South Florida Car Washes Are Attractive Investments
Car washes represent a very attractive investment for many different types of investors in South Florida. Car washes with self-contained and privately owned facilities (separate and apart from gas stations) invariably includes real estate along with valuable plant and equipment. Many buyers ranging from private equity investors, serial entrepreneurs, and individual investors enjoy owning these physical assets (including real estate), as well as receiving the predictable returns and recurring revenue of car washes. One must carefully evaluate the income of the car wash along with its physical assets in order to determine the best asking price of car washes in South Florida. Remember, differing buyers will emphasize either the car wash’s income or physical assets, and the selling price should reflect and incorporate both of these aspects.
Evaluate Land and Equipment of Car Washes
- The first step in evaluating a car wash is thoroughly investigating the value of its owned real estate.
- Obtaining accurate information as to the acreage and square footage of the property is mandatory.
- A comprehensive evaluation of the real estate should use comparable sales prices as to the land and property of similarly situated nearby properties.
- Preferably such ‘comps’ should be on the same main thoroughfare of the car wash and include sales within the past 12 months.
- Special attention must also be paid to any zoning issues or restrictions that prevents (or significantly delays) any competitive car washes in the nearby area.
- Many other factors such as the car count (daily number of cars passing the car wash), visibility, and overall location will heavily influence the valuation of the real estate.
The Equipment and Facilities of Car Wash Affect Valuation
The improvements upon the real estate include all the equipment and the facility itself of the car wash. Of course, the real estate of the car wash will incorporate this value, along with the expense of time and manpower associated with obtaining all the zoning approvals and permitting necessary to actually construct and build-out a fully functioning car wash. Buyers will put a higher premium on car washes that are more automated (in order to save on labor and increase customer satisfaction) and use more environmentally friendly and efficient cleaning services. That is certainly the wave of the future when it comes to car washes and what the customer expects. During the process of finding out how much your car wash may be worth, carefully consider the equipment’s efficiency and technological prowess.
Evaluate the True Income of the Car Wash
After one evaluates the physical assets of the car wash, one must evaluate the sales and net profits (or owner benefit) of the car wash. A well established and well run car wash normally exhibits steady sales and income, and thus attracts buyers willing to pay higher multiples of the car wash’s owner benefit. The most important part is evaluating and determining the proper owner benefit. After calculating the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), one must also include any hidden assets such as unrecorded sales, non-cash expense (such as depreciation), and the owner’s salary (also adjusting for the fair market value of any family members of the owner who are employees) in calculating the true owner benefit.
Absentee-Owned Car Washes Receive Higher Valuations
In assigning a valuation to the income generating capability of the car wash, one assigns a higher multiple of owner benefit if the car wash is absentee owned. There are varying degrees of owner absenteeism depending on how active or critical the owner is to the car wash. If, for example, the owner acts as the manager and the owner’s family members work in the car wash, then the buyer of the car wash would have to replace the owner (and family members) with either paid employees or with their own labor. This extra cost will ultimately be deducted from the purchase price.
Using A Capitalization Rate to Derive Value of Car Wash
- Many purchasers of income generating properties (such as car washes) employ a concept called a capitalization rate (or ‘cap’ rate) in order to best assess the asset in question.
- A cap rate of a car wash property is its net operating income (not counting depreciation nor any mortgage expenses) divided by its asset value (or prospective purchase price).
- For example, let us assume that Bill’s Car Wash generates $250K/year of net profits and has an asking price of $2.5M.
- A buyer will thus assign a 10% (250K/2.5M) cap rate to this investment opportunity.
- As discussed, if the buyer must replace the working owner with a manager, then the net income will go down along with the cap rate.
- Cap rates signify the projected rate of return on one’s investment.
- In a strong business or commercial property environment, cap rates are low because the expected rate of return from investments is relatively low.
Car Wash Sales Should Assign Value to Both Income and Assets
Any business with attractive physical assets will result in buyers placing a premium valuation to its underlying income generating abilities. With car washes, this is even more evident because car washes with less labor-dependent and more automated equipment will generate more long term income with less need of repair and replacement. Properly determining the correct owner benefit will thus result in a lower cap rate and higher purchase price. Do not underestimate the worth of your car wash!
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.