Buying existing car wash questions

[Rodj13]

There’s an opportunity to buy an existing 3 bay ss wash in a smaller town that I live in. I’m brand new at all of this so I was wondering what you all did as far as financing. Sounds like sba loans are common but I’m not too sure how they work.
- What’s the normal down payment for an sba?

- Can the property and business be financed all as one?

- Do all of them require collateral and can the real estate be used. ( or what methods of collateral are you using)

- What kind of fees/ closing fees are involved

- I also noticed the business could qualify under a USDA loan since my town has a small population. Has anyone had experience with one of these?

I’ve seen the current owner often and have obtained a couple P&L statements from him. Is there anything else as far as info that I should try to get from him?

thanks for the help

 

[MEP001]

I’ve seen the current owner often and have obtained a couple P&L statements from him. Is there anything else as far as info that I should try to get from him?

Try to get him to owner finance.

 

[Rodj13]

Try to get him to owner finance.

I’ve seen people do that but I think the chances are pretty slim. He’s in his mid 70’s and looking to leave town (Colorado). Might be worth asking though.

 

[MEP001]

It's always worth asking. Worst that can happen is he'll say no. Unless he needs the whole amount now, he'll have a steady and significant income for the next 10-15 years.

 

[Joswhaha]

Howdy sir,
I just purchased a existing car wash in December and dealt with some of these issues. I ended up talking to seller into financing the deal with a balloon in 5 years with the payment amortized over 15 years.

I could of got a better price by getting a bank loan and paying him at once but it is easier and more flexible with owner financing.

I have a pretty good relationship with my bankers and they would finance 85% of the purchase price, 20 year amortization, 5 year term. Probably fairly common terms for a commercial bank loan.

 

[Joswhaha]

A few things I forgot…are you talking 50k, 500k, or 5 million valuation?

Our closing costs for buyers usually average 2 - 2.5 percent.

Generally, government loans have a lot of hoops to jump through so make sure the seller is prepared for an extended escrow period.

 

[Rodj13]

It’s looking to be around 600k to be financed.
The current owner is in his mid 70s and is looking to move out of town so I wasn’t sure if he would go for seller financing.. might be worth a shot though.

 

[traveler17]

It’s looking to be around 600k to be financed.
The current owner is in his mid 70s and is looking to move out of town so I wasn’t sure if he would go for seller financing.. might be worth a shot though.

Like MEP said it’s always worth a shot!!
You said it’s a 3 bay SS and in a small town. Has he shared financials? 600 k sounds like a lot for 3 bays but if you’re the only game in town might be a winner. 3 to 4x’s the gross w real estate is common practice for purchase

 

[Rodj13]

It’s about 20 miles out of Denver so the property value alone would be why it’s so high.. prices are ridiculous out here but you might be right.. it could be over priced

 

[Randy]

I had a guy approach me yesterday about buying my car wash. I told him I'd sell it for land value, his eyes lit up as bright as stars in the night. When I told him what land value was the brightness went way in the blink of an eye. 1.3 acres of commercial property is expensive anywhere you go.

 

[kdersch]

Howdy sir,
I just purchased a existing car wash in December and dealt with some of these issues. I ended up talking to seller into financing the deal with a balloon in 5 years with the payment amortized over 15 years.

I could of got a better price by getting a bank loan and paying him at once but it is easier and more flexible with owner financing.

I have a pretty good relationship with my bankers and they would finance 85% of the purchase price, 20 year amortization, 5 year term. Probably fairly common terms for a commercial bank loan.

What type of documents did you draft up for something like this and how did you determine a rate? Did you pay any sort of down payment up front? How close were you to his asking price with this? Feel free to PM me if that's easier.

 

[Joswhaha]

What type of documents did you draft up for something like this and how did you determine a rate? Did you pay any sort of down payment up front? How close were you to his asking price with this? Feel free to PM me if that's easier.

No need for private messages, this is good info for everyone. I had a standard purchase agreement for real estate then we had the title company draft a note and signed it at closing along with the other standard closing documents. All the terms are negotiable.
I will share my details but remember everything is negotiable, you have to figure out a way to overcome the sellers objections if there are any or the seller must do the same.

My car wash was listed for $425k. I originally offered 300k and I would get a bank loan but the seller would not go for it. After a few months I reached back out to him and offered him 300k again. He still didn’t bite, he did counter offer at 350k. I said I will give you 350k if you carry the note. He agreed. I knew I could get prime +1% interest, 15 year term, 5 year balloon from the bank so that is exactly what I offered him, I also offered 100k down payment.
All of those details are negotiable, I feel confident I could of closed the deal with a lot less down and could of negotiated the terms a little but I was satisfied with the deal, the seller was satisfied with the deal too.
If you are planning to structure a deal with a seller, I would be sure to present yourself as a knowledgeable professional(not necessarily in car washes but just in general) from the start or most sellers will not take you seriously.

 

[kdersch]

No need for private messages, this is good info for everyone. I had a standard purchase agreement for real estate then we had the title company draft a note and signed it at closing along with the other standard closing documents. All the terms are negotiable.
I will share my details but remember everything is negotiable, you have to figure out a way to overcome the sellers objections if there are any or the seller must do the same.

