Any advice on new purchase, due diligence on Car Wash

[Lilwarrenb]

I will do my best to give all info I have at the moment and looking for any help, opinions from people who have been there done that or had success or failures. I am leaning towards purchasing but still trying to do my due diligence. I'm new to the business and am trying to learn all I can before possibly making a huge mistake. I have normally stuck with rental real estate but recently bought a laundromat and enjoy the change and the challenge of improving it and its income. The Wash is 2 SS bays and 1 IBA and was built new in 2007 so building and everything is in good shape and has good curb appeal, Yet upon entrance and looking closer you can see it is not being ran to its potential. The owner has other businesses and I think it is more labor intensive than he was hoping for and has kind of let it go. Garbage cans broken, Vending mostly empty, mud in bays, 1 vacuum missing from bay and it was sitting in the equipment room. He was showing annual gross sales of $120K in 2015 and 2016 and then $90K in 2017. We did have a couple harsh winters in a row and this winter was abnormally bad and long extended cold periods. He had around $44K in cash flow but he also ran all his personal expenses through the business so I know I can do better than that. It is on a busy 4 lane one way street with easy access in and out and across from a park. The street has average daily traffic of 15,000 cars per day. Asking price is $460K but said he would take $430K. It will be on a 25 year loan at 6% with 25% down although I will only have about $30K of my own cash in as I will be borrowing some of the down payment as well. Also, just for reference, while driving around the other day I ran into 2 car wash owners on another busy street and had the pleasure of talking to them. 1 was the exact same carwash that my sellers sister built at the same exact time in 2007 but has 1 additional SS bay. The owner said he paid $600K and it was cash flowing well and that he upgraded the IBA. The 2nd was just down the street and was 5 or 6 SS and 1 IBA. He actually showed me a graph of income from when he bought it. In 2012 it had an average gross sales of $5,000/month and in 2017 he increased it to $15000/month with a couple months he hit $20,000. They are just down the street from each other and the street they are on averages about 7,000 to 8,000 cars per day traffic and both are back a ways from the street so less visibility than this one. I think with some marketing, rebranding, and elbow grease I could exceed those numbers.

Questions:

Does this seem feasible or what other info should I try to get or look at to make an informed decision?

Does the price seem in the ball park?

The IBA is a Vector Rapid Wash, He has replaced some motors and gear boxes but I'm wondering if this has some life left in it with proper maintenance? Has anyone used these, what are your thoughts or experiences with them? I don't have the wash count on it but could get it. Trying to figure out if I'm going to be able to use this for a while or if I need to seriously consider a new one in the budget?

The pay system is Unitec Wash Select 2. It does have fleet and PIN code capabilities which I plan on using to hopefully increase business. Any thoughts or experience with this system?

There are no Card readers in bays, just the change machine, would you recommend installing these? Anyone done this recently? How much?

I know this is long but the more info hopefully the more info I can get.

Thank you in advance for any advice or knowledge you can share!

 

[MEP001]

The Vector should have a lot of life left in it, but at 11 years old it's probably going to need a lot of repairs. Belanger should still have parts for the machine but they're expensive.

25 years at 6% seems high.

 

[Lilwarrenb]

Ok that is good news, I was hoping I could get some more out of it. Yeah I looked through their parts and it does look like they still have most of them and yes seemed expensive but cheaper than a new system for just starting out. So the 6% seems high? Most commercial loans only go out 20 years and my normal bank only wanted to do 15 years, 30% down and I think rate was closer to 6.5 because they considered it special use I guess. 15 years and higher down really cut into cash flow and rate of return so I was happy to get the 25 down at 25 years. What would you consider the norm or what have you seen as far as loan terms? Thank you for your input!

 

[MEP001]

Not sure about the rate (Not much you can do about that), but I would've gone for the 15 year note. You'll be paying about double the interest with a 25 year.

 

[robert roman]

I would put the brakes on this gem until you got an appraisal from a professional with carwash experience.

Consider some negatives.

Biggest one is financial history is negative.

2 + 1 means income potential is mostly in-bay. However, in-bay is more than 10 years old and obsolete from marketing perspective as is the pay station plus its technically obsolete.

“He had around $44K in cash flow but he also ran all his personal expenses through the business so I know I can do better than that.”

I can’t remember how many times I’ve heard someone say this over last 20 years. Good luck with that.

Self-serve might seem like rental property or laundry but its not and in-bay takes it up a notch plus you have no previous carwash ownership or management experience.

Challenge is one thing. Overpaying and underperforming is another.

You said you are worried about making mistake. I don’t blame you.

 

[Roz]

Take the 25 year note and make certain that there are no pre payment penalties. Better to save your cash for renovations and use the bank's money even if you are paying a slight premium (my guess is best rate on 25 yr would be 5.25% as rates have risen a bit). Shop one bank vs another as they all play that game and will compete for your business.

