Advise needed, first time potential buyer

[kentsomners]

Hello everyone
I am hoping you could give me some advise. I have been offered to buy SS car wash in Philly, it is not even listed yet The offer comes from another investor, that I have done many deals with in real estate. I do need help in understanding if the below numbers are what to expect from the SS car wash business. It seems to me the investment cost is high, and return even if this is not a full time job. Any and all advise would be greatly appreciated.


Some data below

Asking price 1.400.000 (This is of course asking price)
Take home: 75k yearly
On busy road with 40 mph speed limit, with a lots of traffic throughout the day.
Land Value sits at $900k. 500k for buildings and equipment.
Houses in the area ranges from 350k to 700K. High Density residential area all around.


6SS, 6 vacuums, 1 automatic. All equipment 5.5 years old.

 

[MEP001]

Is that "take home" the net? Can it be backed up with at least two years of tax returns?

What SS functions? What brand of equipment? Exactly what automatic?

 

[Rfreeman]

So you are a real estate investor by what your post says....so at the current figures IF, and that is HUGE IF, they are accurate your standing at a 5.3 cap rate on this deal....is that good for you? Me personally, no. Even at a Million your at 7.5 cap still a no for me.

Take home = NOI, correct me if I'm wrong, historically car washes have run 40-50% expenses rule of thumb of course, there are exceptions either direction, but under this assumption your gross then is $125,000 ( $75,000/.60= $125,000) So @ asking $1.4 mil your at 11.2 gross multiple, another no for me. There again most car washes, and businesses for that matter, trade on multiples of gross income. Car washes you will see 3-5x of gross so you are out of range here.

Let's look at the numbers an assume the seller will go down to $1.2 mil assume a 20% down payment ($240,000) so your on the hook for $960,000 for 15 yrs. @ say 5% your debt service alone would be approx. $7,591/month for 12 months $91,092 on the year....there goes your $75,000 in NOI.

These are just the numbers showing that this deal makes no sense with debt service...its not feasible. Of course there are situations where you can increase income, I have done so at both of my washes, but I don't like to consider that when evaluating any deal...I keep that as "bonus" if the numbers given to me are correct.

So financially as it stands I don't see how this is a good investment. I haven't considered the equipment, condition, labor (no car washes are not just show up collect all the cash and leave.....they are work and either you or someone (more expense) will have to do it.

 

[KleanRide]

Is that $75k is actual "take home pay" (after all operating expenses, debt, taxes) then it may be worth a closer look.

If not, no thanks

 

[kentsomners]

So you are a real estate investor by what your post says....so at the current figures IF, and that is HUGE IF, they are accurate your standing at a 5.3 cap rate on this deal....is that good for you? Me personally, no. Even at a Million your at 7.5 cap still a no for me.

Take home = NOI, correct me if I'm wrong, historically car washes have run 40-50% expenses rule of thumb of course, there are exceptions either direction, but under this assumption your gross then is $125,000 ( $75,000/.60= $125,000) So @ asking $1.4 mil your at 11.2 gross multiple, another no for me. There again most car washes, and businesses for that matter, trade on multiples of gross income. Car washes you will see 3-5x of gross so you are out of range here.

Let's look at the numbers an assume the seller will go down to $1.2 mil assume a 20% down payment ($240,000) so your on the hook for $960,000 for 15 yrs. @ say 5% your debt service alone would be approx. $7,591/month for 12 months $91,092 on the year....there goes your $75,000 in NOI.

These are just the numbers showing that this deal makes no sense with debt service...its not feasible. Of course there are situations where you can increase income, I have done so at both of my washes, but I don't like to consider that when evaluating any deal...I keep that as "bonus" if the numbers given to me are correct.

So financially as it stands I don't see how this is a good investment. I haven't considered the equipment, condition, labor (no car washes are not just show up collect all the cash and leave.....they are work and either you or someone (more expense) will have to do it.

First thank you for responding with great input.... Here is some clarification, that I clearly is missing to communicate.

First: Another user Kleanride had a good questions, and here is the answer: Yes 75k is take home after all operating expenses, debt and taxes has been paid.

Second: I usually run 12-14% ROI on my cash for my rentals/flips. So no this does not make sense at all. This post was to get veterans like you all to double check me.

Third: Gross sales 320k

Fourth: MEP001 I am awaiting tax returns to verify take home from business. Right now its only shown on P&L.

