New to industry - 4 bay SS purchase

[RMN]

Hi all, I'm in self-storage but found a four bay SS car wash opportunity near one of our facilities that looks like a good potential opportunity. Smaller town in the Northeast, approx 70K population in 3 miles. Current owners redid everything.

"Completely renovated car wash facility on a 1/2 acre lot with new equipment throughout. 4 wash bays, a garage in the rear with 2 overhead doors, 4 new vacuum systems. New metal roof on main building, new rubber roof on garage. LED lighting, Rinnai on demand heat, online security system. New pumps, detergent dispensers, wands, brushes, arms, bay walls & ceilings, fascia upgrade & all water lines have been replaced."

It's only been open approx 9 months. High month approx 7K, low month approx 5K revenue. They just increased prices so I'm estimating 80K gross. No Google Business listing. There's also a garage in the back that's generating 800/month.

If I apply a 10 cap rate to the garage income and a 3x revenue multiple to the car wash income, I'm at approx 340K. Asking price 499K. Is 3x too low considering the equipment is all brand new? Any guidance would be appreciated, really unsure how to come up with a valuation. Thanks in advance!

 

[Roz]

You would pay 3x Revenue for a place that probably is 10-25 years old. Say you paid $240K and everything needed to be updated at some point in the near future. Would the enhancements be $260K? Based on the list you provide I could see the expenses being close to $160K if you hired someone to do the work for you. At $80K the bays are averaging $1600/month/bay so there is some room for improvement if you added dryers, triple foam, and spot free rinse.

Personally I use a simple approach when looking at a business with property and ask myself if I financed 100% of the purchase at x% would I be able to make any money. With today's rates at 7% (or more) you would pay $3500/month on a 30 year amortization loan. Then remove expenses and see what amount remains. Ask yourself if the remaining revenue is worth your time and effort....

The place looks clean and well laid out from the pics however the place is over 50 years old so look carefully at the electrical, if there is floor heating, the pipes etc. If the place was dormant for many years it may take some time to build up the business. The meter boxes have 10 functions but appear to only have 7 in use so you can add tri color foam and dryers.

Perhaps start at 4-5x range and see if the owner is ready to sell. May depend on how long the listing has been posted.

The places I see sell for more than 3x revenue (in the 5-7x range) have higher revenue to justify the price (ie expenses do not increase in step with revenue increases). You might ask the listing agent how they came up with the asking price....Good luck...

 

[RMN]

You would pay 3x Revenue for a place that probably is 10-25 years old. Say you paid $240K and everything needed to be updated at some point in the near future. Would the enhancements be $260K? Based on the list you provide I could see the expenses being close to $160K if you hired someone to do the work for you. At $80K the bays are averaging $1600/month/bay so there is some room for improvement if you added dryers, triple foam, and spot free rinse.

Personally I use a simple approach when looking at a business with property and ask myself if I financed 100% of the purchase at x% would I be able to make any money. With today's rates at 7% (or more) you would pay $3500/month on a 30 year amortization loan. Then remove expenses and see what amount remains. Ask yourself if the remaining revenue is worth your time and effort....

The place looks clean and well laid out from the pics however the place is over 50 years old so look carefully at the electrical, if there is floor heating, the pipes etc. If the place was dormant for many years it may take some time to build up the business. The meter boxes have 10 functions but appear to only have 7 in use so you can add tri color foam and dryers.

Perhaps start at 4-5x range and see if the owner is ready to sell. May depend on how long the listing has been posted.

The places I see sell for more than 3x revenue (in the 5-7x range) have higher revenue to justify the price (ie expenses do not increase in step with revenue increases). You might ask the listing agent how they came up with the asking price....Good luck...

This is a huge help thanks so much!

 

[Greg_T]

Personally I use a simple approach when looking at a business with property and ask myself if I financed 100% of the purchase at x% would I be able to make any money. With today's rates at 7% (or more) you would pay $3500/month on a 30 year amortization loan. Then remove expenses and see what amount remains. Ask yourself if the remaining revenue is worth your time and effort....

This is the key consideration - after all costs, including loan repayments, is there enough left over to justify both the capital you have invested and the time & effort you put in?

 

[OurTown]

This is the key consideration - after all costs, including loan repayments, is there enough left over to justify both the capital you have invested and the time & effort you put in?

And the risk we are incurring by owning this type of business. (or really any business) The rug can be pulled out from under us quickly with a new wash built across the street, a new highway bypass or other things.