At the end of the day if you took $430K of your money and made some fairly conservative stock investments you probably can average 10% return (pretax) over time (ignoring the fluctuations) so $44K Net is about the same except you now need to physically work for the $44k instead of being behind a computer.

Now anything you do to the business to improve the numbers is upside. How does the town assess the value? I find the town assessors to be fairly good, not perfect, but a very good starting point for discussion. Most businesses sell between 0.75 and 1.5 times assessed values as each new transaction will change the assessed value. There are some exceptions so not a hard and fast rule - especially if property has been owned for many years. Look at real estate transaction data for your street as you should be able to find some comps. Other benchmark is to take 3-5 year average gross and multiply by 3-7 depending on the location, equipment, and setup. In your case you are looking at an asking multiple of 4.2 (using $110K ave) since you will have some closing costs too.

Lastly there are not a lot of people lining up to purchase a car wash these days as it is not the same as purchasing a commercial property with a set lease agreement (basically an annuity). Look at assessed value to see if seller is taking a loss (meaning he is loath to lower the price and increase the loss), or if he is making some money (meaning that there might be more room to negotiate since you have no other bidders). What is he charging for SS and IBA relative to the competition? He might be undercharging whereas you can raise prices if you make the place more appealing.

Averaging the 3 years of gross numbers yields $110K which should NET you about $55K if you manage things carefully. If you paid $400K you are making about 13% if you get the place back to the $110-120K level but be realistic as to how much additional investment you will need to make to bring the place back to life.

Given the declining numbers you cite I would probably stay closer to the assessed value (or below). Used prices for car wash equipment are dimes on the dollar. Lastly would the place have a plan B, tear to ground and place a box building on the lot to rent out?

The suggestion about a car wash evaluator is probably a good one, a bit surprised that the bank did not require such a document which leads me to believe that the asking price is probably close to the assessed value enough that the bank is not worried about getting their money back if you fold......Sorry for the wordy response, many variables involved and one can over think things....

 

[robert roman]

Wow, Roz, “….suggestion about a car wash evaluator is probably a good one….”

Probably? After you practically encourage this person to jump in headfirst.

“….a bit surprised that the bank did not require such a document….”

The bank gave its answer; 15 years, 6.5% (variable or fixed?), and LTV 70%

In other words, the bank doesn’t want the risk associated with 20 to 25 years, lower interest rate and LTV 80%.

Although not mentioned, I would assume the bank also wanted DSCR of maybe 1.5 instead of conventional 1.251.

Furthermore, qualifying for a loan to purchase a wash doesn’t necessarily imply it’s a good deal.

Bank doesn’t care how much money you make. All it cares about is how and when it gets its money back.

For example, besides a traffic count, this guy hasn’t offered up a stitch of information on market size, potential value or sustainability.

So how can you possibly tell him there is an upside to his site location?

 

[Roz]

One can over think an idea and never take a chance on an idea - I lean toward taking calculated risks. Real issue, given that cash flow numbers for the last few years ranges from $44K to probably a high of $60K when gross sales were $120k, is what is the commercial land worth. This gets back to the assessed value from the town and the local comps for recent transactions.

Price of the property is probably close to market value, however given that you are borrowing for the down payment too (which I missed seeing the first time) I think you are placing yourself at risk if something breaks and you do not have funds to make the necessary repairs or replace equipment. Find a partner to share the load and financial risk, whatever you decide good luck...

 

[Lilwarrenb]

