Exit plans…?!

[sjb]

Hi All,

I’m a strong believer that you need to own the underlying asset, aka the dirt.

However, with that said…. If you were contemplating your exit plans and wanted to maintain the R/E, what % of the gross income would you want/anticipate in the form of rent/lease….?

Asking for a friend….

thanks!
sjb

 

[New Washdog]

Hi All,

I’m a strong believer that you need to own the underlying asset, aka the dirt.

However, with that said…. If you were contemplating your exit plans and wanted to maintain the R/E, what % of the gross income would you want/anticipate in the form of rent/lease….?

Asking for a friend….

thanks!
sjb

A realtor can help you with determining cap rate.

 

[Waxman]

I would begin with the end in mind, determining my own goals and needs for monthly income upon transfer of the business. I would work backwards from there, plugging in the numbers like cap rate, g.i.m. for the sale figure of the complete business and see if my 'needs' and goals are in-line with the market conditions.

FWIW, I'm getting more frequent 'cold calls' from brokers asking if I'm interested in selling my wash. I'm not, considering I just remodeled my IBA 2 years ago.

 

[Rfreeman]

Could be a risky move if your keeping the real estate because they could run the business into the ground and walk away. Personally when it's time to get out...get out completely I have known too many people that regret staying around. Maybe offer transition training but that's it.

 

[traveler17]

Could be a risky move if your keeping the real estate because they could run the business into the ground and walk away. Personally when it's time to get out...get out completely I have known too many people that regret staying around. Maybe offer transition training but that's it.

100 percent agree. Our washes are not like owning a building leasing spaces. To much equipment to get neglected

 

[Dan kamsickas]

Could be a risky move if your keeping the real estate because they could run the business into the ground and walk away. Personally when it's time to get out...get out completely I have known too many people that regret staying around. Maybe offer transition training but that's it.

I could provide a pretty long list of people who didn't make a clean break and a few years later were back to having to run the wash. Of course, the wash was now in considerably worse shape than when they "sold" it.

 

[Rfreeman]

Hi All,

I’m a strong believer that you need to own the underlying asset, aka the dirt.

However, with that said…. If you were contemplating your exit plans and wanted to maintain the R/E, what % of the gross income would you want/anticipate in the form of rent/lease….?

Asking for a friend….

thanks!
sjb

If your friend was dead set on keeping the real estate and leasing out the property (business) to someone else to run I wouldn't tie the lease rate to gross income, I think he is just asking for trouble. Even if he has a history 3,5,7 or more years of showing consistent income the new owner can come in and "fudge" the numbers in order to pay less in rent, use any number of excuses to justify is lackluster numbers, and just end up in a landlord/tenant conflict where no one is happy.

I would first look to see if a commercial realtor can find you any car washes that have been leased out before. I doubt you find any, I know here in my area I think there is 1 that I has been listed for lease in the past 10 years, hardly enough to call a "market" to determine rent comparables.

Therefore, I would look at it as an opportunity cost lost. Your friend by hanging onto the property is looking to collect rent and is losing out on the opportunity to take that money (capital) and invest it elsewhere such as another commercial building, savings account, bond investment etc etc the options are endless.

So if the property and business is worth say $1 million what could that $1 million generate elsewhere? US treasury bond yields, arguably the "safest" investment, are yielding 5.12%. Leasing this property out to someone carries more risk so add 2 or 3 points to this your at 7.12 - 8.12%

$1 million x 8.12% = $81,200 annualized so divide by 12 months/year = $6,767 per month in potential rent.

If your friend is operating the wash they should have financials, does the $6,767 number seem feasible in his income statement? Does the current operations support it and provide a return for the tenant? If it doesn't, then just another reason that leasing it out isn't feasible.

Again not a fan of idea but thought I would try to give you an alternative/answer to pass along to your friend

Best of luck

 

[Greg Pack]

I just turned 58 and plan on cashing out no later than 62. This may be a huge mistake but I'm looking for a trusted person that would be willing to do a lease purchase for 15-20 years. Obviously there is risk there so they would have to be someone I know who can competently run a wash. There is a small handful of people that I would consider that have both the technical knowledge and the work ethic to make me feel comfortable. It obviously needs to be a deal that works for both parties, but I think they could net right at six figures during the LP and add significantly to their net worth at the end of the term. it would provide me with a really nice income until I'm 80ish and if I just invested 25% of my LP proceeds that would easily carry me all the home. I may be dreaming though.

 

[Kimberly Berg]

I just turned 58 and plan on cashing out no later than 62. This may be a huge mistake but I'm looking for a trusted person that would be willing to do a lease purchase for 15-20 years. Obviously there is risk there so they would have to be someone I know who can competently run a wash. There is a small handful of people that I would consider that have both the technical knowledge and the work ethic to make me feel comfortable. It obviously needs to be a deal that works for both parties, but I think they could net right at six figures during the LP and add significantly to their net worth at the end of the term. it would provide me with a really nice income until I'm 80ish and if I just invested 25% of my LP proceeds that would easily carry me all the home. I may be dreaming though.

This thread is very helpful, and I can see both sides. I'm also 58 years old, and planning to keep my SS car wash for the next 3-5 years. I don't have children to help me run it, or will it to. Right now, it's just me, my twin sister and handy friends. When I bought it with my husband 20 years ago, the plan was to always keep the land, and lease out the car wash business later. But, I run my car wash at a very high level, top-notch and would expect a lessee to do the same. It would be written in the contract. Right now, I don't have anyone in mind to lease it to that could maintain it the way I do. But, if I sold it, I think I would have to move out of the area. It would break my heart if the new owners didn't maintain it well. It was built 42 years ago and a staple in our community. I was warned when I bought my car wash "not to get emotionally involved", but it's hard not to when you work it every day, touched every piece of equipment and improved it over 20 years. I walk by faith, and have a 3-5 year plan. I trust that when the time comes, I'll make the right decision.

 

[2Biz]

Maybe offer transition training but that's it.

Good idea. Something I didn't get when I bought in 2011. All I got was keys at the closing! Offering that might make it look more enticing to a new potential buyer!

I turned 62 in May and retired from 43 years of Manufacturing/Engineering! Part of my exit strategy from the 6am-4:30pm day job was to keep the CW untill I (At Least) turn 65, Medicare age....I can tell you after being retired for 6 months, its not hard at all to keep up with the wash now! There is, of course, days when I get there and the bottom feeders have destroyed it and I want to stick the sign in the yard...But that quickly fades when the next day might be a record breaker! So who knows? Still having an exit plan is a good thing. But if you really like the added income and what comes with it, stick around as long as you want! For now, I have plenty of "Free" time!

Have you ever heard the commercial: "Honey, I need to go to the ....Hardware store...For a screw driver"! Its actually not a bad thing to have that will or can get you out of the house when you're retired!