car wash

[TexasRed]

We are appraising a full service car wash. I have read the forum, talked to appraisers and talked to an agent that specializes in car wash sales. Most people are telling me the income approach is the way to go (Gross income x GIM) I have some GIM comps so that is not a problem. It’s a new carwash so I also have been told how to get gross income based on traffic counts etc…. (these are not typically rented so income is sales not rent) My question is, how can this be the way to do it? That is a business appraisal. Does USPAP allow this? I will also do a cost approach and my sales approach will be pretty bad but I can at a minimum talk about some sales around the area/region.


I am not done making myself competent but will be before I get going on it….

Anyone??

 

[Terrel L. Shields]

The on-going business aspect is important and its value as an on going entreprise will be difficult to divine without stabilized income. Most car washes begin to perform fairly quickly and fail with time. Equipment maintenance is very important to keep customer base. Yes, there is a traffic count capture factor that is available - it is not really too precise. Say you can capture 1 of 75 cars passing by and they spend an average $5..the traffic count is 9000, You get the picture. I would rather have the actual gross income, because (again) that capture rate isn't going to hold up if the place starts having problems....people tend not to come back if the change machine steals their coins or there is no soap (actually the "super" soap, i am told, is simply foamier so that it appears to do more. All it really does is make you rinse more.) It is hard to get honest numbers because many operators skim 10 -25% of the take and do not report it. Real problem.

For a new facility, I would look at the cost approach. During the boom, new carwashes sold within one year for about 30-50% more than they cost; the recession has really slowed use down and many of the carwashes (older) will produce less than 50% of the income they were in 2005 or 2006.

 

[PropertyEconomics]

I would analyze this property based upon Gallons of Water Annually ... as well as that of my comparable sales. It seems, from what I have been told, quarters are easy to steal from Car Washes (as are dollars) but gallons of water cannot be faked ... just a different and unique method of measurement unique to this property type.

 

[TexasRed]

This is a new full service CW so gallons will be harder to do because they have oil, wax detailing etc.. I think I can get the gross then adjust my GIM up because its nice and new. Is this a gray area where appraisers value the business also?

they have a central pay area so its not your typical coin deal.

 

[Mr Rex]

I would analyze this property based upon Gallons of Water Annually ... as well as that of my comparable sales. It seems, from what I have been told, quarters are easy to steal from Car Washes (as are dollars) but gallons of water cannot be faked ... just a different and unique method of measurement unique to this property type.

It would depend on the particaular car washes reclamation efforts and % efficiency. Since water is expensive in most places, almost all car washes utilize some water recycling, some are much better than others, thus using less water.

 

[ETex2]

Technically, shopping centers, or for that matter, ANY income property is a "business". Try to get an operating history if possible, since he is essentially selling an income stream. Don't forget to take off for "management" since many owner-operators service the equipment and empty the cash boxes themselves. A history of water use is also very helpful, and this can be converted into dollar amounts and income/expenses. Knowing people who specialize in selling these, and who build these, goes a long way.

Remember also that this is a "cash" business, and some people may not actually report all cash received.

 

[David Mescon]

Remember also that this is a "cash" business, and some people may not actually report all cash received.

The OP stated a number of times that this was a full service car wash, so it would not likely be any more of a "cash" business than any other. I don't remember the last time I paid in cash at a full service car wash.

It would not be unreasonable to both assume, and state that you're doing so, that the wash is managed in a manner that is neither sub nor super adequate. If, as you stated, you know a realtor who specializes in selling car washes, it shouldn't be too difficult to establish both a reasonable cap rate and estimate the NOI. You can also interview owners and operators of similar enterprises. If I recall correctly, there is at least one trade association for car wash owners and operators, and they may provide some valuable information. (I just did a quick google search and found a number of them).

Good luck!

 

[Stephen J. Vertin MAI]

I do not understand the answers and how they relate to the question. Does not the answer to the question depend on the interest appraised?

Generally there are three values in carwash facilities. They are the value of the land and building, the value of the equipment and the going concern value of the business.

When valuing sticks, bricks and land the interest appraised is generally fee simple possibly leased fee. Sometimes it is possible to appraise this interest via income but most times not. The sticks, bricks and land rarely lease so comps generally are not avaiable. Most appraisers use cost and sales to indicate this value.

The value of the equipment is generally determined by depreciated cost or sales ratios of other equipment sales. You might find leases but they are not prevelent in most markets.

The going concern value is income related but can also be determined by sales. Many market participants divide sales prices. But all and all income is generally most applicable to this interest.

I guess it is possible to determine going concern value via income and back out the other values with sales ratios but I have never seen this done in business reports.

If you are valuing the property as a going concern and valuing it via income and calling it market value you are using faulty appraisal methodology and subject yourself to future scruteny. You are 100 percent correct in pointing out this is a business appraisal. This is not a fee simple value of the land and building.

Carwash facilities generally have three values due to having three interest contained.

 

[Brian Weaver]

I do not understand the answers and how they relate to the question. Does not the answer to the question depend on the interest appraised?

Generally there are three values in carwash facilities. They are the value of the land and building, the value of the equipment and the going concern value of the business.

When valuing sticks, bricks and land the interest appraised is generally fee simple possibly leased fee. Sometimes it is possible to appraise this interest via income but most times not. The sticks, bricks and land rarely lease so comps generally are not avaiable. Most appraisers use cost and sales to indicate this value.

The value of the equipment is generally determined by depreciated cost or sales ratios of other equipment sales. You might find leases but they are not prevelent in most markets.

The going concern value is income related but can also be determined by sales. Many market participants divide sales prices. But all and all income is generally most applicable to this interest.

I guess it is possible to determine going concern value via income and back out the other values with sales ratios but I have never seen this done in business reports.

If you are valuing the property as a going concern and valuing it via income and calling it market value you are using faulty appraisal methodology and subject yourself to future scruteny. You are 100 percent correct in pointing out this is a business appraisal. This is not a fee simple value of the land and building.

Carwash facilities generally have three values due to having three interest contained.

Stephen is correct. A carwash "structure" is just a lousy carport with a lot of plumbing. I always offered different fees depending upon what the question was.

 

[Terrel L. Shields]

Is this a gray area where appraisers value the business also?

You are valuing the business if you are appraising a car wash. If the value of the land is more than the value of the property indicated by the Income approach, then the HBU issue is involved and the value of the property is equal to the value of the land...the maximally productive use of the property. An operating car wash is purchased on the basis of its income. That is how buyers buy them. And that is going to fall back on the income. Expenses of a self-service car wash are pretty uniform therefore, the gross income is a huge factor and if the annual income is say $100,000, and the equipment isn't going downhill fast, you can bet the car wash will sell for about $300,000. Patrick Crowe wrote the book of appraisal of carwashes and says the break point is 2.85 times the annual income. Annual income is low when the carwash isn't well maintained - which is often the case. A five year old car wash is generally in poor condition, especially the autowash bays. That equipment is high maintenance. I would bet that Mr. Crowe has bought and sold more car washes than all the posters here combined have appraised. Trust the pros in their own world.

The market value is the same in an income approach as in a sales approach. If the market prefers the income approach, then that is "market value", not "investment value". Car washes are not passive investments.