Looking to buy my first car wash

[David M]

Hello, I'm new to the forum and the car wash industry and need some advice. I am looking at buying a 5 bay SS with a one bay automatic. The property is in pretty good condition & only 1.7 miles from my house. I plan on doing most of the maintenace myself. The asking price is 500K. The current owner says it grosses about 105k annually. He says after all expenses he pockets about 5K per month. I can put 150K down, & my bank says they can give me a 5 year loan, amatorized as a 15 for 4% fixed with a baloon at the end. I have 5 rent houses that I own. I was planning on selling them & paying off the loan before the baloon payment came due at the end of the note. Does this sound like a good idea?

 

[Greg_T]

Please note that this comment is from an Australian perspective and in Australian dollars, but might help. We have a 3 bay SS + dog wash, purchase price $375,000. It returns about $3,500 per month, so similar % return on investment. I do all my own maintenance, and we do 14 cleans per week. I do 10 and an employee does 4. Where we are in regional Australia (town of 1500 people) the returns on our carwash are much better than investment houses rented out. Based on a very high level assessment, I think your plan sounds reasonable. Whichever way you go, good luck with it.

 

[Rfreeman]

David would mind sharing your general location i.e. state? Overall the deal sound pretty good but you definitely have some due diligence to do in terms of condition of equipment, verifying income, etc. etc. I am not a CPA or financial advisor by any means however from personal experience if you are planning on selling one or all of the houses prior to the balloon payment why ask your cpa about a 1031 exchange and use the funds to get into this car wash?

 

[Roz]

The amortization of 15 years will reduce your expenses each of the five years but you still need to pay off the loan at the end of year 5. If you got a straight 5 year loan (for $350K) and did not change amortization you would pay $77352 each year. Given all your other expenses (taxes, utilizes, water, chemicals, trash collection, maintenance that falls outside your skill level) do you think you will be able to pay all those items on $28K (assuming you do not take a salary)?

I know you can pay off the loan by selling your passive income rental assets but a good/solid deal should be able to stand on its own merits without any financial gimmicks. Working for 5 years for nothing (probably at a negative cash flow position) does not make sense to me unless you see the current operator running the place so poorly that you can double the gross revenue with your changes/improvements. I would offer 3x GR at most assuming that you would not need to make an investment into the wash. I would also verify the GR numbers for the last 3 years.

 

[Waxman]

I have an 8 plex apartment building and would never sell it to fund my car wash loan.

Find a way to get a 15 year amortization on the loan. With your down payment and tax returns from the business, the bank should give you some better terms than 5 years.

 

[Rfreeman]

Additionally, I would add that the 5 year balloon isn't a deal breaker as most banks refinance them after the 4th or 5th year. I don't know what your relationship with your bank might be but my experience with mine is we make an amendment and the loan is changed to add another 10 to 15 years on to it, I just did this for another commercial investment property I had financed under the same terms....amortized on 15 year loan with a 5 year call.

 

[Car_Wash_Guy]

As someone who came into the car washing business already owning commercial, multifamily and office properties, I'd strongly suggest keeping your rental properties if you can and able to.

 

[Greg Pack]

Verify income through bank statements. For a 100K grosser 5X is top dollar. Also budget some money for labor repairs ( maybe $500/month )that the owner is performing, at least until you get a handle on things

 

[David M]

David would mind sharing your general location i.e. state? Overall the deal sound pretty good but you definitely have some due diligence to do in terms of condition of equipment, verifying income, etc. etc. I am not a CPA or financial advisor by any means however from personal experience if you are planning on selling one or all of the houses prior to the balloon payment why ask your cpa about a 1031 exchange and use the funds to get into this car wash?

The business is in eastern Dallas County in Texas. I'm not too concerned about the financing, I think I can make that happen one way or another. I am concerned about IBA. It is a Water Wizard that's 16 years old. I have read several bad reviews on it. I ran my car through it & it doesn't work very well at all. Was wondering how much it would cost to replace it. I was told that a good IBA would be about $150K. I was also told that in north Texas this kind of car wash was selling for about 4x the gross. What are your thoughts?

 

[Greg Pack]

A touch free unit that doesn't work very well is more about chemistry and maintenance than the actual unit. If that is a water wizard 2.0 I would do a complete refurb, get a local sign company to wrap it, and for around 10K have a touch free that will clean as well or better than the vast majority of the units on the market. I would be less inclined to spend a lot of money on a first generation wizard, which they stopped making around 2006 I think(for a little while you could get either unit so I don't know which you have).

Having said that, sometimes the customer needs to see something new.

By the way the 5K net is believable with a 105K gross is you do most of your own repairs. I have one that grosses around 140K and net is around 7K/month EBITDA

 

[Rfreeman]

David I agree with what Greg said....good chemistry can go a long way. Personally your better off overhauling the unit than buying a new one or at least that's how I would approach it.

Change the look get it cleaning cars really well then run free washes for the weekend to get the publics trust back on the unti.

As far as 4x's gross, yeah I would agree that should be fair. Buyers look to get in at 3x's and buyers look to get out at 5x's so 4 is right down the middle.

 

[David M]

I spoke with a couple of people about rehabing the WaterWizard & everyone including the current owner said the system was so old and uses too much water & anything spent on it would be a waste. I called DNS & Coleman and both said replacing the IBA would probably be about $150-165K. The owner said he would go no lower than $425K on the property. So with the purchase price & new IBA I would be going in at around $575K, so about 5.75 x the gross. I know this is more than most people say you should pay, but I was figuring the new IBA would boost sales. The city also announced that they had agreed to a new housing addition with about 3000 houses about 2 miles from the car wash.

Before I decided to go ahead with the deal, I pulled the water records for the last 15 months. The car wash
is averaging 53,000 gallons per month, and charges 75 cents for 1.5 minutes. Is there any way of knowing if these numbers would substantiate his claim that this car wash is doing $100K a year?

 

[Rfreeman]

I don't think there is a way using water records to verify that bc too many factors, auto vs ss revenue, water consumption of the auto, the ss etc etc.

I would look at changing the auto personally. My first wash was a 5 + 1 as well with a water wizard too. I pulled it out went with a soft gloss Maxx soft touch and love it. Less water use bc its a friction and cleans a car well.