Expert Opinions on Wash for Sale in Metro Area

[BadMoonRyzen]

Hello all, I was hoping someone more knowledgeable about these types of situations could look this over to see what they thought. I was looking to build a new wash from scratch but the city I'm in is really cracking down on new washes as they consider them eyesores, so I would have to go to a neighboring town. So instead, I was looking at buying this wash that's already operational. However, the numbers don't seem to be making sense.

Asking price of $925,000.
Two bay IBA wash, all brick building on a half acre of land.
V.P.D is 14,100.
It has been in business since 2012, so equipment is getting little old. (It is touch free, I can confirm equipment models shortly.)
Startup was 1.3 million, overall debt still is $750K.

Here is where it starts to not make sense. Overall income last year was $130,108. Net operating income was $65,735. However, this WAS NOT including the loan payment. So if that's true, I would assume this wash is losing money? The average cars per day for years 2013-2018 is as follows. 31, 41, 46, 47, 45, 37. Owner says the break even point is 35 cars per day. But again, that seems to be not counting the loan.

Seems like mighty little cars per day right? Again, its a two bay wash, so just barely over 20 cars per day per wash seems really low. It must be said that the wash is in MAJOR need of an image overhaul. The website lists incorrect phone numbers and emails, numerous bad reviews, always a bay or equipment broken, so there is definite room for improvement, it just needs somebody present on a daily basis, currently it gets no attention. Thoughts? And, thanks!

 

[SparklesSS]

This deal does not make any sense to me.

If you are still considering analyzing it further, get a detailed list of expenses and factor in a conventional mortgage payment (if interest is not included as a current expense). Based on the information above I agree with you that this wash would lose money every year.

It would be very difficult to find a lender with these numbers.

 

[Axxlrod]

When valuing a wash, one must look at EBITDA. What the current owner is paying for debt service is irrelevant, as the new buyer will have their own financing situation; either their own loan or none if paying cash.

 

[BadMoonRyzen]

This deal does not make any sense to me.

If you are still considering analyzing it further, get a detailed list of expenses and factor in a conventional mortgage payment (if interest is not included as a current expense). Based on the information above I agree with you that this wash would lose money every year.

It would be very difficult to find a lender with these numbers.

Here are last years numbers.
INCOME SUMMARY PER UNIT
GROSS INCOME $130,108
EXPENSE SUMMARY PER UNIT
Liability Insurance $5,625 Repairs and Maintenance $3,652 Property Taxes $11,241 Credit Card Fees $5,384 Electricity $6,989 Water $15,757 Suuplies- Soap Solutions $15,722 GROSS EXPENSES $64,372
NET OPERATING INCOME $65,735

When valuing a wash, one must look at EBITDA. What the current owner is paying for debt service is irrelevant, as the new buyer will have their own financing situation; either their own loan or none if paying cash.

Okay, I understand, so I'll look into EBITDA. But, this is a possible owner finance deal. Not the owners preferred option but he said he will consider it. However, let's say I finance close to a milliion, it still seems like this wash does not generate enough revenue to make a profit, if I'm interpreting things correctly.

Thanks for the replies!

 

[Jeff_L]

Where are you looking? I have a couple washes for sale you might want to consider.

 

[BadMoonRyzen]

Where are you looking? I have a couple washes for sale you might want to consider.

I'm looking in the RDU area of North Carolina.

 

[BadMoonRyzen]

Anyone else? Trying to figure out if it's worth investing my time and money into to see if it's a good fit, thanks!

 

[OurTown]

Everyone's situation is different but based on the limited info given I would not buy that for what they even owe on it.

 

[Rfreeman]

Ditto what Our town just said. If a deal doesnt make sense at the current numbers dont play the "what if" game with yourself about raising the revenue or doing this and that and revenue "should" increase. Find a deal that works for you then make changes hopefully revenue will increase and its an added bonus.

Like you alrdy said...this wash is losing money if the NOI of $65K doesn't included debt service. At $750K @5% for 15 yrs thats $5900/month or $70K a yr.

 

[BadMoonRyzen]

Ditto what Our town just said. If a deal doesnt make sense at the current numbers dont play the "what if" game with yourself about raising the revenue or doing this and that and revenue "should" increase. Find a deal that works for you then make changes hopefully revenue will increase and its an added bonus.

Like you alrdy said...this wash is losing money if the NOI of $65K doesn't included debt service. At $750K @5% for 15 yrs thats $5900/month or $70K a yr.

Ok, that makes sense. I just wanted to make sure I was interpreting the numbers correctly. Seems pretty evident but I am new to this so this helps me confirm it. Thanks! And agreed about the "should" increase. Extrapolation and what if's can get you into trouble!

Everyone's situation is different but based on the limited info given I would not buy that for what they even owe on it.

Thank you. Kind of what I was thinking. I would finance almost a million dollars to lose money per year, crazy.

 

[Rfreeman]

Thank you. Kind of what I was thinking. I would finance almost a million dollars to lose money per year, crazy.
[/QUOTE]

Just remember the wise words of uncles Warren Buffet when it comes to investing.....stocks, bonds, car washes etc.

"There are just 2 rules to investing, 1) Don't ever lose money and 2) Remember rule #1"

 

[Waxman]

The daily car wash count numbers sound correct based on d.t.c. of 14k ish.

Don't buy based on : " hey, if I just increased wash counts by X amount, I'd make "Y" amount". Big mistake.

The asking price is way too high for a 2 bay IBA wash that needs work.

No deal.

 

[BadMoonRyzen]

Thank you. Kind of what I was thinking. I would finance almost a million dollars to lose money per year, crazy.

Just remember the wise words of uncles Warren Buffet when it comes to investing.....stocks, bonds, car washes etc.

