Help Please !

[critkeeper11]

Hey guys moving forward on buying my 1st wash . Have 2 questions i need help with as a new owner please .

1) I live on Long Island NY . Does anyone know if its mandatory to use a reclaim system or is it enough just to have one present regardless of weather you use it or not ? The wash i am buying needs alot of TLC and thinking worst case i may have to replace the reclaim system or parts of it . I asked someone who owns a wash locally about this and they said they just use fresh water , the cost is nominal but have the reclaim in the ground as it is mandatory by code . They stated it is good enough and you need to be able to say you have one at tthe very least . Can anyone confirm if this is true or not ?

2) Also the wash only has 7 years left on the lease and the price reflects that but i am speaking to the landlord about getting a new 20 year lease with a 5 year option . I am fine with the rent and stated increases but feel i may be getting taken advantage of elsewhere . He wants to charge me per year for each year i want a lease for . For example if i want a 20 year + 5 he wants $200k for that . He would take some cash and theen hold a note . Is this normal in this industry ? He asked me what i would pay for that wash if it had a 20 + 5 lease ? The wash would be worth more correct ? Which i have to agree it would , so obviously he is trying to capitalize on that but $200k sounds rather excessive . Please guys any helpful feedback would be appreciated here . I am buying tis wash with my father 50/50 and he is a business owner and never heard of such a thing in dealing with leases for his restaurants . But then again those were start up business's and he never bought an existing business . Hs anyone else ever heard of this or experianced this 1st hand ?

Again guys thank you for any help you can provide .....................

 

[Emerald in NJ]

I can't help with question #1 because I don't operate in NY
As for question #2. I'm a little confused. Is the current wash operator you are buying the business from also the landlord? If I understand correctly it's 1 person and he wants to you to A. pay to buy the business, B. pay $200k to enter into a new lease, C. pay monthly rent in accordance with the new lease
I never heard of a deal like that.
If it's 2 different people: operator and landlord, it still doesn't make sense to me. I never heard of a new lease being negotiated with an up front payment where the guy wants to hold a note on it and he charges you interest. So you pay a note on a lease and then a monthly rent? why wouldn't you just negotiate a normal lease at a higher monthly rent?
The only time I have heard of an up front payment to buy a lease was when it was a long term lease a person would buy from an existing operator and not directly from a separate landlord.

 

[critkeeper11]

The business owner and landlord are two different people . I am buying the wash for a certain price that includes 7 years remaining on the lease . When having preliminary talks with the landlord as far as lease terms he wanys his rent ofcourse , with 3.3% increases per year . Then he wants to charge me per year AS WELL for the length of the lease . For example $200k for 20 years as well as the rent with increases . Can be structured in different ways . Some upfront balance on note etc . . I just wasnt sure if this was common in this industry or not . I reached out to a few friends of mine that own washes and they said it happens . Up to the landlord . One friend said hes seen worse , charging just for the lease transfer . So i wanted to ask/confirm on the site as well .
I was thinking the same thing . Forget paying money upfront and or note on new lease but just pay more on my monthly rent . Have a meeting wednesday with the landlord so i will see how this goes . Keep posted . Thanks for the feedback , much appreciated !

 

[bighead]

Just tell the landlord you will build across the street from him instead....

Things to ask:
Why is the landlord the landlord and not the operator? If it was great % return, he probably would have operated it himself, or had so much return that he could pay wages to have it operated for him. (answer most likely: there isn't enough money to make it worth his time)

Why is the current Lessee selling? If there was a great return on investment he would keep running it himself, or pay someone wages to run it for him. (answer most likely: there isn't enough money in it to make it worth his time)

You answer me: The place is in shambles, if he fixed it up and modernized it, it would make great money... then ask yourself why the current lesse hasn't fixed it up and modernized it. (answer most likely: there isn't enough money in it to make it worth his time)

Man, I should join the consultant groups... they charge for this...

 

[critkeeper11]

lol . the landlord was the original operator for years and it did very well . i grew up in the area and know this wash my whole life . its been there about 30 years . then the landlord gave it to his son who ran it inot the ground . they then sold it . he owns the property to this wash and 3 other washes plus numerous other pieces of real estate . you made some good points but the guy is about 80 years old and operating a wash is not really in the cards for him anymore .
the current operator just does a horrible job , dilutes the chemicals alot , doesnt use drying agents , doesnt put a dime into the wash as far as upkeep , maintenance or improvements . he owns a bunch of nail salons to that i think he focuses on and is more his priority . he is not personable at all to the customers and barely speaks english .
make sense now ? lol

 

[bighead]

"make sense now?"