My car wash was listed for $425k. I originally offered 300k and I would get a bank loan but the seller would not go for it. After a few months I reached back out to him and offered him 300k again. He still didn’t bite, he did counter offer at 350k. I said I will give you 350k if you carry the note. He agreed. I knew I could get prime +1% interest, 15 year term, 5 year balloon from the bank so that is exactly what I offered him, I also offered 100k down payment.
All of those details are negotiable, I feel confident I could of closed the deal with a lot less down and could of negotiated the terms a little but I was satisfied with the deal, the seller was satisfied with the deal too.
If you are planning to structure a deal with a seller, I would be sure to present yourself as a knowledgeable professional(not necessarily in car washes but just in general) from the start or most sellers will not take you seriously.

Thank you for the insight! I'm looking at options once I confirm what financing would run me. I am hesitant to offer a large down payment other than maybe covering the cost of his back taxes/utilities and a small upfront incentive ($10k). I can get a loan at 15 year term, 5 year balloon for prime + 2.5% with 10% down worst case. Our main issues are minimizing upfront cash in support of the mountain of repairs/replacements needed at the property and purchasing the property for a price that makes it work dollar wise in this market. I do need to portray to him that although he is only selling for say 300k, he nets an additional 50-60k in profit from the interest of holding the note for us (my partner and I). This may turn into a two property deal, with the 2nd property being a lease at a major grocery chain gas station, which could complicate things further.

 

[traveler17]

Thank you for the insight! I'm looking at options once I confirm what financing would run me. I am hesitant to offer a large down payment other than maybe covering the cost of his back taxes/utilities and a small upfront incentive ($10k). I can get a loan at 15 year term, 5 year balloon for prime + 2.5% with 10% down worst case. Our main issues are minimizing upfront cash in support of the mountain of repairs/replacements needed at the property and purchasing the property for a price that makes it work dollar wise in this market. I do need to portray to him that although he is only selling for say 300k, he nets an additional 50-60k in profit from the interest of holding the note for us (my partner and I). This may turn into a two property deal, with the 2nd property being a lease at a major grocery chain gas station, which could complicate things further.

If you can I would tell them NO balloon unless you have the means to pay it off when the real estate market crashes again. I know a couple multisite owners that were in the bed for more than a million , balloon came up and bank said no thanks pay us. No negotiation just pay us. The guy that used to own my first wash up here had that happen to him also. I just made a substantial purchase on a really busy site and the bank came back to me w a balloon after I told them initially I’m not interested. Threatened to walk and next day gave me 15 year term. As bad as I wanted this wash I was willing to walk. My anxiety is to bad knowing those crooks could pull the rug.

 

[Joswhaha]

I have been looking at car washes for over a year now and most of the time the asking price doesn’t work or the land is worth more than the car wash income could support.

It is definitely not unheard of to put zero down on a owner carry. A lease option could work the same if it made the seller more comfortable. If the seller needs cash, a bank loan with the seller taking a second position note to cover your down payment.

The sellers motivation to sale the property is going to make a big difference in what the possibilities are.

 

[Kramerwv]

Be careful if you’re doing any loan based on prime rate as it’s getting ready to go up

 

[kdersch]

If you can I would tell them NO balloon unless you have the means to pay it off when the real estate market crashes again. I know a couple multisite owners that were in the bed for more than a million , balloon came up and bank said no thanks pay us. No negotiation just pay us. The guy that used to own my first wash up here had that happen to him also. I just made a substantial purchase on a really busy site and the bank came back to me w a balloon after I told them initially I’m not interested. Threatened to walk and next day gave me 15 year term. As bad as I wanted this wash I was willing to walk. My anxiety is to bad knowing those crooks could pull the rug.

Are you referring to a balloon with owner financing or bank financing? Our intent with owner financing is to refinance with a bank later or have enough cash and assets available to buy it out right. Understood on the prime rate and increasing as well. I think we would want to lock in the rate with the owner though.

Does anyone have any insight on structuring a lease agreement?

 

[traveler17]

Are you referring to a balloon with owner financing or bank financing? Our intent with owner financing is to refinance with a bank later or have enough cash and assets available to buy it out right. Understood on the prime rate and increasing as well. I think we would want to lock in the rate with the owner though.

Does anyone have any insight on structuring a lease agreement?

I was referring to bank financing. I’ve only had one owner finance 25 percent of her wash when I lived in central Florida and they have to agree to take the 2nd. If they go 100 percent it’s the way to go if you can. I wasn’t trying to be negative towards your potential purchase. Balloon payment never bothered me til I saw what happened when banks needed cash and wouldn’t refinance even for those that were current on their payment. I try to look at any negatives as well as the positives. Good luck to ya!! Keep us posted

 

[GoBuckeyes]

I'm still stuck on the fact that it's a 3 bay self-serve and he wants $600k? I get that the dirt might be worth more than I am accustomed to, but the dirt the dirt doesn't generate any monthly income. This would need to be one of the busiest 3 bay self serves I've ever seen.

 

[Rocketman]

Excellent discussion.

I was / am willing to pay for the business in full but the owner would rather half or close to that down and he carries the note for the next 15 years. It's a slow process given the fact that I am keeping busy on the work front and the owner is coming to grips with deciding on when he wants to exit. Similar to what the OP identified, this owner is in his mid-seventies and is very close to ready to enjoy the rest of his time with family etc.

No real rush on my end as I already own an unattended business and have watched his business grow and proper. I'm ready when he is ready.