additional Capex (Capital Expenditure) necessary to upgrade outdated installation. Are the fuel storage tanks DWFG (double-walled, fiberglass) with leak detection sensors? What about the fixture, furniture & equipment (FF&E) on the convenience store?

 7. Hard to Estimate Profits: It is important to point out that gas stations are subject to fluctuations both on the supply and demand sides, making it a tough business to estimate profits. Oil prices are traded as commodities, subject to geopolitical and economical forces at global scale, and the consumption pattern fluctuates with the price at the pump, economic scenario in general or even with the weather. It is common for gas station owners to see a decrease in net profit when the prices at the pump increase. Higher prices keep customers away from the gas station and its convenience stores, where the profit margins for pre-packaged food & beverages and convenience items tend to be higher than the fuel’s.

8. EV, Hybrid and Fuel-Efficient Vehicles: Advancement in fuel-efficient cars and electric vehicles is a notable driver of reduced fuel consumption. America is slowing but surely adopting EV, Hybrid and Fuel-Efficient Vehicles. More and more companies are adopting aggressive sustainability initiatives. A good example is Amazon’s pledge to be zero carbon by year 2040. In their sustainability webpage they announced having placed an order for 100,000 electric vehicles. Amazon is a trend setter. Rest assured that more companies will follow their lead.

9. Replacement Cost: How much does it cost to build a brand-new gas station with convenience store? Anywhere from $500,000 to $2.5 million depending multiple variables. So, looking from the perspective of replacement cost, why do you think you will buy a cheap gas station, and everything is going to work just fine? Why would someone sell you a gas station “full of potential” as they say, at a fraction of the replacement cost? Obsolete installation, known future change in traffic patterns, aggressive competition putting pressure on net margins or a possible environmental issue could be the reason, as above mentioned.

10. Lack of Financial Information: Many sellers of gas station businesses offer limited or no financial records and this is a major “red flag”. If you are an E-2 Visa investor, then it is a major No, No, No!!! Here is a great example, extracted directly from one of the major business listings websites. What a Bargain! Asking price is $30,000, no financial information whatsoever, established for at least 8 years, hence most of the productive assets have been stripped out of depreciation, and the owner claims it is an absentee operation (run by the employees) but the reason for sale is seller’s relocation…. Really?

If you are seriously considering investing in a franchise business or gain knowledge about franchising so you can later decide if this is the right type of investment for you, we can definitively help you. Prospective E-2 Visa investors are welcome, and we have a lot of experience with investment visas.

Who We Are

Franchise Wizards is a franchise consulting business located in Carlsbad, CA and we work with 530+ franchisors in multiple industry categories with various investment levels. The location where the desired business is to be operated can be anywhere in the USA or Canada.

By understanding your objectives and your business preferences, we can present to you a tailored selection of franchises that meet your requirements and present the qualities you are looking for in the ideal business opportunity.

We can also educate you on how to make the most out of the discovery process offered by the franchisors and the best practices to evaluate and compare franchise opportunities.

Click bellow to schedule a free consultation. There is absolutely no obligation to invest in any of the franchises we suggest for your consideration.

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Beware of Turnkey Freight Transportation Businesses for E-2 Visa

There are few companies in the USA that offer a turnkey freight transportation business. Some of them promote those business opportunities as a qualifying investment vehicle for E-2 Visa applicants.

They frequently post on groups on diverse social media platforms and their posts generate a lot of interest from the group members that are lured to believe this is the best investment option for their E-2 Visa application. This is a reason for concern, and it has motivated me to write this article and provide you another perspective for your consideration.

At a glance the offer seems very attractive but there are some fundamental aspects and market trends that should not be overlooked.

The Offer

The offer typically calls for low investment ($150K – $200K), high-margins (up to 20%), you invest in your own company (freight carrier), the turnkey seller will assist you with the implementation of the business including the acquisition of the truck and will provide you with freight contracts (freight brokerage).

The turnkey seller highlights how important the freight transportation industry is for the US economy and informs that the demand for transportation services is greater than the offer.

From the E-2 Visa investment perspective, there is nothing wrong with investing in your own company and buying a productive asset (truck) but this business model, as proposed, has some fundamental problems you should be aware of.

You do not control the customer acquisition process.

Your newly formed company heavily relies on contracts flown down by a freight broker (very often the turnkey seller, or an affiliated company).

Your company does not have its own marketing and sales capabilities, resulting in inability to attract new customers on its own. It is like having only one customer: the freight brokerage firm.

How do you like a business that only has only one customer? Sounds risky, right?

By the way this is the same type of risk of those local UPS route businesses that you may see listed in the “business for sale” websites. Yes, essentially you would be putting all the eggs in one basket and voluntarily becoming hostage of one single customer. If they change the way they want to do business, that would directly affect your operation.

