Why are you spending 1,000,000 to get an 11.6 return for owning and running a business?
That is low for running a business. Key is checking with the water department what the water and sewer rate has been in recent years? Some utility companies kept rates down during the economy and did not raise to keep up with inflation. If water rates go up a lot it could really eat into your returns as you could not raise pricing to maintain the same profit levels.
You mention the equipment but are you buying the land and building or leasing it? There could be a big jump in rent coming up. Lot of gotcha's with this kind of stuff.
I don't buy any businesses unless it is making 200k or more a year profit and I am NOT,NOT an owner operator. Has to be an established business for over a decade throwing off consistent returns with full management in place. I generally want 20% plus returns to consider it. Anything less I can own commercial real estate and let the tenant run the business and be passive. I would want to see consistency over time with profit and an upward trend year over year for stability. Check if 116,000 is before or after an owner draw. If it currently has an owner operator then you will have to pay a manager which will reduce your net. I see sandwich places have this all the time. They claim 80,000 a year net profit but work there 50 hours a week. If I want to be passive I have to pay a manager 40k to 50k so it makes only 30k to 40k profit a week. If food cost,rent,labor go up or store needs to be re-imaged or machines need replacing etc. then I can have next to zero profit.
If you have this kind of money you might want to buy and own passive commercial real estate directly or invest in sponsored deals with upside and spread out your money.
Also check on other car wash places in the area or with new business permits to see if any competition is coming online from a national chain. If they get a superior location and charge the same or less for the service it can almost put yours out of business.
Thanks for the feedback Joel. I have not committed to buying it at this point. The opportunity was just presented to me so I am gathering the details to review which I posted. I have never owned an self service carwash however I know a few people that own some and they say it's a relatively passive investment so that is why I am looking into it.
The total asking price is $1,000,000 which includes the land, building, equipment, etc. There is no lease.
According to the owner he only visits the property once or twice a week to pick up the $$. Cleaning and maintenance he contracts out when needed. There are no employees.
I've helped others buy and lease CRE for a long time however now it's time for my wife and I to buy our own portfolio. The Austin market is really high right now so it's a bit more challenging these days to find those 20% return deals.