Thanks all for your input, definitely stuff to think about. The bank will definitely require an evaluation, just won't get to that point until loan is officially approved if I decide to move forward. As far as putting 430k in the stock market that is true if I had 430k cash laying around, if I did it might make more sense buying another business or apartment in the 2 million range, that is the great thing about anything real estate, get 100% of the asset and income stream with 20% of the money or in this case 25%. Yes paying cash for the purchase would be 10% return and that doesn't excite me. Paying 30k cash out of pocket turns 10% into over 100% return per year on my actual cash invested. As far as borrowing the down payment.... The reason for that would be so I would still have some cash left for operating or repairs and not be cash strapped in the beginning just in case, the bank will require a few months worth of debt service in cash reserves as well on all of my debt which will probably be minimum of 40k cash. As far as the DSCR I'm not sure if they raised that closer to a 1.5 or not. I'm assuming the cash flow was sufficient to meet it if they did since they made no mention of it. In the past if I can finance something 100% and it will still cash flow it has usually worked out well. The apartment complexes and residential stuff around here just doesn't pencil. Been looking for a deal for a while now and be lucky to get 8 to 10 percent return. The laundromat deal I ended up getting $2000 cash back at closing and it makes a profit every month and in 5 years when the equipment loan is paid it will jump up quite a bit. Can't think of the last time I put $0 in the stock market and made a couple thousand dollars a month on it. It is a little more work and I know for sure the car wash will be much more than that. The things that I am most concerned about are the age of the equipment and the high price of upgrading it to be competitive with the competition. The prices of the washes are pretty comparable to the other places I have seen. With the older equipment I don't think I can justify raising the prices at this point. I also wonder how much the general public really notices the difference in machines or pay system. As an owner it's always exciting to have the best and want the best but I feel like most people using the wash don't know the difference. There is a laser wash that was just upgraded at a gas station close to where I work and you drive up, there are 4 packages of washes, and swipe my card. Pulling up to the other wash with the older pay system it looks similar with the wash packages and and payment system. Without knowing what I do now I'm not sure I would known the difference in the 2 or even cared for that matter. When any of you have upgraded to the latest and greatest I'm curious if you seen a significant increase in traffic or revenue? On the opposite spectrum do you feel like you would have failed had you kept your old equipment for maybe another 5 years or so before upgrading. Seems to me these washes are kind of like computers or the next smart phone. They are constantly being upgraded and improved. I read a post on here that someone installed a wash and within a couple months the company had an upgrade and it already wouldn't work with his wash. Once again thanks to everyone for taking the time to share your knowledge.

 

[Roz]

I purchased a 30year old car wash which was run down. I cleaned up the look with some paint and replaced the IBA which just moved water, was unappealing, and did not clean a car. Since installing a new WW Razor business has changed positively almost immediately and people have noticed, thanked me, and are coming back to that place. Changing the IBA will make a difference. SS Bay equipment is less of an issue as those customers just want water and soap at a low price. I changed the 30 year old meter boxes, installed Cryptopay for ease of use and see the SS income improving to cover the costs of the equipment in the first year. Old meter boxes were mechanical, jammed ALOT, and were unappealing. Just go to Kleen-Rite or similar supplier to get a nice looking box. Can do all above without breaking the bank, but you need to figure out the costs for the building purchase, equipment, and a buffer to make certain you have enough funds to make a successful turnaround.

 

[robert roman]

“…..As far as borrowing the down payment.... The reason for that would be so I would still have some cash left for operating or repairs and not be cash strapped in the beginning just in case, the bank will require a few months worth of debt service in cash reserves as well on all of my debt which will probably be minimum of 40k cash. As far as the DSCR I'm not sure if they raised that closer to a 1.5 or not. I'm assuming the cash flow was sufficient to meet it if they did since they made no mention of it.”

This is as much of the run-on sentences as I can handle.

It was also enough to end this fairytale.

 

[tobaccofarmer]

Ask yourself this question "Do I want a 7/day week 365 day a year part time job" ? Which revolves around my ability to be able to get 100% of the equipment up and running within a couple hours instead of a couple days or even weeks like the distributors. A business that revolves around the fickle weather which you will become hyper sensitive to and completely can't control anything about it. Or do you want an investment/business that has absolutely ZERO moving parts ZERO Water/plumbing and ZERO PEOPLE to have to deal with which is not at all effected by weather? One last point and I know it depends on your market but the self serve/auto business model is pretty much like a fax machine in 2018 very outdated. Most under 25 wouldn't understand the concept of stopping car, getting out of car, and then having to actually manually clean the car all by themselves. But once again market is everything. Don't get me wrong, all I'm saying is the self/auto model is suited for a pretty intense individual who would resemble macgyver and is willing to sacrifice a whole hell of a lot to get it done. Nothing passive about it.

 

[tdlconceptsllc]

The Tobacco farmer is telling the truth and so is Robert me personally I would never pay 400,000K for a single automatic and 2 self serve bays unless the automatic vector was washing 1700-2000 cars a month as it sits right now. Two self serves can't produce but so much money if you where $3.00 on start up and had them lined up everyday all day. The only way I would look at this deal is if the land was worth 350k with the wash tore down and just the dirt or unless you put in 2 brand new washworlds (2 razors is 240k+400k for the wash plus electrical panels and water upgrade 20k equals total =660k and hope that would triple the current income it sounds like your area (Might) could support that with 15k cars per day of traffic count and others washes down the road i wouldn't be jumping up and down with excitement quite yet. Is there like new development being built all around you and its gonna be worth 800k 5 years from now or something. Those are the only options I would consider. I have been following this post and I would have to see if I could buy another laundry Mat or some more rental property anything a carwash is a lot of work and you doing all the mechanical repairs at gross sales like you said. You are doing the correct thing by posting on the form asking operators who do this everyday I give you thumbs up for that. 400k for 1 automatic and 2 SS its just hard for me to swallow i see that and only doing 100k in gross sales unless like I said the dirt is worth a lot of money.