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Buying ss in California

4 replies created over 2 years ago
posted by Smiley over 2 years ago

I am looking to purchase 2 ss car washes in Sacramento area. 6 and 5 bay. 40 year old. Old, not so pretty but works very well(kinda similar to my good ol' lady ;) Annual sales around 90k and 115k. Located in older, depressed ares. No chance or scope of automatic. I am 50 year old looking to retire in 10 years. own 4ss+ laserwash4000 now. Very technical, can troubleshoot and fix almost everything and rebuild pumps. Both these run for $650,00 each. Please advise on the price and how much work I will need to put in on daily basis. Keeping in mind that California real estate here is expensive.

Replies

reply by Robert Roman over 2 years ago

Definitive advice on asking price at arm’s length requires more information than provided.

For example, if the hold period is ten years, cost of capital is needed to calculate net present value of expected cash flows.

Something else to consider is the current asking price is greater than the current equation used to test value whereas financial performance of wash is not.

So, yes, price bias is probably real estate factor.

Another point is cash-on-cash return (equity / NOI less mortgage) for new self-serve is typically around 30 percent.

I figure around 10 percent for cash deal, so leveraged would be even less.

As for work, I would budget at least 1,000 hours per site.

Something else to consider is what is likelihood these two washes would dilute value of existing business as in exit strategy.

reply by Smiley over 2 years ago

Thanks for the advise Robert,

Rhe books are not very clear on it but the sales figures look honest based on my assessment as a car wash operator and the gauging I have done. I would go there at odd times and check the customer count. He shows/projects 45% operating expense w/o payroll.

It will probably will be an SBA @6-7% with 25% down. The appraisal has been done with the major asset being the real estate. These fall in the enterprise/rebuild zone where city government is assisting in rebuilding. I could develop EX at one of those if assistance becomes available. Real estate here is on upswing and I haven't seen one of these sold less than 650k in years, Even in bad real estate market.

Real Estate cost makes the development of new ss car washes almost prohibitive here. Not a viable business to support the Land+building cost.

I can sustain/increase the business for 10 years but then these old puppies will have to go :( Rebuild or sell. The Big positive is the Re market.

reply by Eworks over 2 years ago

As an owner of SS and full serve hand washes, you won't find a bigger fan of this business than me...but...the things you are saying here don't add up to a good deal. At least financially.
What is your objective?
A job?
Cash flow?
An appreciating asset?

Can you think of better, safer ways to invest $325,000 and produce better cash flow than these washes that are old and in depressed (Real Estate) markets?

Do they cash flow, assuming the numbers you're getting are real and they do not increase or decrease?
Do they cover the debt service and expenses?
What do they NNN after all costs AND paying you a reasonable return on your cash down?

I can think of at least a dozen ways to deploy the cash down payment you are planning on and far less of it and produce excellent returns and have no encumbrances of debt service on decayed real estate and equipment.

Don't mean to be a wet blanket here, but I hate to see people convince themselves of something when it sounds like they already know they're not making a smart move. If you're serious, have the utilities audited by a forensic accountant and see if the water, sewer and electric bills support the sales numbers the seller is giving you AND get a look at his tax returns. What did he declare? It used to be in an all cash business like these, you could count on sales to be much higher than what the tax return and P&L's showed.

I live here in N CA and know the SAC market pretty well. Deploying that cash by doing single family fix and flips, which are plentiful where you are, will produce far better returns and give you a more immediate and far bigger group of buyers for an exit strategy as well as giving you the ability to use your mechanical skills.

If you would like a few other business options to produce predictable, low risk and low cost cash flow, contact me and I'll show you several businesses we now do instead of the car wash business. Wish I had done this years ago; would have made far more money, worked much less and far less employee and equipment issues.

Obviously, you have a love and an understanding of the car wash biz as I do too...and I apologize for putting my 2 cents in here, but there is nothing you have described about these deals that says these will be a smart investment. And, with your experience if you were really convinced you probably would not have asked us on this site for input; something is not sitting well with you on these deals.

You're buying businesses, that sound as if they are priced for their RE value in markets that sound like they have a bleak future. You have to ask if the RE is worth buying at this price if the car wash ceased to be operable tomorrow.
What could you do with the dirt?
Who, realistically, would be a buyer for these locations and at what price?
What else can these sites support?

Have you considered if there is any toxic remediation that would need to be done?
Remember we live in CA and these are old and you are about to own the toxic problems along with everything else.
40 years old?
Who knows what chemicals have been used on the property and with all the oil/gas products and other chemicals washed from vehicles and an old plumbing system, I'd take that bet there is a chemical issue on the site. If so and you still think its worth buying and running for 10 years, then what do you do to sell the sites?
Think the toxic issues will have gone away?

I almost purchased an incredible deal on a full serve hand wash years ago. Thought I was getting the steal of a lifetime...until I realized that the gas had not been operated for over a year. That triggered an automatic tank pull and install of all new tanks and systems upon change of ownership and I was about to close escrow on an unknown nightmare. The seller knew this and didn't disclose it at the time. My bargain deal turned into a bullet I dodged instead.

Just some ideas to consider and hopefully help you insure you make a good deal for yourself. Love to chat with car wash guys in case you'd like to. Give me a shout. Hope you find what you are seeking!!!

reply by Smiley over 2 years ago

Thanks Eworks. Very good information. Appreciate it.

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