washregal
Member
Is there a strong rule of thumb for car wash apprasal / valuation for sale? How to set a selling price?
Car Wash Apprasal/ valuation
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soonermajic
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Easiest thing I've used was 3 or 4x gross. But, there's obviously some flaws to that. But if u go much higher, then profits become SLIM
Calculate net operating income (ebida for a wash) and then divide by a cap rate for your area. You can search loopnet for listings of things like dollar general, Walgreens and other commercial rentals to get an idea. If most of those are in the 6-6.5 percent range you might use 7-9 percent as an initial guide to see if you think the number is realistic. Spread might be higher depending on how good or bad your wash is performing.
washregal
Member
Hello Kramer - do you have a formula for this calculation
Ebida is your net income plus add back your interest expense, depreciation and amortization. Divide that number by say 8% cap rate. For example if you net $80,000 and divide by 8% you get $1,000,000 “value”. This will likely be one component of an appraisal a potential buyer would want/need. You can play around with that number based on what other properties sell for to substantiate a price. Obviously other factors like location, land values, age of equipment, etc. all play a factor too but this is an important component because most buyers want to see that return equate to value.
OurTown
Well-known member
Are commercial real estate cap rates a good thing to use for car wash valuation? They seem like very different animals to me. Do you have some real life examples of how they are used well? I think they would be all over the place even in the same area.
Cap rate (net operating Income divided by asking price) is the best way to compare apples to apples when you're looking at a cash flow stream for any investment: rent houses, car washes, apartments, office building...
The gross income multiplier doesn't take expenses into account, so there's no way to accurately gauge the true profit potential of the car wash.
If I'm looking at two different car washes and trying to find the one with the best profit potential, I'll ask the owners for their actual income and expense numbers (if they don't have it, I keep walking)
Wash #1 - owner is asking $800,000 for his wash with $100,000 NOI - or a 12.5% cap rate
Wash #2 - owner is asking $1,200,000 for his wash with $100,000 NOI - or a 8.3% cap rate
Assuming the two locations are roughly equal in location quality, age of components, etc, then I'd take the higher 12.5% return on my money.
If wash #1 needs a ton of work, and wash #2 has been newly renovated, then I'd base my decision on how much money I have to spend on the front end of the project, and how much work I'm willing to do.
With respect to cap rates, "safer investments" like apartments and office buildings in my area are usually priced at a 4 to 6% cap rate. That assumes that the buyers of those properties aren't interested in getting their hands dirty or working onsite, so they'll accept a lower return on their investment. Car washes often get priced at 10-12% cap rates because the industry is known for hands-on owners who want to get paid a good return for all of the crap that they have to deal with in running a car wash.
Disclaimer: this is just my .02 from many years buying/selling commercial real estate. I'm a newbie in the car wash realm, but using the cap rate model, I feel like I got exactly what I paid for when I bought the wash I currently own.
The gross income multiplier doesn't take expenses into account, so there's no way to accurately gauge the true profit potential of the car wash.
If I'm looking at two different car washes and trying to find the one with the best profit potential, I'll ask the owners for their actual income and expense numbers (if they don't have it, I keep walking)
Wash #1 - owner is asking $800,000 for his wash with $100,000 NOI - or a 12.5% cap rate
Wash #2 - owner is asking $1,200,000 for his wash with $100,000 NOI - or a 8.3% cap rate
Assuming the two locations are roughly equal in location quality, age of components, etc, then I'd take the higher 12.5% return on my money.
If wash #1 needs a ton of work, and wash #2 has been newly renovated, then I'd base my decision on how much money I have to spend on the front end of the project, and how much work I'm willing to do.
With respect to cap rates, "safer investments" like apartments and office buildings in my area are usually priced at a 4 to 6% cap rate. That assumes that the buyers of those properties aren't interested in getting their hands dirty or working onsite, so they'll accept a lower return on their investment. Car washes often get priced at 10-12% cap rates because the industry is known for hands-on owners who want to get paid a good return for all of the crap that they have to deal with in running a car wash.
Disclaimer: this is just my .02 from many years buying/selling commercial real estate. I'm a newbie in the car wash realm, but using the cap rate model, I feel like I got exactly what I paid for when I bought the wash I currently own.
