Another newbie in TX question...

[Vince]

I'm in the San Antonio area. Looking to buy a SS car wash for my sons to teach them Entrepreneur/Business 101. My background is as an apartment developer. I want a zero employee car wash to get their business basics and discipline down before jumping into a car wash with employees.

Now for the question:
Since these self serve bays do so much in cash, how do you REALLY know what the cap rate is on these businesses since so much is not reported? What is the metric you use to try to get to the bottom of this? Cars per day or week? Is there a 1 to 1 relationship with water gallon usage that you may be able to smoke out how much business they're really doing?

Thanks in advance for any and all responses.

 

[Roz]

CAP Rates are for real estate that has steady rental income or for self storage businesses where you can rely on a steady or almost steady income. SS locations are priced either at a multiple of gross revenue, or NOI, or at land value - usually whatever is higher for the seller. Other variable is the state of the equipment and facilities - does the place need additional investment. That additional investment sometimes comes off the value depending on the situation.

Your goal with the kids is great. My kids were in school when I started with my first car wash and have learned some lessons from watching me or listening to my adventures in the business - never a dull moment when working with equipment or retail customers. No way to use utilities to estimate the revenue in any meaningful way, just too many variables to have a reliable estimate. Look at the books, see how reliable they are (tax returns vs a detailed spreadsheet vs. the back of an envelope with a number) then make a judgement call based on your assessment of the location. Demographics should be a big help to you to come up with the potential. Good luck with the purchase but make certain your kids are onboard with the idea as I purchased a place from a grandfather who did the same for his grandson. Kid quickly decided to enlist in the army instead and after man made the purchase. Old man ran the place into the ground and place had little value when he sold it to me. Now my project...

 

[Vince]

Greatly appreciate the response, Roz.

As I see it, the Cap Rate, which of course is how we value apartments, is based on the NOI. I have a situation on a car wash in San Antonio that I'm looking at. The numbers they provided are pure garbage and look like a 12 year old put them together. Looked like an poorly executed exercise in creative writing. Lol. Basically useless. I've no doubt that the current owners are milking it dry and pocketing the cash. Nevertheless, they are still proud of the asking price.

I'm sure this has been asked and answered a 1000 times here but what multiples of Gross Income or NOI is considering "normal".

 

[Vince]

Btw, Roz, I totally hear you about my twin boys being committed. It’s crossed my mind but they are very engaged and excited about this. I’m going to make them part owners. I’ve got a plan B in case it doesn’t work out.

 

[Roz]

Understand. They can wish for any number they want as it is their baby but cash flow needs to support the number.

Normal is a relative term because it depends on the gross revenue since the larger the GR the more cash flow you have at the end of the day since some of your expenses are fixed (taxes, repairs, etc) and not variable (chemical, water, sewer). Range is from 2-6 times gross revenue. GR is used most often since NOI can depend on the expenses, again some are a must spend and some are an optional spend like a remodeling.

Many car wash owners do not understand NOI and often say the NOI is the gross revenue number so safer to refer to GR as there is less confusion too.

At end of the day I ask myself if I have $X in the stock market or bank, and was to use it to purchase car wash would I be able to repay myself in 5-7 years and earn some money from the business. If answer is yes then I am comfortable with the purchase if answer is no well I walk. If one needs to do financial calculus with depreciation then not a good investment. Depreciation is a fringe benefit from owning a business, one that may not always be available given the politics in DC (and issue is not a dems or GOP one as they both just work in their own financial interests).

 

[Vince]

Roz:

I found another one for sale in Oklahoma in an area that I know very well. Looks legit but not cheap per se. It has 9 SS bays and 1 Touch Free Automatic. The Gross Income is $461,000. That sounds very high to me for only 10 bays. I'm just bouncing this off of you for a back of the envelope opinion. Does that sound possible or reasonable to you?

 

[Roz]

GR is not unreasonable. I have recently seen several similar washes that have twice that number. Depends on location, demographics, and service they provide customers.

 

[Cool Wash]

Hello Vince,

Please call me. I am in San Antonio. 210-639-7451

 

[OurTown]

I just saw a 5 bay SS pop up for sale near me at 39 times net income. Most around here go for between 8 to 15 times net though.

 

[Rfreeman]

Roz:

I found another one for sale in Oklahoma in an area that I know very well. Looks legit but not cheap per se. It has 9 SS bays and 1 Touch Free Automatic. The Gross Income is $461,000. That sounds very high to me for only 10 bays. I'm just bouncing this off of you for a back of the envelope opinion. Does that sound possible or reasonable to you?

Is someone moving to Oklahoma or your sons going to college there? Who would run it?

Thats great you want to buy them a business but like Roz said definitely make sure their committed to taking out trash and cleaning up other people's messes otherwise the "honeymoon" will be over real quick.

I've had 4 washes now and I run all my proformas using cap rates and gross income multiples. Personally, wouldn't go higher than a 5 multiple for a site that is pristine and ready to go. A lot of income verification for me is going to the wash and watching it to see traffic flow. They can put anything down on paper and it be next to impossible to verify

 

[Vince]

Is someone moving to Oklahoma or your sons going to college there? Who would run it?

Thats great you want to buy them a business but like Roz said definitely make sure their committed to taking out trash and cleaning up other people's messes otherwise the "honeymoon" will be over real quick.