 

[Rfreeman]

First thank you for responding with great input.... Here is some clarification, that I clearly is missing to communicate.

First: Another user Kleanride had a good questions, and here is the answer: Yes 75k is take home after all operating expenses, debt and taxes has been paid.

Second: I usually run 12-14% ROI on my cash for my rentals/flips. So no this does not make sense at all. This post was to get veterans like you all to double check me.

Third: Gross sales 320k

Fourth: MEP001 I am awaiting tax returns to verify take home from business. Right now its only shown on P&L.

Okay now we are looking at a different picture based off of the numbers that were given. For starters 1.4mil and $320K gross a 4.375 multiple...good not great.

$320K Gross Sales and $75K take home = difference of $245,000 for expenses, debt service, etc.
Assuming 50% expense ratio of Gross Income then your operating expenses approx are $160K of this $245,000.

$245K - $160K = $85K for existing debt service and or other expenses taxes, depr. etc. ( we or you would just have to see how he/she runs their financials in that 50% ratio I estimated above does that include all expenses to run the wash except debt service or not)

Where I am going with this @ $1.4 million est. a 20% down payment ($280K) new debt $1,120,000 @5% for 15 yrs. = $8,900/month or $106,800
$106,800 new debt - $85K exisiting debt service = $21,800 difference
$75K free clear cash flow - $21,800 diff in new debt = $53,200 free cash flow
$53,200/$280,000 = cash on cash return of 19% not bad at all

Financially with this new information personally I think the deal can work BIG ASSUMPTION here is the information you are being presented is accurate, true, and correct.....that's a BIG IF and will be left to your discretion. So assuming this information is true and correct I would look at the equipment and other property specifics like MEP001 suggested.

In summary, the more information you can and will share with us on this forum the better we can give our opinions. Everyone on here is here to help let us know

 

[MEP001]

One thing to keep in mind is that with a 6 bay SS 1 auto it's usually the auto that's carrying the wash, and the vacuums are some nice gravy. An express exterior with free vacs opening nearby can decimate the auto and vac revenue.

I try to look at a wash opportunity by determining its potential for improvement. Most washes around here are seriously underperforming. At $75k/year, the one you're looking at may be at its peak. If the current owner is doing all repairs himself and you can't, you may be looking at a $10,000-20,000 annual bill for repairs and maintenance.

 

[kentsomners]

One thing to keep in mind is that with a 6 bay SS 1 auto it's usually the auto that's carrying the wash, and the vacuums are some nice gravy. An express exterior with free vacs opening nearby can decimate the auto and vac revenue.

I try to look at a wash opportunity by determining its potential for improvement. Most washes around here are seriously underperforming. At $75k/year, the one you're looking at may be at its peak. If the current owner is doing all repairs himself and you can't, you may be looking at a $10,000-20,000 annual bill for repairs and maintenance.

Very good point and I already been looking at this. 3.8 miles away there is a tunnel, with free vac, towels and sprays for interior/exterior. This has not impacted the business, and it does surprise me a good bit why that is. The other location is very nice, but cheapest option is 16$ for wash only.
They are a full service location with both interior service, wax and more.

 

[kentsomners]

Is that "take home" the net? Can it be backed up with at least two years of tax returns?

What SS functions? What brand of equipment? Exactly what automatic?

Sorry for the late reply... Been really busy with my rentals, but finally got some info for you...

The Autowash is from Washworld and Model is Razor.

The SS machines has 11 options. It takes coins and credit card.
Options are below:
Engine Cleaner
Tire Cleaner
Bug Spray
Pre Soak
High Pressure Soap
Foam brush
High Pressure Rinse
Triple Foam
High Pressure Wax
Spot Free Rinse
Air dryer

 

[kentsomners]

One thing to keep in mind is that with a 6 bay SS 1 auto it's usually the auto that's carrying the wash, and the vacuums are some nice gravy. An express exterior with free vacs opening nearby can decimate the auto and vac revenue.

I try to look at a wash opportunity by determining its potential for improvement. Most washes around here are seriously underperforming. At $75k/year, the one you're looking at may be at its peak. If the current owner is doing all repairs himself and you can't, you may be looking at a $10,000-20,000 annual bill for repairs and maintenance.

Repairs are hovers from 4-6k a year.

