Gas Stations & Convenience Stores: Stars In A Tight Credit Market

Rising interest rates and a shrinking Federal Reserve balance sheet have sent investors scrambling for alternative strategies to achieve long-term growth, tax efficiency, and income. Fortunately, these same conditions have propelled a surprising sector into the spotlight: gas stations and convenience stores. While most investors focus on major real estate categories such as multifamily, office, retail, and industrial, these often-overlooked assets are emerging as top contenders in the alternative real estate sector.

Adapting to a New Landscape

The aggressive tightening measures implemented by the Federal Reserve in 2022 and 2023 have significantly impacted traditional financing channels, particularly for small and medium-sized businesses. In many areas, banks have adopted a “wait and see” approach to lending. This squeeze on capital access has revitalized the sale-leaseback transaction strategy. Businesses with owned real estate leverage these transactions to unlock capital for growth while retaining long-term control through structured leases. For further reading on the sale-leaseback model, see this overview.

Gas Stations & Convenience Stores: A Perfect Fit

The gas station and convenience store industry presents a compelling opportunity for both private and institutional investors in this new environment. Technological advancements have streamlined remote store management, enhancing operational efficiency. Moreover, the essential nature of the products offered—such as fuel and convenience items—ensures consistent customer traffic and revenue, even during economic downturns. Additionally, the U.S.’s position as the world’s leading oil producer strengthens the industry’s long-term prospects. For insights into the broader industry trends, check out Grandview Research’s market analysis.

Show Me the Money

Consumer spending on packaged meals, cigarettes, and beverages at convenience stores results in high-margin products sold in significant volumes. The addition of electric car charging stations further boosts consumer spending per store. Some gas convenience stores also generate revenue from additional services such as groceries, automotive repairs, and car washes. Offering a variety of services, maintaining a clean appearance, and providing excellent customer service significantly enhance the chances of attracting more consumers and boosting profits. For a detailed guide on convenience store investments, see this comprehensive review.

Unlocking Tax Advantages

Beyond steady income streams, gas stations and car washes offer unique tax advantages through bonus depreciation. The IRS categorizes these properties with shorter depreciable lives, allowing investors to deduct a substantial portion of the purchase price in the year of acquisition. This strategy reduces tax burdens and enhances overall returns. For more information on bonus depreciation, refer to this guide.

What to Look Out For

In a competitive market, gas stations and convenience stores present specific risks and challenges:

• Low Margin Business: Gas prices fluctuate, and while gas sales generate the most revenue, convenience store offerings contribute significantly to profitability.
• Environmental Risks: Potential liabilities such as contamination require thorough environmental site assessments before purchase. For more on environmental due diligence, check this resource.
• Safety Concerns: Addressing risks such as robberies and fires with proper store lighting, security, and safety equipment is crucial. For best practices in store safety, see this article.
• Evolving Market Landscape: As technology and consumer behavior evolve, demand for gas may shift towards electric vehicle charging. Convenience stores can capture this new market by offering charging ports and amenities like bathrooms, food, and pet-friendly areas. For insights into the future of electric vehicle charging, visit this report.
• Location: As with all real estate investments, location is paramount. A well-designed gas station or convenience store in a low-traffic area may not perform as expected.

What’s the Play

The current economic climate, characterized by high interest rates and tight credit, presents both challenges and opportunities. Alternative investments focused on the gas station and convenience store sale-leaseback model offer investors returns outside of the stock market, along with attractive tax benefits. While these investments might not be glamorous, they should not be overlooked. Properly structured, they provide stable income, long-term growth potential, and significant tax advantages. As long as there are cars that need gas and people that need food, these investments remain a viable option for diversified portfolios. For more on alternative investment opportunities, refer to this blog.

Feel free to explore further resources for detailed information and industry insights on market intelligence and vacation rental markets.

Securities are offered through Arkadios Capital. Member FINRA/SIPC. Advisory services are offered through Creative Capital Wealth Management Group. Creative Capital Wealth Management Group and Arkadios are not affiliated through any ownership.

This material was created for educational and informational purposes only and is not intended as tax, legal or investment advice.