I've had 4 washes now and I run all my proformas using cap rates and gross income multiples. Personally, wouldn't go higher than a 5 multiple for a site that is pristine and ready to go. A lot of income verification for me is going to the wash and watching it to see traffic flow. They can put anything down on paper and it be next to impossible to verify

I'm originally from OKC and went to OSU many years ago. I still have family there. Though I live in San Diego, my apartments are in San Antonio and I have a home there as well. For that reason, I would prefer to find something in San Antonio/New Braunfels area. With that said, OKC would still be an option as they have family and cousins there.

I totally hear you about the boys being committed. It's a concern but they're at that point where their buddies are heading into careers and they're hungry to get into my Real Estate business. I'm looking for this to be that stepping stone and testing ground. In addition, I have people in San Antonio that could run it if my boys decide it's not for them.

Thanks for advice on the 5 multiple. You were referring to the Gross Income being a 5 multiple, right? I'm going to do exactly what you suggested and pay someone to sit on a couple of sites I have my eye on and get some actual traffic counts.

 

[Greg_T]

I think your approach is very commendable. From my humble experience, I think a self serve car wash is a good business introduction. Good experience with dealing with customer complaints, unexpected problems, a whole range of expenses, dealing with government agencies etc. etc. etc.

Most importantly, I think that it teaches that every business has difficult tasks that someone has to do. For car washing, somebody still has to do all the dirty work of cleaning bays and emptying trash. For our little wash, it's shoveling mud that separates "the men from the boys" (with apologies in advance to all our wonderful female members!).

Good luck with your venture.

 

[Rfreeman]

I'm originally from OKC and went to OSU many years ago. I still have family there. Though I live in San Diego, my apartments are in San Antonio and I have a home there as well. For that reason, I would prefer to find something in San Antonio/New Braunfels area. With that said, OKC would still be an option as they have family and cousins there.

I totally hear you about the boys being committed. It's a concern but they're at that point where their buddies are heading into careers and they're hungry to get into my Real Estate business. I'm looking for this to be that stepping stone and testing ground. In addition, I have people in San Antonio that could run it if my boys decide it's not for them.

Thanks for advice on the 5 multiple. You were referring to the Gross Income being a 5 multiple, right? I'm going to do exactly what you suggested and pay someone to sit on a couple of sites I have my eye on and get some actual traffic counts.

Yes I was referring to gross income on that 5 multiple. If your sons are there in San Antonio I would recommend have them sit out front of whichever wash you might be looking at, consider this the first test. By sit I don't mean 15 mins and leave. If your going to take that approach then I would recommend dropping by several times a day a different times to see what type of traffic is there.

I don't know about others but most of my business is done Fri Sat and Sun....Wed is usually my slowest day but that doesn't mean don't go check out any potential wash on Wed. The weekends you should see some traffic in and out of the place depending on what numbers they are claiming as well.

I know there are some pretty good (for Tx standards) washes in the San Antonio area. I haven't heard of many in New Braunfels. We have a place in New Braunfels so we run down there a lot.

 

[Vince]

You have a place in New Braunfels? Small world. I built my first apartment community there, The Augusta at Gruene, and we've had a home there since 1995. I sold the apts back in 2003 but built 2 more in the Medical Center area in San Antonio that I still currently own. My area of expertise is in multi family, so, the car wash thing is a new ball game. Steep learning curve but I'll get there.

 

[MEP001]

San Antonia is a tough place for car washes. There are a lot of them, and some areas have one on every other block because they were severely overbuilt in the 90's. Those parts of the city aren't growing and are lower income. Most of the people selling are asking way more than it's worth and aren't flexible on price.

 

[Vince]

San Antonia is a tough place for car washes. There are a lot of them, and some areas have one on every other block because they were severely overbuilt in the 90's. Those parts of the city aren't growing and are lower income. Most of the people selling are asking way more than it's worth and aren't flexible on price.

Thanks for your response. And you’re right. Every one that I’ve looked so far seems WAY overpriced. I’ll have my feet on the ground on Thursday.
When I compare it to a stock, such as many of the oil pipeline companies that pay 6% to 10% dividends and are almost zero risk, I simply can’t justify an 8-10% return on a car wash that requires daily attention.
Any other observations or thoughts you may have will be greatly appreciated!

 

[OurTown]

Roz:

I found another one for sale in Oklahoma in an area that I know very well. Looks legit but not cheap per se. It has 9 SS bays and 1 Touch Free Automatic. The Gross Income is $461,000. That sounds very high to me for only 10 bays. I'm just bouncing this off of you for a back of the envelope opinion. Does that sound possible or reasonable to you?

To me the net is the more unbelievable part at $340K out of $461K gross.

 

[Vince]

To me the net is the more unbelievable part at $340K out of $461K gross.

I thought the same. Looks to be legit.

 

[Vince]

San Antonia is a tough place for car washes. There are a lot of them, and some areas have one on every other block because they were severely overbuilt in the 90's. Those parts of the city aren't growing and are lower income. Most of the people selling are asking way more than it's worth and aren't flexible on price.

Out of curiosity, how do you know the San Antonio area so well? That was great info you gave me as it confirmed my take on the market as well even though I'm new to all this.

 

[MEP001]

I've serviced a lot of car washes there. The company I used to work for built several and installed equipment in several. I still supply parts and chemicals to three washes there. I've been in San Antonio once a month for almost 30 years. I used to make sales calls and have tried to help a lot of them improve their business, but they mostly don't want to spend any money.