I’m currently evaluating a 5-bay self-service car wash and would like to hear your thoughts on what to look out for and any rules-of-thumb you may have for evaluating this type of business. The property is not currently being marketed for sale; I sent a letter of inquiry to the owner and he called me saying he would be interested in selling. After arranging a meeting at the property, it appears to be a “value play†deal. Here’s what I like about the deal:
Here are some of my concerns:
Nevertheless, based on his $2,500/mo estimate, I calculate an “as-in†NOI of $6,375/year and a negative A-tax cash flow at a purchase price of $175k and assuming $70k in repairs. I normally wouldn’t think purchasing a negative cash-flow property, but I feel there is quite a bit of upside here based on getting all equipment back in operation and increasing revenues. One interesting thing to note is that even though the place is a dump and most equipment doesn’t work, there are always people there washing their cars. I drive by regularly while handling my other properties and this is what made me send the letter to the owner.
What “rules-of-thumb†are out there for evaluating car wash deals? I’m calculating operating expenses of close to 80% of gross revenues…this seems high to me, is it? What other questions should I be asking or things should I be on the look out for? I appreciate any feedback you may have!
- The seller is fairly motivated due to deteriorating health conditions (although he claims he’s not)
- Excellent location on a very busy street
- Close in proximity to my other investment properties – my handyman could add this property to his responsibilities
- Relatively little time required on my part once the deal is done and rehab work is completed (I think)
- Wash prices appear substantially below market – only $1.25 to start timers vs. $2.00+ at competing locations
- Upside potential associated w/ value play deal
Here are some of my concerns:
- Extreme case of deferred maintenance - this is of course where much of the upside can be found. Only 2 of 5 wash bays and 1 of 5 vacuums are currently operational. Owner tells me that basically all equipment (pumps, hoses, water softener, vacuums, air compressors etc) is in some state of disrepair and it would require $50-60k to fix everything.
- Neighborhood is somewhat dicey. Let’s just say I wouldn’t be washing my personal car there alone at night.
- I’m doubtful whether I can get actual utility bills, tax returns etc from the current owner to get a real handle on how much business the place is currently doing. He’s kind of a stodgy old bastard…
- Owner wants cash and says he’s not interested in owner financing. I haven’t started negotiations yet, but this was his initial reaction. If he’s unwilling to produce hard data, we will probably have no other choice.
Nevertheless, based on his $2,500/mo estimate, I calculate an “as-in†NOI of $6,375/year and a negative A-tax cash flow at a purchase price of $175k and assuming $70k in repairs. I normally wouldn’t think purchasing a negative cash-flow property, but I feel there is quite a bit of upside here based on getting all equipment back in operation and increasing revenues. One interesting thing to note is that even though the place is a dump and most equipment doesn’t work, there are always people there washing their cars. I drive by regularly while handling my other properties and this is what made me send the letter to the owner.
What “rules-of-thumb†are out there for evaluating car wash deals? I’m calculating operating expenses of close to 80% of gross revenues…this seems high to me, is it? What other questions should I be asking or things should I be on the look out for? I appreciate any feedback you may have!
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