Unrealistic asking prices

[OurTown]

We have looked at many car washes (SS/IBAs) for sale over the last three years. Many times the realtor listed ones are out of sight on the asking price. Most of these are in areas that the land is not worth a bunch. The closest wash to our house has been listed for about four years (so far) with very little price reduction. It is over fifty years old, has a 20 plus year old Mark VII, cosmetically bad on the outside, has been cobbled onto twice for additional bays (and it is obvious), and they are asking about 5 and a half times gross sales. Another has been on and off the market for years and the most recent time they upped the price by over $200K. If they could not sell it before at the lower price what makes them think they can sell it for more? Maybe they think since the income went up over the last few years it makes it worth more? They are also asking about 5 and half times gross. One that we would really be interested in if the price is right has been closed for years. I'm not going to get into all the crazy stories I have heard about this wash except one. Supposedly there are two new (or maybe refurbished) autos sitting in the bays still stretch wrapped sitting on skids and all the equipment in the ER has been stripped out. Scratching my head on that. It could be a killer wash but they are asking a stupid amount for it considering it has been shut down for years. At least they are smart enough to lower the price as years go on. The straw that broke the camel's back to make me post all this is the most recent one. We have been courting an owner of a wash for the last few months but had our eye on it for years because it is close to us and in a town we already have commercial property in. He had been talking to a realtor just before we contacted him and he put the realtor off until the first of the year so we could possibly make a deal in the meantime. It is basically a disaster in the equipment room, cosmetically bad on the outside, plus it has a 24 year old Futura. It has all kinds of issues and needs a lot to get it up to snuff. Even though its potential is not the greatest we would like to have it because we are already in the area all the time. We got some sales numbers from him, estimated the repairs and upgrades, then came up with a max amount to pay. The next time we talked I asked what he thought he would list it with the realtor and it was over one and a half times our max. The price will be about four and a half times gross sales. Without giving him any of our numbers I told him he should probably list it for now. Hopefully some day he will come to grips as to what it is worth. Many of these washes could be ran much better increasing the sales and some raise the sales a lot. I realize there are many ways to value a wash but it has to work for the buyer's personal situation too. When I look at sales comps of washes I'm sometimes surprised at the low prices. Many times they were never listed with a realtor. Rant over...

 

[Kramerwv]

I’ll take over 4x revenue anytime. Seems like it’s always everyone else that cashes in on these huge asks but I’d never get that. Glad to know those giant ask prices don’t always pan out

 

[MidAtlanticCarwasher]

It's comical how many people there are in this industry who think that their crap car wash is worth 5 pots of gold. The reason they are selling it is because the car wash is crap.

I imagine this is going to be worse over the years as we are going to have a lot of those McCarwashes (McMansions of the industry) that are going to go to market because their owners never got anywhere near the return they expected.

 

[Randy]

Here in the Pacific Northwest there hasn’t been a new self-serve car wash built that I know of in over 10 years. The reason is the high land costs, high construction costs and the high fee’s that municipalities charge for street improvements, sewer and water tap fee’s etc. The last 4 & 1 self-serve car wash we bid on the equipment came in at 1.2 million!! They owned the property out right, the biggest expense was street improvements, 8’ decorative fencing and an apartment for the onsite 24 hour attendant. I got the feeling that it was a nice way of saying we don’t want your car wash here. I get offers every now and then to buy my crappy little car wash, it’s for sale, it’s not listed but it’s for sale. When someone asks me about selling I tell them it’s for sale for land value and tell to go online and look up the tax assessor’s appraisal and they never call back. The tax assessor’s appraisal on the property is $595K, Is the car wash worth that, no way, but the land is. I think what a lot of people seem to miss when they are looking at buying a car wash is what it would cost to build this car wash from the ground up. What would the land cost, what would city charge for power, sewer and water, and what would my equipment costs be? Most people fail to take these things into account when they are looking at or making an offer on a property. Sure it might be a crappy, junky car wash but they already have the infrastructure in place for a car wash. There’s a car wash here that’s been for sale for well over 4 years, the priced started out at 1.1 million and now it’s up to 1.7 million. He’s not in any hurry to sell it. Every car wash here that has been sold in the last few years has torn down and a multi-story condo or apartments with light retail on the ground floor have gone up on the property that the car wash was once on, some have sold for really big money and I mean big money.

 

[Car_Wash_Guy]

People can ask what ever they want. The true value is what someone is willing to pay...

I've always been led to understand that a SS wash is generally worth 2.5-3.5x gross. This obviously would exclude a location where the land is worth more than the operation itself.

As we all know, we have a expensive single use buildings built on land. That building is only usable for car wash. Without the car wash business, the building is essentially worthless and then you would only have the value of the land.

 

[Greg Pack]

Do all you old timers remember Pat Crowe taking heat for the 3x multiple rule of thumb? In the early 2000s 5X was becoming very common before the express boom starting taking the wind out of the sails of SS/IBA. I think I saw as much as 7X gross paid for some washes.