 

[Rfreeman]

Well financially like I mentioned sounds like a pretty good deal....equipment sounds good too now who's going to run it? These washes don't run themselves and no this isn't a just run by and pick up the cash type of business.

At $6K/yr. on repairs it sounds like the current owner is doing all the work. If he is are you willing and able to do the same? If not plan on hiring someone and that will eat on your bottom line. Like you I own rental real estate as well where I have a full time maintenance man that helps with rentals and the car wash. Nonetheless, before I turned him loose on the car wash I learned everything I could myself because I know I won't have him for ever.

I would ask the owner if they would let you tag along every time they go or someone goes so that you get a real taste of what it takes to own and run a wash....after that....if your still interested go for it!

 

[kentsomners]

Well financially like I mentioned sounds like a pretty good deal....equipment sounds good too now who's going to run it? These washes don't run themselves and no this isn't a just run by and pick up the cash type of business.

At $6K/yr. on repairs it sounds like the current owner is doing all the work. If he is are you willing and able to do the same? If not plan on hiring someone and that will eat on your bottom line. Like you I own rental real estate as well where I have a full time maintenance man that helps with rentals and the car wash. Nonetheless, before I turned him loose on the car wash I learned everything I could myself because I know I won't have him for ever.

I would ask the owner if they would let you tag along every time they go or someone goes so that you get a real taste of what it takes to own and run a wash....after that....if your still interested go for it!

I can turn a wrench... I renovate all my rentals myself. Sure a wash will be a learning curve for sure. Seller has expressed a desire to ensure that I would get a good business and would stay on as help for 3-4 weeks to teach me the ropes. I think I can learn the basic and most repairs that way.

Admitted yes, my repair cost will go up the first year because I would need more help.

 

[kentsomners]

Well financially like I mentioned sounds like a pretty good deal....equipment sounds good too now who's going to run it? These washes don't run themselves and no this isn't a just run by and pick up the cash type of business.

At $6K/yr. on repairs it sounds like the current owner is doing all the work. If he is are you willing and able to do the same? If not plan on hiring someone and that will eat on your bottom line. Like you I own rental real estate as well where I have a full time maintenance man that helps with rentals and the car wash. Nonetheless, before I turned him loose on the car wash I learned everything I could myself because I know I won't have him for ever.

I would ask the owner if they would let you tag along every time they go or someone goes so that you get a real taste of what it takes to own and run a wash....after that....if your still interested go for it!

Hello everyone

I owe you all an update.... so I have been digging in land sales with the county, and low and behold what I found..... land 1 mile from where the car wash I was interested in has been sold... AND permits has been issues... AND today I saw the first bulldozer.... YEP a rather large NY chain of carwash services is going to build a full tunnel where you drive in and you car is being dragged through (sorry do not know the industry terms) they will also offer self service. Their prices are very competitive for sure.
This is of course means I am not just walking away but running, as they are convinced that they are getting asking price suddenly.

I am going to sit back, and look for something else.

I want to thank you all for your help, and great advise.

 

[MEP001]

My bet is that it'll be an express exterior tunnel.

 

[docopp]

I try to look at my investments as simply as I can.
If the owner owns the car wash outright and takes home 75K/year.
Assuming everything stays the same, always a big assumption.....
you adding having to service the 1.4M or 1.3M capital investment alone would eat up your 75K/year profit...….

 

[OurTown]

I try to look at my investments as simply as I can.
If the owner owns the car wash outright and takes home 75K/year.
Assuming everything stays the same, always a big assumption.....
you adding having to service the 1.4M or 1.3M capital investment alone would eat up your 75K/year profit...….

He did state that the $75K was after debt payments.

 

[kentsomners]

He did state that the $75K was after debt payments.

correct.... but this is not worth the invest at all with this new big competitor that has must more cash on hand

 

[Rfreeman]

Kentsomners

Personally I think you potentially could be "throwing the babe out with the bathwater" so to speak. Proceed with caution absolutely because you have a competitor moving in but the question is how much will it reduce the income of this wash....and yes it will cut into the revenue. I would keep an eye on things could be a good opportunity to buy this wash at the right price because eventually the loss of revenue will bottom out and stabilize. The impact will be drastic at first, but the market will respond accordingly and a "new normal" will start to emerge. I wonder if the current owner already knew this and that is why he/she is trying to sell? If so the fear of loss of revenue is already there in him/her considering they have a substantial debt load to service. Sit back, wait, and watch