Evaluating an exisiting wash for purchase

[grimace92]

Hi,

Looking for some advice and analysis of a potential opportunity to buy an existing wash and land. It's a one tunnel full service wash. It definitely needs some TLC. Most likely needs to be completely renovated. The location is very good and busy and a new housing development almost done with 800 or so new cars estimated opens soon. Here are some numbers according to the listing...

Grosses 750k (guessing 35k cars)
Expenses 400k (Property Taxes, electric, water, insurance, fuel, payroll)
Also has another building on the property which has 100k in rental income.
Net income: 450k

Asking price is 3.8mm which I believe is high especially with a renovation needed.

Curious as to what people's thoughts are and what the estimated cost would be to renovate.

Thanks!

 

[mac]

Sounds like the owner simply put off making improvements and took out as much money as he could. Rather than evaluating the wash, I think we should evaluate you. Are you new to this business? If so, buying an older place that needs a lot of TLC, read money, and running it will be quite a challenge. You might start by asking the broker to see his last 3 years tax returns. If he won't show those walk away.

 

[grimace92]

Sounds like the owner simply put off making improvements and took out as much money as he could. Rather than evaluating the wash, I think we should evaluate you. Are you new to this business? If so, buying an older place that needs a lot of TLC, read money, and running it will be quite a challenge. You might start by asking the broker to see his last 3 years tax returns. If he won't show those walk away.

I am new to the business. I've been looking into commercial real estate for a while. I've been avoiding anything in the food industry. I got the last 3 years of tax returns yesterday and it wasn't pretty. Gross profits were only approx. 470k for the last 3 years on the returns for the wash not 750K. I got the old "its a cash business" so immediately red flags unfortunately. I know going in it needs a full renovation so was hoping to leverage that. The wash has been there for 30 years and has changed hands multiple times. I guess the only way to really get a good idea of the number of cars is to set up a camera for a couple months. The property is intriguing because of the additional building with rental income and the new housing development across the street.

 

[robert roman]

One way to deal with someone selling a carwash that uses the notion of “cash business” to explain away business deficiencies is cash.

In my book, blue sky is worth squat. So, determine what the business is worth to you based on reported net operating income.

One way to accomplished this is to apply a risk adjusted earnings multiplier (inverse of capitalization rate) against NOI.

Put one percent of this value in escrow as good faith and present the offer to the seller. If the seller balks, ask for a counter offer and go from there or walk away.

 

[Jerry]

Ask for annual car counts. If he has a POS or controller, he'll be able to give you this info in like a minute.
Ask what his average ticket is. most likely is the price average of his 3-5 packages unless he does detailing/oil changes etc.
Do the math then see if these match up(or are close) to his tax returns

Find out exactly what the property is worth. This is key in telling whether 3.8 mill is a reasonable figure.

a new rack of equipment can vary greatly depending on how long his tunnel is. 400k isn't unreasonable. Does it need a roof, parking lot resurfaced, new vacuum system, updated POS/controller, new electrical breaker panel for updated equip etc?

you don't need a camera to get an estimate of his car count. Sit at the exit end of his wash on a mid week day and time the cars coming out of the wash around lunch time. If they come out every 4 mins, he washes 15 cars an hour on average. times that by the hours he's open a day(10) and you get roughly 150 cars a day. About 300 washable days a year after holidays/weather and you have your own rough car count. Shouldn't take you more than an hour. But do it on different weekdays to get a better handle on it. Weekends numbers are always higher so don't use the above on the weekends or you'll think he's washing more cars then he probably really is.

Good luck.

 

[Earl Weiss]

Too Bad you are in NY. Lots of places around Chicago can be bought for $3.8 Million.