Unrealistic asking prices

[JGinther]

That's 6x gross. Bamk will own it in less than 24mos!!

Not if there's upside. Only experienced operators should buy 'on the come', but I have bought properties that aren't worth it at $0.00 based on reported and actual finances. But if you know that the site is suffering from poor operation/maintenance and has a strong location and bones, you can make money much easier and faster than buying an existing well run location - because you have to pay for that.

 

[OurTown]

That's 6x gross. Bamk will own it in less than 24mos!!

If there was a bank that was willing to loan in this.

 

[OurTown]

Not if there's upside. Only experienced operators should buy 'on the come', but I have bought properties that aren't worth it at $0.00 based on reported and actual finances. But if you know that the site is suffering from poor operation/maintenance and has a strong location and bones, you can make money much easier and faster than buying an existing well run location - because you have to pay for that.

There is upside but I don't think it's that much. It is sometimes difficult to tell but I think the purchaser is but experienced.

 

[soonermajic]

Man, I wish someone would offer me 6x gross...!!!
At 6x gross, you're gonna need to TRIPLE profits. That's extremely hard to do, anywhere. But I guess it is doable.

 

[Rfreeman]

Well.....my first wash I paid 9.7x's actual current gross numbers and I had no experience BUT there was a huge upside that I knew it was a busy wash b4 getting foreclosed so it is possible each deal is different the important thing is to do your homework to minimize risk

 

[OurTown]

When my CPA tried to buy this wash over 10 years ago it was grossing somewhere in the low $50Ks. That was probably its peak.

 

[KleanRide]

Interesting to me that no one has mentioned capitalization rate (net operating income divided by asking price) as means of valuing a car wash. That's the first figure that most lenders are going to look at, and it's a big part of how an appraiser values an income stream.

If I took my banker a loan proposal with 3-4-5x gross earnings as my justification for wanting to buy a car wash, he'd laugh me out of his office. That approach gives zero weight to operating expenses, which vary wildly from wash to wash. Gross earning are only half of the equation.

 

[OurTown]

Interesting to me that no one has mentioned capitalization rate (net operating income divided by asking price) as means of valuing a car wash. That's the first figure that most lenders are going to look at, and it's a big part of how an appraiser values an income stream.

If I took my banker a loan proposal with 3-4-5x gross earnings as my justification for wanting to buy a car wash, he'd laugh me out of his office. That approach gives zero weight to operating expenses, which vary wildly from wash to wash. Gross earning are only half of the equation.

True but thought that was usually used for commercial real estate. I don't know the operating expenses but would estimate they are over $20K/year not including labor. (that might take it to zero NOI)

 

[KleanRide]

Car washes are income producing properties, which pretty much defines commercial real estate.

 

[Rfreeman]

Well technically speaking you can use it to value (captialize) any known future income stream i.e. annuities, rental real estate both commercial and residential, royalty leases etc etc.

I've seen more than a few income statements from washes I've considered and I would say they should all fall within a range in terms of expenses for their respective market. Historically its been discussed approx. 40% on this forum and that is still holding true from what I have seen. Last 2 washes I purchased were running 39 and 43% expenses ratios respectively

 

[OurTown]

I've seen more than a few income statements from washes I've considered and I would say they should all fall within a range in terms of expenses for their respective market. Historically its been discussed approx. 40% on this forum and that is still holding true from what I have seen. Last 2 washes I purchased were running 39 and 43% expenses ratios respectively

Agree but I bet the yearly gross was a hell of a lot higher than $31K though. With sales that low it is hard to overcome fixed expenses.

 

[Sequoia]

That's 6x gross. Bamk will own it in less than 24mos!!

I bought my wash 15 years ago for 6x gross. It was a good deal, at the right price.

The gross multiplier is interesting to use, but not the final authority. Nor is property tax. Since I am in California, my property tax has budged very little over 15 years. So comparing "assessed value" to purchase price doesn't work around here because of that.

My land value, today, is probably $175k for bare land, not including improvements. Using Pat Crowe's old formula of 3x net, I'd have to set a purchase price below what the bare land value is.

I view total car wash value in my area as land value, plus X value for equipment and improvements, plus 3x SDE/net. Someone with cash or a strong down could buy my wash using that formula and make some good money.

 

[Rfreeman]

Oh absolutely! Don't know how much "upside potential" it could have but it may be at the end of its useful life as a car wash and needs to be redeveloped.

Interestingly enough the state dept of transportation has approached me on purchasing one of my locations so I am in the middle of value discussions with them. They are hiring an apprasier to determine the value and then the fun starts from there

 

[Sequoia]

Agree but I bet the yearly gross was a hell of a lot higher than $31K though. With sales that low it is hard to overcome fixed expenses.

A wash near me was listed recently for $200k. In the description it said there was "the potential to increase revenues up to $30k gross." It was later reduced to $170k and is in escrow now.

fyi it was a 2-bay, tin/metal structure, with 2 vacs and 4 drop shelf vendors.

 

[Rfreeman]

Thats why IMO bldg has no contributory value.....bc your valuing the income stream and assessing the risk of that income stream changing up or down.

One of my washes is 04 build and built prbly as nice as they come with an auto. Another is r panel tin metal structure with a busted driveway but financially it does equally as well!

 

[mac]

I am still struck by the utter incompetence of sooo many owners. Eventually all washes will sell for different reasons, i.e death, divorce, road realignment, etc. I'm not planning on sellin soon, but I try to keep it in the best position to sell. The place has good curb appeal, everything works, new auto, equipment room and office clean and organized. Most of you are right when you describe a POS that needs a ton of work and with owners who are clueless.

 

[srr5008]

I am still struck by the utter incompetence of sooo many owners. Eventually all washes will sell for different reasons, i.e death, divorce, road realignment, etc. I'm not planning on sellin soon, but I try to keep it in the best position to sell. The place has good curb appeal, everything works, new auto, equipment room and office clean and organized. Most of you are right when you describe a POS that needs a ton of work and with owners who are clueless.

Those Owners are the same type of people that approach me all the time to tell me they'd love to own a carwash.... seems like the perfect business... "just show up and collect the money" they tell me. They don't realize you have to put a lot of blood sweat and tears into it, to keep it viable.

 

[Waxman]

Those Owners are the same type of people that approach me all the time to tell me they'd love to own a carwash.... seems like the perfect business... "just show up and collect the money" they tell me. They don't realize you have to put a lot of blood sweat and tears into it, to keep it viable.

If you're always happy and smiling at these same people, some day you can sell THEM the wash for a great price. I say agree and smile when they say how much they'd love to own it. I know one guy who employed a version of this strategy and did quite well when he sold.