Advice on this interesting CarWash 4 sale

[soonermajic]

Moved 3 miles from a 4SS/2IBA & town of 70k. It's 3 hrs from Dallas.
Wash located on I35 & corner of major intersection & leads into growing affluent residential area.
Wash does $135k gross & net about $48k, & guy claims he easily keeps $20k/yr out.
His equipment is in great shape, IBA has 60k washes is 7 yrs old. Guy swears he swings by 2x/ week , but has cleaner daily for $400/mo.
The C store wants to sell washes @ the pumps, for 15% of each wash bought @ the pumps.
No CC in the SS bays.

Here's the rub: it is for equipment & business only, NOT the land & bldg. Rent is $2500 & they take care of trash, taxes & some cosmetics...

Advice...?

 

[Rfreeman]

Coach so you said it is for land and business only not land and bldg...right....who owns the bldg? Why won't they sell? What type of contractual agreement is in place on the building? You buy the land & business....but then lease a building on land that you just purchased from someone else?

If all thats true I would walk away right there bc this makes no sense.

 

[JMMUSTANG]

I’m not understanding the language either.
Unless they’re not the landowners but built the wash building with their own money and the actual landowners wants to sell the property. Maybe this guy doesn’t want or can’t get funding to buy it.
My first thought is not to commit but to say your interested but you want the building in the deal too or they have to tear down the building and clear it off the property at their expense within 72 hrs. from signing the deal.
Your not committing to signing the contract so if they say OK you can still walk away if you want.

 

[soonermajic]

Guys, it was a typo. I meant "equipment & business" , NOT land & business.
It is for equipment & the business.
The land & structure aren't for sale, just for rent.

 

[Axxlrod]

$20K per year net???

Pass.

 

[soapy]

Usually a long term lease deal like this will have options for renewal as well as escalator clauses for rent. Does it have a triple net clause , meaning you pay taxes, insurance and maintain the building etc. is good order. In California if you have lease with less than 20 years on the lease you have no value. You said it has 2 IBAs with 60K washes is that for one or both? Either way that is pretty low wash count and indicates a slow car wash. I personally would never have a car wash that I was not building equity in for a future sale.

 

[Randy]

No Building, No Land , No DEAL! The value of the car wash isn't in the business it's in the land.

 

[soonermajic]

No Building, No Land , No DEAL! The value of the car wash isn't in the business it's in the land.

Randy, in Seattle that's so true. Other places maybe not.
It grosses $130k, nets about $50k, & he says he keeps out @ least $20k/yr, but knows he has to sell on what he actually claims ($130,000, not $150,000).
I pay insurance on equipment only, they do upkeep the building structure, lot etc. I pay water & elec, owner pays trash.
5 yr lease , w/ rollover on each 4th yr, for another 5 yrs @ $2500/mo.
I will own the biz & equipment. 1 IBA has 60k washes in 7 yrs, other IBA is being torn out, & he will leave vacant or change to SS, if I want.
Maybe that clears up some confusion...

 

[Rfreeman]

No land No Bldg....no dice.....just my opinion.

I would listen to Randy on this as well.....the land it sits on is your "hedge" or insurance when investors decide to build 1, 2, or 3 tunnels around you and cut your revenue in half.... then whats that deal worth??? No land no deal

 

[Earl Weiss]

At the end of the day it's all about making money in the long term. Many successful businesses like Wagreen don't own their land. Makes it nearly impossible to get financing for most.

 

[DavidM]

Personally, I wouldn't want it without the land. 60k cars in 7 years tells me it isn't a busy wash.
Ignore the claim of keeping "20k a year out" The only thing that tells you is that he isn't honest which means the statement itself can't be trusted. Makes me wonder what else isn't true.

5 year lease is too short.
Doesn't sound like a good deal in my opinion.

David

 

[Eric H]

The only thing that tells you is that he isn't honest which means the statement itself can't be trusted. Makes me wonder what else isn't true.