Truthfully, no it doesn't...And that is what I am trying to show you...

You are paying someone for their business that is run-down. Run-down businesses aren't typically worth much of a FCF multiple. Especially when the death of that business is ensured in 7 years.

You are paying a landlord a lease, plus additional moneys for the opportunity to run a run-down car wash on his property. He doesn't have to run his car wash. He is getting his profit from you without having to do any work.

You are going to spend $200k+ for the "blue sky" that will come from running more soap, and keeping a cleaner place. And at the end of 20+5 years, in exchange for all your hard work and additional soaps, you will get to negotiate with his heirs for additional lease. Odds are you will be too tired and try to sell your business while there is time left on your lease, and try to find someone wide-eyed and optimistic as you were 20 years prior.

Looks through the archives, there are plenty out there with your story.

 

[critkeeper11]

I am getting the business itself cheap imo . Due to the condition of business , 7 years on lease remaiining etc... I am still looking to negotiate that down after an engineers report on the equipment . The owner assured me the equipment is in good working condition and in no need of repair or replacement . I feel the report will show different and i am hopeing to be able to negotiate down further due to this . I am also hopeing to negotiate the terms and conditions of the lease down as well . If all goes well i feel this is well worth it and will be a profitable venture hands down . I am in a fantastic location between a major parkway and expressway on a road with many lights aand sslow traffic , , im on a major artery that is traveled heavily everyday and most importantly there is absolutly no competition around me and not a stitch of open real estate to be found in the area for a wash . The wash does do business now but only due to the fact of lack of options clients have in the area . This wash with the right changes and management can not only flourish i feel but definitly become a destination wash . The clientele in the area is all upper class and being a hand wash will also fit perfectly . Well thats how i feel and do feel very confident about this . Thanks for your feedback though , opinions are needed .

 

[buda]

Personally I would walk away from the deal. Why would you buy a 30+ year old car wash business that has been run into the ground and has only 7 years on the lease. That is worthless in my opinion.

Secondly you are being worked over by the landlord who knows the car wash business and can identify a buyer who really wants to be in the business and must be giving signals that he really wants the business. So he is really working you. You should not have to do anything more than negotiate a 20 year lease with a 5 year option at a reasonable price with reasonable options.

You should not be blackmailed into something that is not right or reasonable and,in my opinion, this is not right nor reasonable.

There are plenty of car wash operations out there for sale that you can buy that are in better condition and have a good lease in place.

I'd walk as fast as I could away from the deal.

Never negotiate from a position of weakness and you sound very weak at this point. That is you really want the wash and the owner and landlord know that.

Regards

 

[Jeff_L]

You're probably excited about getting into the business, and the landlord & operator are excited to take your money. What I've read from the thread is that you're buying the business from the operator for a certain $$ value, paying 200k up front to the landlord, then you're either revamping the current 7yrs on the lease to a new 20+5 year lease with a 3+% rent increase each year.

1st, I have an offer for you, move to the KC area and I'll sell (not lease) both my washes to you at a lot less money than what you're looking pay for a wash you describe as 30+ yrs old & run down. You're going to put a lot of money down just buying the two guys out, then you're going to spend a lot more re-vamping the infrastructure. I didn't read every word in the thread so I didn't catch whether the cash flow was healthy or not. It will have to be if you want to do this right.

I got lucky when buying my washes, I knew nothing of the industry but knew enough about business to negotiate great prices for the 2 I did buy. My recommendation is to draw everything out on a whiteboard with all the costs, a roadmap if you will. Then how much are you going to spend fixing up the wash? How much time are you going to spend at the wash? Can you go without making a dime from the business for the next 3-5yrs? Then step back and look at it from an outsider's view, does it look right to you?

My advice is to change the playing field for the landlord & operator. Why does the operator want out? Play to those reasons. As for the landlord, he just wants to make money, and maybe his age is the reason he wants so much up front. Does he have the lot paid off? If so, your payments are nothing but margin for him. He doesn't care if you have to fix the business, but he should care about the RISK of you defaulting, then he'll be out searching for a new tenant. Maybe force him to pay for fixing up the place?