"There are just 2 rules to investing, 1) Don't ever lose money and 2) Remember rule #1"
[/QUOTE]
Exactly!!

The daily car wash count numbers sound correct based on d.t.c. of 14k ish.

Don't buy based on : " hey, if I just increased wash counts by X amount, I'd make "Y" amount". Big mistake.

The asking price is way too high for a 2 bay IBA wash that needs work.

No deal.

Ok, this definately confirms it. I'm bummed about it but if the deal doesn't make sense, it's not going to work. Thanks for all who replied.

 

[Randy]

It sounds to me like the owner wants out of a bad situation. There's no way I'd consider buying this car wash. Your right in saying that the city doesn't want another eyesore car wash, most cities are throwing up every road block they can to not allow car washes to be built, at least that's the way it is here.

 

[Roz]

Everything has a price at which it will clear. Can always wait until the bank owns it and make an offer that makes $ense...

 

[OurTown]

I don't mean to veer from the original question but I see a lot of overpriced washes for sale. Some are just like the example above where the original owner spent a boat ton of money building it and X number of years still owes a lot on it. Meanwhile it has been milked dry and needs a bunch more money thrown at it to get it back up to snuff. They just keep them listed year after year lowering the price ever so slightly every once in awhile. Someone should start a thread addressing this in general.

 

[CarWashAdvisory]

Deal makes zero sense. Please feel free to message me and would be glad to discuss. You are right to have immediate apprehension given the numbers.

 

[MEP001]

Why attempt to take someone's public forum thread into a private discussion? Your opinion is welcome here and might be useful to another trying to enter the business.

 

[CarWashAdvisory]

@MEP001 - I agree. I did not intend to take it offline for any other reason that it is easier to explain over the phone. But that's a good point about other people possibly being interested in hearing.

Generic Investment vs. Individual Investment:

It is a straightforward task to determine whether an investment opportunity is “good” for an outside institutional investor as we can know what performance metrics and risk tolerance said investors are in search of and have. This is NOT true for individual owners / operators / investors. It is therefore remarkably difficult to ascertain whether it is worth furthering diligence on an investment opportunity when one does not understand the potential purchasers’ goals and motivations. “Making money” is not an answer, and whether or not the individual is aware that there is a deeper more detailed “success image” and goal or not, there is one. This immediately makes this thread a moot point beyond that of purely the objective financial aspect of this wash, and even for that we have limited information and are missing key facts.

Financials

I feel there are three major facts / pieces of information that are "missing" for even just evaluating the objective and naive financial perspective (there are more than these three, but these are needed at the bare minimum).

1) Real Estate Value
With a wash producing these sort of numbers, especially without blowing the roof off in terms of volume, real estate value will set a significant floor on valuation (whether it stays a car wash or even if it doesn't and it gets sold for repurposing)

2) Is this wash actually a viable turnaround - and if so - are you as a buyer looking for a turnaround situation
There are washes out there that are good locations, and the missing piece of the equation is marketing, equip, and better operations. These washes do have capacity for top-line growth (and potentially margin expansion as well)

There are also washes out there that are not capable of these top-line and margin improvement. This happens more than one would hope and can be caused by a variety of reasons including increased competition, a diminishing population, etc... With these situations - there is no potential for upside growth. The wash is realistically and meaningfully "maxed" out. In these situations, it does not mean the wash is "worthless".

It means that at the current price and the assumed pro-forma debt load - the wash is financially an unattractive investment.
Determining the answer to which of these two a situation is requires examining that specific location, wash, and it's potential

3) Pro-forma Company Structure

As one can imagine, every buyer has at least a slightly different “plan” for a future investment. Among the many aspects that differ is the pro-forma capital structure. As has been pointed out by many people on this thread already, what prohibits the current wash from being meaningfully profitable in it’s current state is its current capital structure. However, what happens if an individual buys the operation with no debt at all. Then the true net-to-owner profitability changes drastically.

Albeit very rare that pro-forma capital structure completely changes a potential purchase from a ‘red light’ to a ‘green light’, it does have significant impact. Again, we don’t have this information here as well.


The True Unanswered Question:

What are your goals as an owner / buyer / investor?

This is what I feel many people don't give due credit to. Every buyer has different goals for their ownership. What a "success" looks like is different for different people

Assuming this is a turnaround situation and has top-line improvement potential (which I am NOT implying it is or is not) - you have to know whether you as a buyer, owner, and investor want that sort of situation. A situation implying more trial and error, more capital outlay, more uncertainty, and a different skew in terms of risk / reward profile.

Conclusion:

My apologies for giving a curt and abbreviated message earlier, but as I now hope is better illuminated, this thread is moot beyond knowing that the reported financials (which one has to assume to be the truth and max in order to err on the side of conservatism), are just bad. As also mentioned by several other great replies to this, it is dangerous as a potential owner, especially a first time owner, to adopt the “what if” mindset where one frames improvements in the operations to back into what they want to see the wash potentially being able to do for them financially. There are cases when you should indeed base a purchase decision on pro-forma projections and turnarounds, but that cannot be answered without knowing the details of the situation (including but not limited to whether the buyer is up for the challenge, and equally as important, whether the wash is capable of this).

 

[getnbusy]

I live within an hour of Raleigh. There is Waaay too much competition in the trianle to spend a million bucks on a rundown double auto. In fact, i contend that the triangle market is the toughest carwash market in the state and likely one if the toughest in the country. I also say that washes in NC in general are way over priced and I advise to stay away from this deal. One needs deep pockets and “A game” experience to compete around here. Its that tough without even mentioning the more than a dozen new mini express washes in town. I could go on and on.