I have been eyeing up a possible transaction - purchasing a car wash. Now based on what the seller has told me, it appears that this is a true cash cow and priced below market value.

The price point I figured was based on the deferred maintenance and the single niche that the place has.

Well I have been doing my due diligence on this place. I asked for the 2020 tax return and expected the numbers to be rather low due to COVID. Indeed the numbers were low. Instead of the 40,000 in sales that they report to me, they are reporting less than half to IRS.

Well at this point I asked for three more years of tax returns.......and guess what: they are all about the same amount of income. After you facture out the expenses there is a whopping $3,000 of positive cash flow.

So I am wondering, is this guy pocketing cash and if so how much.

I bring this up just to show the importance of reviewing past performance and comparing it to what the potential is. I guess I need to option the property for six months to see if it is making money.

He might be pocketing cash or he might be "forgetting" to tell you about some of the expenses.

My experience with commercial is that they always want to leave out some of the expenses. Really? You don't pay for any insurance? There hasn't been any maintenance expense?

I have a retail strip with a laundromat in it. The owner is trying to sell the business. Claims it is a cash cow. But he pays me late or when his social security shows up. Once people starts digging into the financial part like you are... red flags come up. They leave..

Ray, you are dealing with a liar. Don’t believe a single word he says, don’t let his story influence you in any way.

The main problem as I see it is that you will likely waste your time. Seller knows that he has no business to sell based on his financial records, he also has an obsolete wash that other wash operators have correctly valued at zero (business). He is using the lie of big non taxed cash a the bait, and hoping to score. You will keep fooling your time away with this liar, trying to find out how much income is, and he will continue to tell you lies.

You need to become an expert in car wash equipment repair/ maintenance costs, the useful life / obsolescence cycle. I would start by contacting the equipment dealer/ installer/ service companies.

Once you are armed with more knowledge about old car washes, your offer for this property will likely be much lower than offers he already has received.

As a long time consumer of car washes, I observe that few maintain their facilities more than 8 years. My hunch is that replacement parts for 3-4 year old equipment are very expensive and unavailable after 7-8 years.

A massive cash call is required every 5-6 years for all new equipment is my thought of the core issue that is motivating the seller to sell.

One more thought, I haven’t used cash in a car wash since 1992. Nowadays they are mostly subscription based, but have been debit card centered since the early 90’s.

Thanks Sisco......

There are three wand systems and one broken down automated system. I was thinking making the automated system CC or token based.

The net on this place over the past three years is $3,000 to $8,000.

GKarl,

I'll research the water usage.

T

Here is why I was looking at it:

There are only about 9 car washes on loopnet. The cheapest of these nine is at about $695,000. The two that do have cap rates have them listed between 7-8.5%.

These folks want $100,000 and the place will need about $225,000 in upgrades. The most that they can accept in year one is $50,000. I was going to 1031 into that part and have them set up an installment contract.