How to Evaluate the Market Value of a Commercial Property

[Stephen Brown]

Hello BP.

My father and I are interested in purchasing a little car wash that has been vacant for years and is now in the foreclosure process and will be up for auction here soon by the county. I know that commercial real estate is valued based on the cap rate and I want to create a pro-forma to evaluate this but I'm not sure how to start. I was wondering how I would go about valuing this property so that I don't overbid at the auction, and the only thing that comes to my mind is to contact other car washes in the area to see their operating performances. I'd like to hear if anyone has  bought a property like this before and how they ended up valuing the property's worth.

The current county appraised value is $156,000

Thanks,

Stephen Brown

[Dave Carpenter]

@Stephen Brown

For starters, find local chemical distributors and call a few of them. They know the market and might have insight on volume the wash had done and the condition of the building and equipment.

I’d look into traffic count and speed of road. Is there a stoplight that keeps eyes on your location a bit longer or so people fly by at 55mph?

What is the population within 3 or 5 miles? Thats where your customer base is.

A good chemical rep should be able to offer you insight on traffic and population.

This data will give you a sense of volume.

A working wash that’s operating regularly should be valued loosely at 3-5x yearly gross sales. In this case, I’d anticipate discounting with that as a sterling point.

Also consider what the costs will be to get it up and running.

On the back side, know you are building a business not a passive investment. It may not be a full time job, but someone will need to be there at minimum most days of the week.

Good luck!