under pressure
Member
What would you consider to be a good cap rate if you were buying a wash now?
cap rate
- Thread starter under pressure
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under pressure
Member
I guess no one is looking at buying or selling right now?
Jim Caudill
Self Serve Operator
I don't believe in capture rates for car washes. I don't think there is such a thing. I'm sure there are armchair experts and actuarial types that think that potential business can be estimated from cars passing by, but I don't buy into that concept. I would think it better to look at the number of vehicles within a particular geographic distance (say 1.5 miles or so) and try to come up with a factor that would allow you to estimate the total number of washes to be purchased by that group in a year's time. Then you can look at where they will go (competition) and try to figure out how many of those washes you may be able to get. You can build a wash along a busy U.S. route or state highway (lots of cars going by), but that don't mean any of them will interrupt their trip to stop at your wash. Capture rate for carwashes = silly IMO!
Jim Caudill
Self Serve Operator
In your best Rosannadanna voice.... "Nevermind"
under pressure
Member
So if i am selling my wash at a 9.5% cap rate it should sell pretty fast?
Jim Caudill
Self Serve Operator
http://en.wikipedia.org/wiki/Capitalization_rate
Excerpt: "A Wall Street Journal report using data from Real Capital Analytics and Federal Reserve [2] showed that since the beginning of 2001 to end of 2007, the cap rate for offices and apartments have dropped from about 10% to 5.5%, and from about 8.5% to 6% respectively. In May 2008, the cap rates 5.98% for the offices and 6.28% for the apartments. By comparison 10 year treasury yields has remained largely between 4% and 5%.
The cap rates for apartments have been stable at around 6% since late 2005."
Excerpt: "A Wall Street Journal report using data from Real Capital Analytics and Federal Reserve [2] showed that since the beginning of 2001 to end of 2007, the cap rate for offices and apartments have dropped from about 10% to 5.5%, and from about 8.5% to 6% respectively. In May 2008, the cap rates 5.98% for the offices and 6.28% for the apartments. By comparison 10 year treasury yields has remained largely between 4% and 5%.
The cap rates for apartments have been stable at around 6% since late 2005."
Greg Pack
Wash Weenie
Is the manager being compensated outside of cap rate return of 9.5%?
under pressure
Member
why 10% or lower if selling?? I am selling it with a 9.5 cap
robert roman
Bob Roman
One way to identify a cap rate for carwash from the buyer's perspective is to determine it locally from comparable sales and then scale the value according to your level of experience.
For example, if the wand-bay segment justifies a cap rate of 8% and you have no experience with this category, you may want to use a rate of 9% or 10% to price the business.
Bob Roman
www.carwashplan.com
For example, if the wand-bay segment justifies a cap rate of 8% and you have no experience with this category, you may want to use a rate of 9% or 10% to price the business.
Bob Roman
www.carwashplan.com
The lower the cap rate, the higher the value of the business. So, if you're selling, I'm assuming you'd like to get top dollar, so try to justify a lower cap rate.
Jim Caudill
Self Serve Operator
from the Wikipedia link I posted earlier...
"Capitalization rates are an indirect measure of how fast an investment will pay for itself in net cash flows; each year, the percentage amount of the cap rate will be repaid. In the example above, the purchased building will be fully capitalized (pay for itself) after ten years (100% divided by 10%). If the capitalization rate were 5%, the payback period would be twenty years."
I know nothing about finance, but this suggests that it is desireable to have a high cap rate since the acquisition would pay for itself much faster.
I sort of see this as being similar to determining the "payback" period for a capital improvement. The shorter the payback period, the more sense it makes to move forward. If the payback period on something is 20 years, chances are that neither the improvement nor I will be around that long. If I can recover the cost of a new "high efficiency" boiler in 3 years, then that may be a sensible purchase.
If the car wash as I am considering purchasing, generates enough profit to pay for itself it 10 years, and I can wait that long before needing the extra profit that is going into paying for the purchase, then that is a positive thing. If it will be 20 years before I get any of that profit, that's a bad thing (for me personally).
"Capitalization rates are an indirect measure of how fast an investment will pay for itself in net cash flows; each year, the percentage amount of the cap rate will be repaid. In the example above, the purchased building will be fully capitalized (pay for itself) after ten years (100% divided by 10%). If the capitalization rate were 5%, the payback period would be twenty years."
I know nothing about finance, but this suggests that it is desireable to have a high cap rate since the acquisition would pay for itself much faster.
I sort of see this as being similar to determining the "payback" period for a capital improvement. The shorter the payback period, the more sense it makes to move forward. If the payback period on something is 20 years, chances are that neither the improvement nor I will be around that long. If I can recover the cost of a new "high efficiency" boiler in 3 years, then that may be a sensible purchase.
If the car wash as I am considering purchasing, generates enough profit to pay for itself it 10 years, and I can wait that long before needing the extra profit that is going into paying for the purchase, then that is a positive thing. If it will be 20 years before I get any of that profit, that's a bad thing (for me personally).
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Greg Pack
Wash Weenie
Under pressure, is there a management salary on top of your cap rate? 9.5% return is too little if that is the only compensation I get for owning/running the car wash. I can lease out other commercial property for 6-9% triple net and all I have to do is just show up at my mailbox once a month for my check. If cap rate is my only compensation, I would not buy a wash with less than 13-20% return, depending on volume. The higher the volume, the lower the cap rate I would accept.
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