For an E-2 Visa investor, who moved his/her family to the USA with the sole intent of managing that business, a risk of that nature could mean to pack the bags and go back to home-country, in case the business does not make sense anymore.

Having to rely on 3rd parties to get freight contracts creates an unnecessary risk that a regular business that has its own marketing and sales capabilities would not incur and it may be subject of scrutiny by immigration officials reviewing your E-2 Visa application.

Small Margins

The freight transportation segment is highly competitive in the USA, which puts pressure on the profit margins.

Even though there are multiple subcategories of freight transportation including some specialties (i.e. reefer trucks), you should think of freight transportation as commodity service. Is it so commoditized that there are innumerous freight bidding platforms out there, so yes, it is a price war! Not much room for differentiation.

Back to the freight transportation turnkey offer abovementioned, if your business setup heavily relies on contracts flown down by freight brokers, your margins should be even smaller, since the broker must make a profit.

Owner-operated business

By investing in the freight transportation turnkey business, you will be buying yourself a job, not a business. The economics could work for an owner-operator but with small margins it will be somewhat challenging to scale up that operation into an Executive business model.

The Executive business model is the ideal business model for an E-2 Visa application because the investor retains the administrative functions (very often marketing and sales as well) and hires the employees that will perform the services that are being offered and/or produce the products that are being sold. Using the freight transportation industry segment as an example, the investor should be able to hire the drivers (configuring an Executive Model), instead of being the sole driver (configuring an Owner-Operator Model).

Beware of businesses that look like “self-employment” as they run greater risk of being considered “marginal enterprises” by the immigration, which would result in E-2 visa denial.

Industry trends that should not be overlooked

The freight industry is going through market consolidation (merges & acquisitions). Large players benefit from economies of scale, which is key in a market segment with small margins.

Disruptive technologies such as driverless trucks and electrical trucks are up and coming and they aim for cost efficiency.

Apps that match shippers with carriers such as “Uber Freight” are here to stay. It allows independent (owner-operator) truck owners to get freight jobs but again, the same challenge as relying primarily on contracts flown down by freight brokers apply. The app will bite your margins.

There are increased regulations in the freight industry. Here are some examples:

Reclassification of Independent Contractors

A good example is the “Dynamex Operations West, Inc.  v. Superior Court of Los Angeles” ruling has made it harder for companies to misclassify workers as independent contractors going “against the grain” of an industry trend that since the 70s has been shifting from “employment model” to “independent contractor model”. Assembly Bill 5 (AB 5) is a new California state law that redefines and limits the way businesses classify workers as independent contractors. Great chances are that other states will soon establish their own versions of California AB 5.

Federal Motor Carrier Safety Administration Drug & Alcohol Clearinghouse

FMCSA Drug & Alcohol Clearinghouse will serve as an online database that will allow relevant parties to identify whether a Commercial Driver’s License (CDL) holder has violated any federal drug and alcohol testing program requirements within the past five years. Safety always comes first! Even though the initiative is welcome, it will increase the complexity of running a freight transportation business.

Proposed changes to hours of service

While having commercial drivers electronically tracking their hours of service in a digital recording device synced up with the trucks’ engines has increased compliance to maximum hours of service (again, increasing safety!), it has also created some secondary challenges and there are proposed changes to those regulations, again, adding complexity to running a freight transportation business.

If you are seriously considering investing in a business or gain knowledge about franchising so you can later decide if this is the right type of investment for you, we can definitively help you. Prospective E-2 Visa investors are welcome, and we have a lot of experience with investment visas.

Who We Are

Franchise Wizards is a franchise consulting business located in Carlsbad, CA and we work with 530+ franchisors in multiple industry categories with various investment levels. The location where the desired business is to be operated can be anywhere in the USA or Canada.

By understanding your objectives and your business preferences, we can present to you a tailored selection of franchises that meet your requirements and present the qualities you are looking for in the ideal business opportunity.

We can also educate you on how to make the most out of the discovery process offered by the franchisors and the best practices to evaluate and compare franchise opportunities.

Click bellow to schedule a free consultation. There is absolutely no obligation to invest in any of the franchises we suggest for your consideration.

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Can real estate investment qualify you for E-2 Visa?

In most countries, real estate is perceived as a solid investment vehicle and uninformed E-2 Visa prospective investors believe that investing in real estate in the USA would qualify them for the E-2 Visa: It will not!

Many real estate business models fail to demonstrate that the company is a real, operating business and not just a passive investment.

This article will not only explain the reasons why diverse types of real estate investment will not qualify you for the E-2 Visa, but will also present you some E-2 Visa compliant franchise business opportunities that can put you in the real estate industry segment.

