Purchasing at 3X-5X Gross

[Andrew MA]

With changing times, private equity, all types of different factors does it feel that buying at a 3x-5x times multiplier of gross is almost a thing of the past? I should add I am only talking with real estate included. Granted we have bought at this mark before, but it seems as time goes on it’s like finding a virgin in college

 

[Blanco]

it’s like finding a virgin in college

Who wants that? No fun at all and way too clingy!

 

[Greg Pack]

You have to make the math work and if looking ahead you have to have an attractive return to offer your prospective purchaser. In a lot of areas due to the expense of good property and the costs of commercial construction the self serve model simply won't pencil out as a new project. Ultimately banks are going to look at the debt service coverage ratio to determine what payment the business will support so current interest rates will play a role.

I will pay a higher multiple for a higher grossing wash and this is my rationale: I currently have two washes and last year one made almost exactly double what the other one did. My fixed costs-Insurance, property taxes, dumpster, internet, daily clean up help and the cost of lighting the facility is almost identical at both properties. The higher grossing property also has enough revenue to hire a full time manager and still offer a good return.

 

[Keno]

There are so many factors that go into the multiple, not just PE entering. Economy is huge, supply and demand, availability of funds to make purchases, profitability, the general overall appeal of the business at that particular time (we know YouTube has glamorized car washes in the recent years), etc.

Same thing happening in laundromats also, their multiples currently through the roof

 

[AnalyticWash]

You have to make the math work and if looking ahead you have to have an attractive return to offer your prospective purchaser. In a lot of areas due to the expense of good property and the costs of commercial construction the self serve model simply won't pencil out as a new project. Ultimately banks are going to look at the debt service coverage ratio to determine what payment the business will support so current interest rates will play a role.

This.

I will add that I have seen a lot of sellers who think their wash is worth significantly more than it actually is. Busted equipment, poor grounds, building falling apart...significant required investment of time and resources yet they want top dollar.

 

[Dan kamsickas]

There are so many factors that go into the multiple, not just PE entering. Economy is huge, supply and demand, availability of funds to make purchases, profitability, the general overall appeal of the business at that particular time (we know YouTube has glamorized car washes in the recent years), etc.

Same thing happening in laundromats also, their multiples currently through the roof

Yup. Seen more than a few that the owners are offered crazy money for and they take it. I don't blame them. Unfortunately, more than a few that have bought into the BS on Youtube have lost their rears.

This.

I will add that I have seen a lot of sellers who think their wash is worth significantly more than it actually is. Busted equipment, poor grounds, building falling apart...significant required investment of time and resources yet they want top dollar.

They think about what it took to build, add in their emotional attachment, stir in a healthy mix of "this stuff will last forever", sprinkle in a dose of "it does more than the books show" and you get operators who can't fathom why they can't get what they think the wash is worth.

 

[Randy]

Some of the car wash that are sold here are going for big money, upwards of 8 times gross. Mostly because the land values are so high. A closed car wash just sold for $950,000. They probably have another $100K into it. A friend of mine has been offered a little over a million for his 4 bay car wash. He's not sure he wants to sell, he said he has to have something to do when he retires next year.

 

[Rfreeman]

I think there is a lot of money still coming into the markets, and I mean all markets including car washes. Here in North Texas the sales have been ridiculous as others have pointed out. I know a group that off loaded 8 of their car washes, all 8 were dumps, we're talk half of that bays working if that, no vacs working, no vending, no lighting etc. They sold around 8 to 10 times stated gross income, and I say stated because I don't believe the numbers they showed on their financials. Personally, I don't see how these deals are penciling out if they have debt and if they don't have debt I don't see an adequate return for the volume of work needed to run a good facility at the prices they are paying. Remember price is what you pay, value is what you get

 

[OurTown]

How could you pay 8-10 times gross and turn a profit?

 

[Andrew MA]

Yup. Seen more than a few that the owners are offered crazy money for and they take it. I don't blame them. Unfortunately, more than a few that have bought into the BS on Youtube have lost their rears.


They think about what it took to build, add in their emotional attachment, stir in a healthy mix of "this stuff will last forever", sprinkle in a dose of "it does more than the books show" and you get operators who can't fathom why they can't get what they think the wash is worth.

Dan that last bit just had me laughing good. Made my night

 

[Blanco]

How could you pay 8-10 times gross and turn a profit?

You can it might take 40 years but its possible I suppose.

I asked a guy kindly who built a 5 million dollar SS/Auto how long until he will make his money back. He laughed and said NEVER but it is all a 100% tax write off. He will be leaving it paid off for his kids.

 

[Keno]

How could you pay 8-10 times gross and turn a profit?