Although the GIM multiplier might work to a great extent as a sanity check, it's too simplistic for a valuation.

IMO High grossing washes are worth a higher multiple. Fixed expenses are a much lower percentage of revenue. I have a couple of washes as an example. Wash A may gross 2X as much as Wash B, but the labor, lighting, insurance, and property tax costs are almost identical. It significantly alters the net.

 

[wyatt]

In my mind it doesn't really matter the gross multiple. My biggest consideration when purchasing a new wash is location and my cash on cash return. My goal is to make my downpayment money back as quickly as possible so that I can continue investing in other washes, rental real estate, ect..

 

[JGinther]

Ask prices are only silly if they aren't justifiable. Waiting 4 years for the 'right' buyer is totally justifiable if it gives the ideal return for the owner. I've found that most washes sell at the highest 'bankable' value. If it isn't a 'bankable' sale, then maybe its a land play... Several washes in the 80's along with self-storage back then were sold as key location 'land banks', and that is just what they ended up being. They provided enough cash flow to best the decision of leaving it as undeveloped, and then sold when land value around them swelled. Paying property taxes year after year on undeveloped land isn't ideal to most investors.

And gross multipliers are totally meaningless. Revenues are a only a reliable indication of revenues - not of the car wash value. Imho, return on investment is the only way to look at the business value... And then a very careful check applied to evaluate real risk: since as mentioned above - the only real value is the land... The business value and the building and equipment are all special use and AT RISK. Compare that to a strip mall or similar commercial investment which has much much less risk since the tenant can fail and another different type of business can move right in. There's hardly anything a closed car wash can be 'refitted' into. The end result is car wash being the value of the land less the cost of the excavator and dump truck.

 

[OurTown]

Think if you were on the other end and you decided to sell. Would you be okay with waiting four or five years to sell? I'm thinking of exit strategies before purchase. Those examples I gave are asking between two and four times land value. Only one of these washes is pretty nice and does not need anything but the other three need a boat ton of money thrown at them. Creative financing is in order for those which will reduce the pool of buyers which should in turn lower the value. This is not a low risk business. Times are good right now but I have heard some bad stories from 2008-2011 who may have been over extended at the time.

 

[MEP001]

Would you be okay with waiting four or five years to sell?

I recently talked to a guy who has had his wash for sale for ten years. Four years ago he wanted $600k, now he wants $1.2 million. He got a bite from a bank, but he tried to get $1.7 million out of them and they walked away. So yeah, there are those "motivated sellers" that can't deal with it anymore and just want rid of it quickly, and those who are happy if it's paying the property tax and are holding out for a fortune.

 

[Axxlrod]

It all depends on real estate prices in your area.

Here in CA, a new wash would cost a minimum of $2M to build new. And that's for a bare bones facility.

 

[soapy]

Remember to include all the hookup fees like water, sewer, building permit, engineered plans for building and lots. In many places this can run hundreds of thousands of dollars.

 

[Sequoia]

I've always been led to understand that a SS wash is generally worth 2.5-3.5x gross.

Simplifications like this add to the grief of existing car wash owners trying to find their actual market value. They don't work. I would never sell my wash in that range.

The complexity of determining your market value, in your market, is that you are selling at least three separate and different things. Take my SS for example:
1- Land value for the parcel it is sitting on;
2- Building and infrastructure improvements such as power, water, sewer, building structure, wash and vac equipment, parking lots, etc,; and,
3- Business income / cash flow / net profit.

Trying to find someone who is skilled and competent to appraise each of these, plus adding in market intangibles, is nearly impossible. Professional appraisers have forums such as this one but devoted to the appraiser market. I have seen many posts on those forums with appraisers throwing up their hands at the inability to scientifically arrive at good car wash valuations. This is due to there being so many competing factors.

For real property, appraisers typically use one of three approaches- 1) comparable sales, 2) cost to build new, and 3) Seller's discretionary earnings. (SDE.) These are the approaches most appraisers are comfortable with. Any none line up well for the car wash industry.

1- Comparable sales. You need numerous nearby washes just like yours that have sold to establish comparable sales numbers.
2. Cost to build new. Maybe this works for skyscrapers and large buildings, but not for a typical car wash. Most of the time, the cost to build new far outstrips the ability to make a profit, since building and permitting costs have gone up over time.
3. SDE. This is the annual $$ you put in your pocket, derived from profits from the business. The IBBA publishes a list by industry about how appraisers should value SDE. This varies widely by type of industry, but I have seen their multiple (for SDE only) usually be about 3x.

Let's take a made-up example (not my wash):
Your land value is $250k
Your buildings and equipment total paid-in investment is $200k.
Your SS grosses $100k and nets $50k.

