Posted by john on February 15, 2008 at 15:28:35:
I’ve been told by some owners that the car wash business suffers as gas prices go up…just like the gas stations. Be prepared to do some gorilla community marketing…I.E. buy 5 get one free, sponsor local events etc.
Carwash - Posted by Jeff
Posted by Jeff on February 05, 2008 at 19:29:08:
I am wondering if anyone has any rules of thumb for/or experience with valuing a carwash. I have stumbled upon one that may be a good candidate for a turn-around. It is a bank repo (no financials), going for 20% under bank appraisal (or more), but has not been used in a while. It looks bad (lots of garbage and signs of disuse) but under the surface seems pretty sound (good steel building, good concrete, good access, other businesses nearby)
That said, I think it will take about 20-30k to get it running (which I have), it is in a rough part of town (needs a security system and a well thought out cash collection plan). I have traffic counts (a couple years old is the best available), comps, and all kinds of other data. When I plug all this into Rayâ??s Cap Rate Calculator, the numbers are great!
Iâ??m wondering what I am missing? I know it will be a lot of elbow grease but other than that, Iâ??m wondering what other problems I might encounter.
Looking for the voice of experience.
Jeff
Re: Carwash - Posted by Chris
Posted by Chris on February 18, 2008 at 18:50:57:
A car wash, at least in my area, sells with a cap around 1-1.5 above
what apartments go for. There’s a couple things to figure in:
A traditional bank considers car washes to be “special use”
buildings and generally will be in the 30-40% down payment range.
You can get around this with an SBA loan (7a in your case), but don’t
plan on selling it for a full two years or the prepayment will eat you
up. A local bank or the one that foreclosed on the property might
carry it for a lower down, but expect your national banks be around
the 65% ltv mark. This alone requires a higher cap for a lot of people.
Having just bought a car wash earlier this year, plan on being there
to wash it out/ collect the change every day and get your mind around
being an on-call plumber. With a wash that’s only 5 years old, you’ll
probably have less of this, but you’d be surprised what some of the
automatic equipment can run in maintenance.
Your business is significantly weather-dependent. Some months
could literally have double the income of others and you need to have a
bit of reserves to outlast the down cycle.
As someone else mentioned, you’ll need a couple years of tax
returns to sell your property well, so resist the temptation to slight the
tax man; you’ll regret it when you go to sell.
Almost all of the downsides are made up by the lack of tenants to deal
with imo, so as long as you’ve got a bit of reserves, and there isn’t
another in the area, I wouldn’t shy away from looking at a good wash.
I’d try really hard to figure out why it went under, however. No amount
of discounting will overcome a location that isn’t as good as the
competition. Good Luck!. =)
Re: Carwash - Posted by Ron
Posted by Ron on February 06, 2008 at 08:08:04:
I forgot to add in my response, you need the actual operating data for the property. None of the above give enough information to make any determination as to value. As a good rule of thumb, don’t use rules of thumb to make deals. Estimated numbers deliver estimated results, and this is an expensive game for guesswork.
Re: Carwash - Posted by Ron
Posted by Ron on February 06, 2008 at 24:35:15:
Why was the carwash repoed in the first place? What caused the last owner to allow it to be repoed?
Why buy a turnaround when there are good operating carwashes available for sale?
Why a carwash?
Have you ever turned a business around before?
Do you have STRONG sales and marketing skills?
You have no financials so are your getting the value based on the real estate and equipment?
If you don’t mind revealing what city are you in?
Are the expenses involved(sercurity/higher insurance costs) enough to jusity the purchase?
Re: Carwash - Posted by Jeff Lane
Posted by Jeff Lane on February 06, 2008 at 19:55:26:
Why is the carwash closed? The carwash is currently shuttered. The electric meter is not even turning. It is 5 years old and why he chose this location, I donâ??t know. My guess is traffic count and itâ??s located close to some better neighborhoods.
Why a turnaround? There is currently 20% equity in the asking price. It is in my price range (where most carwashes are not) and my end game is to own it for two years (no more than five). I have the time and interest.
Why a carwash? Itâ??s a cash business (which I like), it is a self serve carwash so there is no need for a manager as I could attend it during the week and be there on weekends. Once it is up and running it will be worth twice what I paid for it (100% in 2 years).
Have you ever turned a business around before? No but that is why Im here. From talking to local people, the former owner mismanaged it. I would think a carwash would be pretty simple (no employees, simple overhead, not a lot of skill involved in keeping soap in the dispensers).
Do you have STRONG sales and marketing skills? Not STRONG but GOOD marketing skills as I have started several moderately successful internet businesses from scratch. My personal thought is that most of the marketing will be in the form of drive-byâ??s and projects with the local school (3 blocks away). It has a count of 11k cars, 1.4 cars per household (3 mile radius), and several good businesses that I might be able to partner with (wash tokens).
You have no financials so are your getting the value based on the real estate and equipment? I have not put any money in this and am basing this on an appraisal the bank had done 3 months ago. It is a very in depth analysis of the market, the equipment, location, and demographics. It lists as many pros as cons and I feel this is a good starting point.
If you don’t mind revealing what city are you in? Texas/Oklahoma area
Are the expenses involved(sercurity/higher insurance costs) enough to jusitify the purchase? The cost of a good security system is included in the 20-30k mentioned in the first post. I have calls in for insurance quotes and will know more soon (I hope).
More info:
Asking 385k, appraisal 400-430k.
NOI appraisal 92k, my estimate 46k, lowest acceptable 25k
Using 20% down, and a 300k selling price, 6.5% interest (740 credit) and 46k NOI, cash on cash is 46%, DCR is 2.53, LTV is 55%. Using Rays formula of NOI over Caprate, the max purchase price is about 500k… nearly 250k more than I am paying… not bad if you can make it work…
To take it one step further,
If I use a 25k NOI and all of the above are the same then CoC is 11%, and a 1.37 DCR. Using Rays formula of NOI over Caprate, in this situation the max price is 275k (about what I will pay). An NOI of 25k is an income of about $38.00 a day for 22 days a month.
Hope that helps…
Jeff
Re: Carwash - Posted by Axel
Posted by Axel on February 15, 2008 at 20:39:39:
It SOUNDS good, but a couple of points:
How could the previous owners have “mismanaged” a self-serve car wash. Makes me skeptical as to revenue projections.
You say you “like” cash business’ and that you plan to flip this business in 5 years or so. If you like cash transactions because they can be concealed from taxation, that’s fine as long as you plan on never selling the business. Understand that when you sell the business the value will be set based on your accounting and tax records, i.e., every dollar in declared income will translate into 5 dollars (or so) of business value.
Everything has a value, just make sure your assumptions are reasonable. Bank appraisals or any appraisal is suspect, at best. YOU have to know reasonable estimates for expenses and revenue.
What’s the value of the raw land?