Buy & Hold

In this form of real estate investment, the investor acquires a property (or gain control over a real estate property) that will later be rented to a tenant. The whole idea is that the monthly installments paid by the tenant will exceed the operating expenses of holding that property, resulting in positive cashflow while investor builds equity on the property over time (in case of financed purchase).

The passive nature of this type of investment is detrimental to your E-2 Visa application. Not a real, operating business. No employment generation.

House-Flipping

Buying properties under market value, remodeling it and reselling for top-market value while holding it for the least amount of time possible is a type of real estate investment commonly known as “house-flipping”.

This form of real estate investment has become very popular due to TV shows, notably the ones on the HGTV channel.

This type of business only makes sense if the property is acquired at significant discount. This is not the typical real estate transaction. The “supply” side of your business is scarce and uncertain, which makes this type of business extremely speculative, which is detrimental to your E-2 Visa case and your business will not be interpreted as a real operation by the immigration.

The speculative nature of these transactions, by the way, is the same reason why stock market investment will not qualify you for the E-2 Visa.

Notes Investment

In real estate, whenever someone finances the acquisition of the property, the borrower typically signs a “promissory note” that documents the intent to repay the lender. In real estate, it is very common for those notes to have the real estate property itself as the collateral, so if the borrower defaults the repayment, whoever holds the note (a bank or an investor) can foreclose the property and take it back as guarantee.

Again, very speculative nature, passive investment and no employment generation. It will not serve as an investment vehicle for your E-2 Visa.

Alternative Businesses in the Real Estate Industry

If you are passionate about real estate and wants to be in this industry, here are some business categories that present E-2 Visa compliant franchise models and E-2 Visa friendly franchisors.

Property Management Franchises

Property Management is a real business. The property manager acts on behalf of the property owner and manages the relationship with the tenants while preserving the value of the properties.

There are diverse classes of assets that can be managed by a property management company: residential short-term rentals, residential long-term rentals, associations management and commercial properties.

This line of business present multiple streams of income, including transactional and recurring revenues. The business can be grown organically or by acquisition of property management contracts. Some franchisors assist franchisees in identifying and negotiating those contracts when they become available in the market.

Initial investment typically falls between $70,000 and $115,000, not including acquisition of property management contracts.

There are several property management franchises in the USA but only a few are E-2 Visa friendly.

If you are interested in this segment, we can definitively connect you with the franchisors who are E-2 Visa friendly and have extensive track record of E-2 Visa approvals.

Property Inspection Franchises

According to the American Society of Home Inspectors (ASHI), more than 90 percent of home sales involve a house inspection. These inspections are typically conducted after the purchase offer has been accepted and before the deal is considered closed. This timeframe is known as contingency period and depending on the findings, buyer may back out of the deal or renegotiate the deal if something major comes up.

Generally, a home inspection will report on the condition of roof, installations, HVAC, finishing (floors, walls and ceilings), structure, foundations, basements and may include other specialty inspections such as termites, asbestos, radon and lead, to name a few.

Initial investment typically falls between $70,000 and $100,000 and, even though there are several franchises in this segment operating in the USA, most are either not E-2 Visa friendly or they offer an “owner-operated” business model, which is not ideal for the E-2 Visa.

If you are interested in this segment, we can definitively connect you with the franchisors who are E-2 Visa friendly and offer an Executive business model, allowing the franchisee to hire the property inspectors instead of being the only inspector. Remember: any business that looks like self-employment will likely not qualify you for the E-2 Visa.

Conclusion

Property Management and Property Inspection franchises present E-2 Visa complaint business opportunities that can get you inside the real estate industry. Being an insider in the real estate industry creates the perfect condition to have a side-business in real estate investment, if this is your end goal.

Make sure to consult a competent immigration attorney on how to setup the legal entities in such way to allow you to stack up diverse business opportunities without jeopardizing your E-2 Visa.

If you are seriously considering investing in a business or gain knowledge about franchising so you can later decide if this is the right type of investment for you, we can definitively help you. Prospective E-2 Visa investors are welcome, and we have a lot of experience with investment visas.

Who We Are

Franchise Wizards is a franchise consulting business located in Carlsbad, CA and we work with 530+ franchisors in multiple industry categories with various investment levels. The location where the desired business is to be operated can be anywhere in the USA or Canada.

By understanding your objectives and your business preferences, we can present to you a tailored selection of franchises that meet your requirements and present the qualities you are looking for in the ideal business opportunity.

We can also educate you on how to make the most out of the discovery process offered by the franchisors and the best practices to evaluate and compare franchise opportunities.

Click below to schedule a free consultation. There is absolutely no obligation to invest in any of the franchises we suggest for your consideration.