I would value this wash at $250k for the land, which is actual value. $150k for the income stream, which is 3x annual profits. And then haggle over the value of the buildings and equipment. Even though they may have cost $200k, their depreciated "market value" is going to be a fraction of that.

Circling back, even if you agreed to "zero value" for buildings and equipment, your selling price is $400k. Well above the 2.5 multiplier ($250k) and 3.5 multiplier ($350k.)

Now, will anyone buy it at that price?

 

[Roz]

In your example the county assessed value would probably land at $400-$450K range (land+improvements). I suspect that the place would sell for $400K since it is below assessed value. Is it a smart investment? Hard to say. If you finance 80% (which is probably higher than possible) you put down $80K and borrow $320K at say 4% interest only which reduces your $50K SDE by $13K to $37K. $37K return on $80K invested is a very good return for many people if you are willing to work for free and the hope that you can improve sales in the future. As someone mentioned if you expand revenue the related expenses do not increase at the same rate as revenue growth (in most cases). On one hand this seems a bit risky yet if you can afford to take a calculated risk there are some added benefits associated with owning a business and having depreciable commercial assets.

There are many owners who are trolling for a retirement or exit offer if they get "their number" and have no issue waiting years before they become motivated to sell - you just need one person who likes to gamble or has bigger ideas for your place. Nothing stops a person from making an offer on a listed property based on the financials and their valuation model - worst they can say is no thank you but the seller now knows of a person they can return to if the situation changes.

Anyone in MD looking to sell as I can provide a quick exit opportunity at the right valuation?

 

[Sequoia]

Just a quick correction ... SDE is more complex than the $$ in profit you annually produce. That IS the beginning basis for calculating SDE, but there are numerous adjustments that are usually made in order to derive actual SDE from your annual net profit amount.

 

[Rfreeman]

They say suckers are born everyday....and if someone is willing to fork up some major coin for a wash well......sit back and watch it and when the bank takes it back someone will be there waiting for their spot at the table to talk. Value is so subjective what someone thinks is worth a million dollars someone else may only offer $750,000 and so forth but hey if the owner can sit back and afford, no I don't mean financially, to wait for that pay day good for them but how long do they really want to put off the next chapter....i.e. retirement, another venture, or just less headaches/worries of running the wash(es) vs. enjoying your weekends or more importantly your time in general???

I heard once 2 things sell anything in this world....price and terms. The price is right (for seller & buyer) or a potential buyer get's a hell of deal financing said purchase to motivate them to move forward other than that sure you have the above stated/accepted approaches to value: Cost, Sales Comparables, Income approach (never heard of SDE personally but it appears to be an income approach to valuation) which will all help anyone arrive at a value but in the end the numbers have to make sense for both parties and the bank if there is one, having said that if you look hard enough you can find a banker to do almost any deal.

Here in N Texas I have seen, what I would call crazy asking prices, recently 2.2 million for a 2 IBA + 5 SS bay wash. Realtor says its running a 7% cap rate therefore I can only estimate NOI is $154,000 to achieve the 7% cap rate. Nice wash, recently built (within the last 8-10 yrs), but at that cap rate NO THANK YOU....to much risk on a single use property but I hope the guy get's that price for his sake. My wash was listed back in 2005 for $1.2 million and the original owner found someone to pay $995,000....of course he lost it along with 2 other washes to the bank....I won't disclose what I paid for mine but think LOOOOW six figures....so what's mine worth low six figures or $995,000? Who knows but at 37 yrs old I have some time on my side and I am always actively looking for another location that makes financial sense to me for my goals BUT that being said if the right price comes along for any of my 2 washes.....adios, I have 75 acres in the Texas Hill Country waiting for me but even that is for sale at the right price!

 

[soonermajic]

Wifes OLD timer Uncle, who has made millions always tells us
"you make your money when you buy"

 

[JGinther]

Then where's all my freaking MONEY!

 

[OurTown]

A wash we could have been interested in sold recently but not at the price it sold at.
3/1 with 24 year old equipment
Reported yearly gross income $31K and dropping yearly
less than 3/8 acre with 11K cars per day traffic
county land value about $40K
In a small town of 6K and the household income only about $40K
Listed for $200K for about 6 months and then sold for $167K
Although it has a good bit higher potential it needs a lot of money thrown at it. The only reason why we could possibly have been interested is because we pass by it on a regular basis and own commercial property very close by.

 

[soonermajic]

A wash we could have been interested in sold recently but not at the price it sold at.
3/1 with 24 year old equipment
Reported yearly gross income $31K and dropping yearly
less than 3/8 acre with 11K cars per day traffic
county land value about $40K
In a small town of 6K and the household income only about $40K
Listed for $200K for about 6 months and then sold for $167K
Although it has a good bit higher potential it needs a lot of money thrown at it. The only reason why we could possibly have been interested is because we pass by it on a regular basis and own commercial property very close by.

That's 6x gross. Bamk will own it in less than 24mos!!