Appraising An Owner Operated Car Wash And Laundromat (real Estate Only)

[NachoPerito]

I will just echo the comments here. A car wash is very hard to appraise without looking at the income. A sales comparison approach will likely include the business value so you have to be careful.

I appraised a property and they gave the last appraisal of a laundromat. The last appraiser took the income from the business and capitalized it like it was rental income. Way inflated.

One thing to note for a laundromat is that it can be costly to build out with the plumbing involved. There may be some value in the tenant improvements above a shell.

 

[Value in the 850]

I will just echo the comments here. A car wash is very hard to appraise without looking at the income. A sales comparison approach will likely include the business value so you have to be careful.

I appraised a property and they gave the last appraisal of a laundromat. The last appraiser took the income from the business and capitalized it like it was rental income. Way inflated.

One thing to note for a laundromat is that it can be costly to build out with the plumbing involved. There may be some value in the tenant improvements above a shell.

I had a copy of the previous appraisal, and that's exactly what the appraiser did. He capitalized the income from the car wash and laundromat as if it was rental income and the value was way, way inflated. That's what I've been referring to in this thread, and perhaps I didn't word it correctly. That's what I was referring to as using the business income.

 

[PL1957]

I had a copy of the previous appraisal, and that's exactly what the appraiser did. He capitalized the income from the car wash and laundromat as if it was rental income and the value was way, way inflated. That's what I've been referring to in this thread, and perhaps I didn't word it correctly. That's what I was referring to as using the business income.

Assuming the appraiser deducted the appropriate expenses from total revenue, capitalizing the EBITDA would get you the value of the going concern. Using a gross profit multiplier would be another method to get to the going concern.

 

[NachoPerito]

Assuming the appraiser deducted the appropriate expenses from total revenue, capitalizing the EBITDA would get you the value of the going concern. Using a gross profit multiplier would be another method to get to the going concern.

True, you can capitalize the business gross revenue to get your value like Michael said, maybe a ratio of 3-4, but not 8-10, which rental income would suggest. The appraisal I saw capitalized the business net income at 8%, which is way off.

 

[Vernon Martin]

Value in the 850? That's pretty close to the value of $829,000 that Mrs. Walter White arrived at in the beginning of the 4th season of "Breaking Bad", in which she competently explains the valuation formula for the going concern of a carwash, to be used to launder her husband's drug money.

I'm fascinated seeing appraisals being done on TV. I also loved seeing Tony Soprano's pet appraiser get beat up by the other gangsters because he wouldn't commit appraisal fraud for them. Is there no respect left for the loyal appraiser who commits fraud for only one client?

 

[KHS445]

While we are required to at least consider all three approaches to value when appraising any property, I nearly always include all three approaches when valuing a special use property. With the Cost Approach I hope to determine not only replacement cost, but also an upper end of the value range for the property and the FF&E. Hopefully when completing the Sales Approach I will find similar special use properties that sold as vacant/dark and others that sold as going concerns. Again these will figure into my value range. Lastly the Income Approach will not only give me an estimate of the subject's overall value, but it will also provide me with an indication if the business has sufficient cash flow to justify the separate values I am considering for the real estate, FF&E and operations. As we all know business owners vary greatly in how they account for various expenses and part of our job is to attempt to separate the true operation related expenses from what the business owner claims as an expense.

 

[Value in the 850]

Here's the thing: If you are appraising a car wash for a bank for the purpose of a loan, refinance or whatever, you have to seriously consider valuing ONLY the real estate. You can use sales of operating similar car washes (self-service, express, etc.) to give you a value that includes the "going concern" value. I have seen car wash properties that were non-operational sell for anywhere from 30% to 70% less than a similar car wash that was operating when sold. So the cost approach is, in my opinion, the most reliable indicator of real estate value. It's pretty easy to find the cost for the car wash equipment and a good inspection will give you a good idea of the amount of physical depreciation (Building and Equipment). And if your sales comps are all of operating car washes, you have a value that is inclusive of going concern. As for the income approach, first it's rather difficult to get reliable information from owners of other car washes as to how much income the facility produces. So, it's hard to apply a GIM that is proven from your group of comparable sales. If you try to include the business income and put too much weight on that approach, you could end up overvaluing it. Should the car wash close one year after the loan, approved based on the appraisal, perhaps due to a newer car wash facility coming on line nearby, or bad management decisions, the bank will end up with the real property, not the operating business. And as I said earlier, closed car washes never sale anywhere close to one that is operating. It's up to the bank to decide if the "business" is viable, and it's up to the appraiser to offer a value opinion for the real estate only. That's why I typically put almost all weight into the cost approach and sales comparison approach and little into the income approach. A car wash is a special use property, and there is little that can be done to the improvements other than use as a car wash. Unlike a retail or office building that has gone dark, and would most likely sell just below or at market value, a car wash property that is closed would sell well below market value compared to an operating car wash.

 

[Gobears81]

Here's the thing: If you are appraising a car wash for a bank for the purpose of a loan, refinance or whatever, you have to seriously consider valuing ONLY the real estate. You can use sales of operating similar car washes (self-service, express, etc.) to give you a value that includes the "going concern" value. I have seen car wash properties that were non-operational sell for anywhere from 30% to 70% less than a similar car wash that was operating when sold. So the cost approach is, in my opinion, the most reliable indicator of real estate value. It's pretty easy to find the cost for the car wash equipment and a good inspection will give you a good idea of the amount of physical depreciation (Building and Equipment). And if your sales comps are all of operating car washes, you have a value that is inclusive of going concern. As for the income approach, first it's rather difficult to get reliable information from owners of other car washes as to how much income the facility produces. So, it's hard to apply a GIM that is proven from your group of comparable sales. If you try to include the business income and put too much weight on that approach, you could end up overvaluing it. Should the car wash close one year after the loan, approved based on the appraisal, perhaps due to a newer car wash facility coming on line nearby, or bad management decisions, the bank will end up with the real property, not the operating business. And as I said earlier, closed car washes never sale anywhere close to one that is operating. It's up to the bank to decide if the "business" is viable, and it's up to the appraiser to offer a value opinion for the real estate only. That's why I typically put almost all weight into the cost approach and sales comparison approach and little into the income approach. A car wash is a special use property, and there is little that can be done to the improvements other than use as a car wash. Unlike a retail or office building that has gone dark, and would most likely sell just below or at market value, a car wash property that is closed would sell well below market value compared to an operating car wash.

Several mentions in this thread of overvaluing due to including business income analysis, but not analyzing business income might cause you to overvalue it. What if your property producing 80% of the revenue of the comparable sale that you have, on paper, determined to have a net adjustment of zero in the SCA? The market for self-service car washes is not a good one right now and an analysis of business income will offer clarity on whether it is even viable to continue operating in it's current form. I would also question how obsolescence (a very real part of self-service car wash valuation) was determined without knowing the business income (or its potential) of the property

 

[reviewbe]

I used to have a list on the wall of my office, of the property types I WOULD NOT appraise. Car washes were on the list, and laundromats. I added to the list over the years as I learned that I wasn't truly competent to take certain property types on. Or that they were just too hard for my challenge-avoiding personality.

If you must, then going concern is the way to proceed, as stated elsewhere in this thread. The trick then becomes allocating the value into the various components. This is a specialty, and I would refer these jobs to appraisers who did them all the time.

One thing that is unusual for most of us, is that these businesses are almost all CASH income, so there is always the potential for reported income to be suspect, or for one operator to report more of the actual than another. No consistency amongst the operators.