Feedback requested: Thumb up or thumb down?

[CashFlow]

I'm looking to purchase a self serve/in-bay automatic (real estate and business). I would love to get your feedback if it's worth pursuing an why/why not.
Thank you in advance!

Overview

• Northeast, busy, middle class area
• 4 self serve, 1 touchless in bay automatic, 10 vacuums
• There are 3 other self serve/in bay automatics within 15 minute drive. Two of the 3 are not touchless
• Latest 12 month gross revenue was $350K/year ($330K year before and $300K before that)
• Of the $350K I project to take home $158K/year (before loan service, but after I've paid someone to visit every day, clean up etc + allotted $2K in monthly repairs)
• After loan service I expect to take home $84K
• I live over an hour away and am not mechanical, so I'm hoping hired help for day to day and monthly budget for repairs will keep things running operations fairly smoothly
  

Important notes:

• Buying real estate + business at a 6.42X multiple
• Purchase price $2.250M, $1.1 M down, seller financing at 5% for $1.150M (10 year term, 30 year amortization)
• This means cash on cash return will be just about 7% (after I take into account closing costs)
• Property sits in a 100 year flood zone
  
  
  
  

 

[AnalyticWash]

6.42 multiple is expensive. I would only justify this on rare occasions.

How old is the car wash?
How new is the IBA equipment? What brand?
Do they currently use a company to service their IBA?
Have you had someone familiar with car wash equipment do an inspection of the site?

 

[CashFlow]

6.42 multiple is expensive. I would only justify this on rare occasions.

How old is the car wash?
How new is the IBA equipment? What brand?
Do they currently use a company to service their IBA?
Have you had someone familiar with car wash equipment do an inspection of the site?

Thank you for your questions.

1. There used to be a wash in that location for some time, however, it was abandoned for sometime. It was was brought back to life 7 years ago.
2. Frankly I'm not sure of the brand. I believe the IBA is 15 years old.
3. The current owner, having been in the industry, services most everything himself.
4. I have not had someone inspect the site. I was going to do that during the due diligence period - after a purchase agreement has been signed.

 

[AnalyticWash]

That IBA is approaching end of life if it is 15 years old. Budget 200-250k for a replacement. Outside service on a 15yo machine is probably 25k/year to keep that running.

Does the deal make sense at your 6.42 multiple knowing that?

If the owner was willing to replace the machine as part of the purchase price, this makes more sense.

 

[CashFlow]

That IBA is approaching end of life if it is 15 years old. Budget 200-250k for a replacement. Outside service on a 15yo machine is probably 25k/year to keep that running.

Does the deal make sense at your 6.42 multiple knowing that?

If the owner was willing to replace the machine as part of the purchase price, this makes more sense.

The replacement cost of an IBA machine does help put things in perspective and makes the wash less attractive of a purchase.

 

[Roz]

Really depends on the location. The premium may be worthwhile due to the location or demographics. Northeast and West Coast you are paying a premium for the land.

That said I have seen similar priced 6 bay (4SS/2IBA) all new equipment for sale at similar ask (and revenue is close to $500K). The fact that the owner is willing to finance the deal is a big plus. Tradeoffs.

a carwash can be a nice way to diversify from the stock market.

 

[Keno]

6.42 is a high multiple on a surface level view, but as Roz said it's all trade offs. You are buying in a high land cost area and getting owner financing for 50% at a very reasonable interest rate, both of which will add significantly to sale price. Proceed with caution, but seems to be worth getting more details on. Make sure you verify gross sales, very easy to fudge numbers up or down in a cash heavy business

 

[JaySingh]

Just based on the EBITDA you could probably get something at a better price point with more cash on cash return.
If you used the cap rate model on a 2.2 Million; you're buying at a 7% cap rate. You're better off buying something else more passive.

We have done 3 SBA deals last year and our average cap rate is 11.7%, so we would buy your wash with the 158NOI at about 1.45 Million.

 

[CashFlow]

Just based on the EBITDA you could probably get something at a better price point with more cash on cash return.
If you used the cap rate model on a 2.2 Million; you're buying at a 7% cap rate. You're better off buying something else more passive.

We have done 3 SBA deals last year and our average cap rate is 11.7%, so we would buy your wash with the 158NOI at about 1.45 Million.

Thank you for providing your insights. Much appreciated. I too think it's a lot of money, for a decent amount of work.

 

[getnbusy]

Alot to look at here. The 15 year old revived machine is a no go for me. you should have new stuff for that kind of money, I know of severeal 4/1 that have 300-350 in gross income. I think your site should have more income for that price. IMO, cap rates and income multiples are tough numbers for a carwash evaluation. The cap rate for a carwash purchase needs to be alot more than for a normal real estate transaction because you have to have an operators salary in there somewhere. Over and above your return. The 7% return is not going to make you happy because you are going to have owners responsibilities. Your guy cant do it all and what he doesn't do falls back on you. Being mechanically inclined or having a very dependable and knowledgable guy is a must have. That costs money. The carwash business is very hands on. Im not saying thumbs up or down because i dont know anymore about it than what you disclosed. My question to myself you be ....what else can you do with the 1.1 you are paying down ? And what else could you do with 2.2 ? my 2 cents