👀 My latest car wash deal...

3rd Car Wash in the books!  $1.5 million. 

We closed on this car wash north of Denver, CO Monday.

Hang on, this one was spicy.

First off, we've been trying to buy more car washes all year. We missed a closed bid sale by $20k.  Another one the seller sold for LESS than we offered to a person she knew. I looked at more deals than I can count, but (surprise) a lot of the math just doesn't work. Until we found this one, and it worked because it had some hair on it.

Details: 8 bay all self serve

Grosses $270k

EBITDA: $140k

Price: $1.525M

Cap rate: 9.2%

First problem: Major accident In August of '21 some dude stole a big front end loader, ran it into the mechanical room to steal money, destroying that part of the building. He only got $500 but it shut the whole operation down for 8 months. Brutal.

The sellers recovered their lost income and repaired the building, but the books looked rough for '21 and '22.  '23 looks almost completely back on track. But most banks don't like hairy deals.  Ours was ok with it so moved forward at this price.

Plus about half the equipment is brand new, so it looked pretty good for us.

Then problem #2 came up...

Second problem: muddy books The seller owns 15 locations, with cash flowing between the holding company and the location LLC. Some expenses (like labor) were booked at the holdco level, others at the location level.  A mess.

This was one hurdle our bank couldn't get past - at least not in time for end of year tax benefits - which was why were willing to go to a 9.2 cap. This wash will nuke about $400k in taxes for me and my partners.

Need that juicy bonus depreciation yall. So we were never super clear on the expense structure of the wash. But that's where our car wash experience comes in. 

We KNOW what expenses will be and should be. We built out our own cost model of how WE'LL run it, not the seller. Those numbers look good, but the bank can't lend on them. 

Oof. What to do?

A short term seller carry and a flexible bank save the day. Me and my partners come up with $800k cash (yes I fully recognize most people could never do this), and have the seller carry back a note for $725k.  

BUT, the wild part is that our bank only wants 3 months of clean books from us. They've lent on our previous 2 deals and they love us. They see that we can boost revenue and profit by at least 20% in the first 6 months.  So, they say "get 3 months of clean books and we'll give you up to 90% loan to value".  Wow. 

Now valuation/appraisal will be the tricky part (always is) but we're already close on it so not too worried. So, the seller has a 6 month note for $725k (25 year amortization 8% interest) with the balance due in late June of next year. 

So we gotta get on our horse, grow this place fast, keep expenses low, and then we can get almost all of our money back out in March or April. Scary? Maybe a little, but I make these bets on myself and my partners every day. We got this. 

How to grow a car wash that fast?  First off we can raise prices by about 15% without anyone noticing.  Also, this place has a unique business model we are going to copy and expand on. They dedicate two bays to "high pressure rinse" where they turn up the pressure by 50%. 

People love it, and come from all over Denver to use it. Those bays charge 25% more. We'll expand that to more bays and to more locations. Also: get rid of the $.25 minimum.

This looks like a benefit to the customer, but its not. People drop a quarter and the wash starts immediately. By the time they drop $2-3 worth the wash has burned through the first quarter or two.

Make the minimum$1 for now ($2 later) and it actually benefits the customer because they can drop their ~entire wash's worth of quarters before the timer starts.

Then we'll go after more fleets. This new wash services 20 fleets with zero advertising about it.

This location has a big homeless problem so the wash gets trashed every night. We'll shore up the trash situation so the place looks a lot better and then advertise to attract more of 100k people that live nearby. 

We'll use Google ads to begin with and scale with direct mail.

Finally we'll put in our self serve membership program.  We're adding a few members a week at our other locations without any advertising. Big opportunity. 

All of this should give us a nice 15-20% bump in the short term and probably 30-40% over the long term.

Kind of a wild one, but those are the fun ones for me. 

Questions, AMA...

Also, want to do this for yourself and reep the killer 45% ROI we expect from this wash? Watch this video for the whole playbook: TaxFreeCashCow.com

Kriss The Car Wash Guy