Purchase a car wash? Advice needed

5 Replies

I am looking at purchasing a car wash. I am overwhelmed a bit with the thought considering it would be a new investment for me (currently one SFH rental and 1 mulit family 6 unit apartment). However, I am very interested in the car wash and am trying to obtain any info/advice/consideration regarding the potential investment.

Has anyone purchased a car wash?

Is it typical to assume about 50% of gross income in expenses? This currently has two employees.

What is a "good" cap rate for a car wash?

Is this still considered passive for tax purposes as long as I don't manage the day to day operations of the wash?

What do others think of the future of car washing? While it varies seasonably, I also assume it varies during economic cycles.

Any thoughts welcome.

Sara

Super interesting Sara. 

I would assume that expenses would be more than 50%. Your water bill and employees are going to eat up a lot of that, in addition to the taxes and insurance I would believe it would be over 50%. You probably need to have a special insurance to protect against the additional things that could happen on your lot.

I think that instead of CAP rate you should look at the cash on cash return that the business would generate for you.

Look at the previous owners books and analyze them. See what their expenses and incomes were. 

Sara,

I purchase a pair of automatic car washes a little over a year ago. These are a little different than the ones you are looking at since the only employee is me, and I only work part time when repairs are needed, or money needs to be collected. 

There are countless things to talk about and answers to give. Two key pieces to me that i would suggest for you to consider are:

1. Who is selling. I was fortunate to have a seller who was very very helpful. He left nearly all the supplies/tools with the car washes. I can't imagine having to try and rebuild that stock. He also is helping to finance a percentage of the purcahse so he has some vested interest in my success. I didn't fully appreciate the value of this at the time, but it is huge looking back!

2. I would suggest you find out who the chemical (soap) supplier is and the maintenance person and talk with them. For me those two guys who incidentally helped physically build the car washes 15 years ago are a wealth of knowledge and advice. Reach out to them and buy them the fanciest dinner you can and ask their advice. That would be money well spent. (Maybe a steak dinner is a bit much, but seriously, they will know the good, the bad and the ugly.)

3. I am more than happy to answer other questions you may have. Feel free to reach out. My washes are certainly somewhat different than yours, but they are more similar than an apartment building. 

Keep digging in, it CAN be a great business!

Dave

Thank you all for the feedback. I do have owner's financials. They seem legit, though of course we will dig much deeper into the numbers. My concern is of course the expense of replacing/maintaining broken equipment.  This seems much more costly than traditional real estate. Everything is about 10 years old (original to when it was built).

I also put a call into my CPA, as I have tax concerns with the management side. If I manage the real estate only and not the actual day to day operations of the carwash, I assume the tax benefits are similar to my multi family? However, I worry that if I dip into the management of the car wash and take an active role than that would be different for passive income/tax purposes?