Car Wash Asset - What Am I Missing

[Drew Petro]

Gross revenue of ~$75k, NOI of ~$35k, valuation based off 4.3x gross-revenue, not 5-7% cap rate. Better Cash flow monthly?

My realtor called me recently with an interesting investment opportunity - a local car wash. It is a 4 bay manual car wash with 1 bay as an automatic drive-through type wash. My question is around cash flow of this asset class. Apparently car washes are valued off a multiple of gross revenue (somewhere between 3-5 for this type, it seems, market dependent). 

Whats interesting is that when you look at this P&L next to that of a similar gross-revenue multifamily or self storage facility, it is VERY similar. Gross revenue of about $75k, NOI of about $35k. What I dont understand is the sale price of a multifamily or storage facility will be off a Cap rate of, in my area, 5-7% (sale price of about $550k+). This car wash is listed at $320k (4.3x gross revenue). Obviously a loan for $320k would require less capital and less amount in monthly payments than a loan for $550k ... increasing your cash flow. Again, top line revenue similar, expense amount similar...

What am I missing here??? Assuming you would want to manage both just as much, why not buy the less expensive asset that produces just as much cash flow??

[Dave Carpenter]

In short: the car wash will be more work per day, week and month. Everything you described pencils out in a basic sense. 

From a work perspective, it’s a little different. You’re fixing broken hoses, pumps, etc. Emptying garbages. That kind of thing, the good news is most days (not all) you can decide when you or someone else goes to check on stuff. Pros and cons.

Another thing to consider is financing. Car washes can be harder to get financing for. Plenty of wash owners use SBA loans which can help you with less of a down payment, but often are tied to the prime rate so it’s a rate that can rise and fall. I got the joy of closing on mine and almost immediately watching the prime rate, this my loans interest rate rise. 

I’d say dig in. Cash flow can be better than a traditional apartment building.