David's advise is probably the best you'll get!

BUT, lets start working the numbers backwards just so we can get a better idea here...IBA washes 60K in 7 years = 8600 per year at $10 per car average (it's probably less) = $85,714.
subtract the IBA sales from gross sales $135K - $85,714 = $49,286 divide by 12 months = $4,107 divided by 4 bays = $1,026 per month per bay. I don't recall what the average SS bay pulls in but I would guess this is pretty close to an average national number. I know that Texas SS start-up prices are usually pretty low so these SS bays are pretty busy but the IBA numbers seem low...

I don't know...maybe you can fill in with numbers that you feel are more accurate

Or we can go with $135,000 divided by 12 = $11,250 - $2500 rent = $8750 per month minus labor, chemicals, insurance, water, sewer, electric, phone and internet, security monitoring etc. I'd think you can use the averages from your other washes to get to a fairly accurate number

 

[soapy]

One other catch to check on is that after the lease runs out is there a clause that the land must be returned to its original condition. That can be a huge cost at the end of the lease when no money is coming in. It also could include the cost of a phase 3 environmental analysis.

 

[soonermajic]

David's advise is probably the best you'll get!

BUT, lets start working the numbers backwards just so we can get a better idea here...IBA washes 60K in 7 years = 8600 per year at $10 per car average (it's probably less) = $85,714.
subtract the IBA sales from gross sales $135K - $85,714 = $49,286 divide by 12 months = $4,107 divided by 4 bays = $1,026 per month per bay. I don't recall what the average SS bay pulls in but I would guess this is pretty close to an average national number. I know that Texas SS start-up prices are usually pretty low so these SS bays are pretty busy but the IBA numbers seem low...

I don't know...maybe you can fill in with numbers that you feel are more accurate

Or we can go with $135,000 divided by 12 = $11,250 - $2500 rent = $8750 per month minus labor, chemicals, insurance, water, sewer, electric, phone and internet, security monitoring etc. I'd think you can use the averages from your other washes to get to a fairly accurate number

Good conservative #'s. Take $1550 out for bank note & $7200 left. $2200 for ins, water, elec, chems, labor & internet. $5000 profit, which is a helluva lot for a coach bringing in $3900/month!!

 

[Rfreeman]

I'm curious what your bank said on this deal bc it sounds like you already talked to them. What are they taking for collateral? The equipment? I'm sure the bank would also want you to secure some type of long term lease I would think

 

[soonermajic]

I'm curious what your bank said on this deal bc it sounds like you already talked to them. What are they taking for collateral? The equipment? I'm sure the bank would also want you to secure some type of long term lease I would think

Im actually talking to bank tomorrow, but that is an excellent question

 

[soonermajic]

Went to the bank, & showed them all his financial's. They actually liked it & said it's prolly gonna be a "GO". Gotta talk wife into it. I should be able to clear $5k/mo, which (as stated earlier) is outstanding for me. I hope to add a Touchless, in bay he is clearing out, & wash Duallys & customers who don't want brushes. Add Cryptopay to SS bays & a glass front vendor.
This area is set to take off. Not really a spot for a tunnel, & there is already one about 1ile East. I'll keep you guys updated

 

[Car_Wash_Guy]

Looks good. Good luck. What kind of lease is he offering you?

 

[soonermajic]

C-Store offers 5yr lease $2500/mo

 

[Rfreeman]

I would at least get a 10 yr lease or longer...what if the owner decides to sell the c store and property, new owner wants to run it bc he sees the business doing well. Or if the current owner decides he wants to run the car wash business after 5 yrs.....how long will your loan be? If you lose this for one of the reasons above your left with equipmemt and a loan payment right? Personally im curious if that has happened to anyone who has replied or someone they know. I know earlier this year I purchased 6 vacs from a guy that lost his lease on the wash but this was after leasing it for 20+ yrs.