It might work on higher grossing sites with economies of scale as Greg mentioned.

Or if the long term plan is to collect cash flow for now and redevelop in a few years, I've seen people doing that also. Get the land for future plans.

Or if they plan to default on their loan that doesn't have a personal guarantee, they don't care, collect cash flow while they can

 

[OurTown]

It might work on higher grossing sites with economies of scale as Greg mentioned.

Or if the long term plan is to collect cash flow for now and redevelop in a few years, I've seen people doing that also. Get the land for future plans.

Or if they plan to default on their loan that doesn't have a personal guarantee, they don't care, collect cash flow while they can

Okay, at $5,000,000 sales price with $500,000 in gross revenue, you could have a $300,000 or better net which would be 6%. I doubt many banks would lend on that and if using your own money that's a lot of risk for such a small return. There are other variables (you mentioned one) that may make it better than just looking at this simple example. Every buyer, seller, and site have unique circumstances.

 

[Roz]

There is clearly a threshold where a place will sell for a very high multiple because the place is under performing and the land value is fairly high (for now).

The transactions I see closing for washes that have a respectable revenue are in the 3x-5x range. 3x if additional investment is necessary and 5x if equipment is higher end and fairly new.

Bottom line is that it is hard to generalize since as mentioned there are many variables. I agree that many sellers are just fishing to see if someone with more money than brains is willing to purchase their baby. Rarely happens unless it is a National firm that is less concerned with current cash flow.

 

[Rfreeman]

How could you pay 8-10 times gross and turn a profit?

@OurTown, that's what I am still trying to figure out the angle??? How do you make money?

Okay, at $5,000,000 sales price with $500,000 in gross revenue, you could have a $300,000 or better net which would be 6%. I doubt many banks would lend on that and if using your own money that's a lot of risk for such a small return. There are other variables (you mentioned one) that may make it better than just looking at this simple example. Every buyer, seller, and site have unique circumstances.

Your 6% here I think assumes they come with an all cash offer of $5M so 6% return on $5M....no thank you, call me greedy, selective, etc. personally my money more importantly my time is worth a lot more than that.

So if you go the financing route on the same example above, assuming 10% down payment ($500,000) so note balance is $4.5M at 20 yrs for 7.25% (WSP today) equates to a note payment of $35,567/month or $426,804.....that's not a bankable deal.

You can it might take 40 years but its possible I suppose.

I asked a guy kindly who built a 5 million dollar SS/Auto how long until he will make his money back. He laughed and said NEVER but it is all a 100% tax write off. He will be leaving it paid off for his kids.

I wonder if he has some other businesses that have serious positive cash flow and he just needs the write offs? That's a hell of deal for the kids though assuming the wash is grossing good money and when its paid off it will be cash flow rich.


I was at my bank the other day speaking with my banker about commercial real estate in general and the over valuations, he also agreed some of the prices people are paying are crazy. He said the strategies a lot of investors are using is "date the rate but marry the property" so they are pinning their hopes on significant rates drops in order for the deals to make sense....

 

[liftheavy]

PE aint really buying washes now. look at what happened to take 5.

 

[Blanco]

@OurTown, that's what I am still trying to figure out the angle??? How do you make money?

Your 6% here I think assumes they come with an all cash offer of $5M so 6% return on $5M....no thank you, call me greedy, selective, etc. personally my money more importantly my time is worth a lot more than that.

So if you go the financing route on the same example above, assuming 10% down payment ($500,000) so note balance is $4.5M at 20 yrs for 7.25% (WSP today) equates to a note payment of $35,567/month or $426,804.....that's not a bankable deal.

I wonder if he has some other businesses that have serious positive cash flow and he just needs the write offs? That's a hell of deal for the kids though assuming the wash is grossing good money and when its paid off it will be cash flow rich.


I was at my bank the other day speaking with my banker about commercial real estate in general and the over valuations, he also agreed some of the prices people are paying are crazy. He said the strategies a lot of investors are using is "date the rate but marry the property" so they are pinning their hopes on significant rates drops in order for the deals to make sense....

He has three of them and they are all paid off as he built them cash. Ive been doing this a while but have never seen washes built like these or as busy as these ones are. He sold his other business for 40+ million but still works there managing and running the operation. After he gets done there around noon he hits up the car washes. I have to give it to the guy started out from nothing opening up shop in a garage to what he got now. Although im not sure if I had as much money as he does if I would ever want to step foot in a car wash ever again. I guess thats something I will never have to worry about lol Hopefully the kids are handy and appreciate what was done for them. Ive seen it go both ways in that scenario either they do good and are committed or completely fuck it up quickly.