KleanRide’s example is spot on as an example of how to compare value of different washes from income investor standpoint. Some places this method may seem irrelevant if land values skyrocket every year but for a tried and true evaluation for an operator it’s essential.
This is super helpful. Evaluating a potential car wash investment currently. Using method above, it looks like 5.85-8.85 is range for retail on loopnet for my state. Using your formulae, 6.5-9.5 might be a fair CAP range for a IBA+SS car wash. I'm curious from others is that range meshes with what you actually purchased a IBA car wash business (after negotiations) -- what was the CAP rate? Thanks!
bighead
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yeah, i would never pay less than a 12% cap rate for a car wash. Even then it is a stretch.
Investment real estate selling at a 6% return on capital is one thing because you have NNN's set up and all you do is collect rent.
With car washes you need to hire/fire, fix things, keep customers happy, etc. it is not a passive real estate investment.
With the SS/IBA model the expenses are roughly the same everywhere, so a rough use of 3-4x gross REALLY speaks to a multiple of net too...because there is economies of scaling the expenses, a good performing wash should sell closer to 4 and because the reverse is true a poor performing wash is worth closer to 3.
With any business you are buying future cash flows, you should never pay for POTENTIAL, and you should never pay for 6 quarters to a dollar- that's on the seller.
Investment real estate selling at a 6% return on capital is one thing because you have NNN's set up and all you do is collect rent.
With car washes you need to hire/fire, fix things, keep customers happy, etc. it is not a passive real estate investment.
With the SS/IBA model the expenses are roughly the same everywhere, so a rough use of 3-4x gross REALLY speaks to a multiple of net too...because there is economies of scaling the expenses, a good performing wash should sell closer to 4 and because the reverse is true a poor performing wash is worth closer to 3.
With any business you are buying future cash flows, you should never pay for POTENTIAL, and you should never pay for 6 quarters to a dollar- that's on the seller.
If you are seeing retail caps in your area over 8, I’d start at 10% as a minimum for a wash for the reason bighead mentions about the work involved. Also, cap rate is just a starting point or one factor to determine if the price is even reasonable. Age and condition of equipment, likelihood of keeping existing employees (if any), etc. will all factor into the decision. If ebida is $100k and seller wants $2mm you better run. If they want $1mm might be worth the due diligence and negotiation. This board has a lot of wisdom so keep searching and researching. Good luck!
Thanks! This is super helpful.
Thanks. Thankfully, it is closer to the latter situation.
Every other business that I've built, or real estate I've bought, I've read several books as a part of researching the industry. No worries on understanding financials, etc. But in structuring a deal for a car wash feels like lots of moving parts (maybe just my perception). I assume it is LOI agreement, then due diligence, then closing. Any tips on the best book/resources to read on deal structures for car washes? Thanks!
Roz
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Bighead is probably closer to what you should focus on, a multiple of Gross Revenue. Then determine the risk from competition, from needing to replace equipment, location. Two people can run the same place with significantly different results on NOI. CAP Rates relative to NOI are for rentals where you sit on your @ss and collect rent checks - which in non-COVID times can be a great job.
Rfreeman
Well-known member
Exactly what Roz said. My background is real estate finance and yeah I would look at CAP rates but the deal has to pencil out with or without debt.
And car washes are not NNN investments like a retail strip center, ground lease on a bldg etc. there is A LOT of work involved in running a wash.
If your comfortable post the Financials of the washes and we can better chime in on what we believe a fair value would be for them.
And car washes are not NNN investments like a retail strip center, ground lease on a bldg etc. there is A LOT of work involved in running a wash.
If your comfortable post the Financials of the washes and we can better chime in on what we believe a fair value would be for them.
> Exactly what Roz said. My background is real estate finance and yeah I would look at CAP rates but the deal has to pencil out with or without debt.
Thanks. Yes, for most real estate deals, I give most emphasis on the cash-on-cash return after all expenses.
> If your comfortable post the Financials of the washes and we can better chime in on what we believe a fair value would be for them.
I REALLY appreciate that. However, I signed an NDA, and I want to honor.
