Tommy Dobczyk tears apart a car wash deal advertised at 12% cap rate and $3.7M price. The seller claims $252K annual income, but Tommy estimates $150K, which drops the real cap rate to 7.2%. He argues specialty-use car washes deserve at least a 9% cap rate due to weak leases and equipment risk, making $2.1M the fair price.
Chapters
Did you do the math on it to see like where he was at as far as cap rate and all that? With the updated price? It said 12%, but let's see what the math actually worked out to, right? But go back down right there. All right. So boom, boom. All right. So we don't want to tell them that the cap rate's 12.1%. We don't believe their NOI. That's what we're having an issue with. Okay. Because essentially if we lowered the cash offer by almost from the 3.7 to 2.1, that increases the cap rate. Keep going down. So risk adjustment is a 12% required yield. We can go do a little research on what the yield should be on a, on a car wash. So, but we believe they're more around $150,000, which is why we think it's a 7.2 cap. Okay. See the difference now? I do. All right. Keep going down. All right. So it probably rewrote the LOI. Let's redo the economics on it real quick. We want to rewrite the economics. We understand that they're saying it's a 6 6 cap, and that's why they're justifying the $252,000 NOI at that price. We need proof that the NOI is $252,000 a year. And then what we want to do is we want to know if we did a $2.1 million commercial note, what is our DSCR based on that NOI? And the $2.1 is going to be at 7.5% interest over 25 years commercial note, and it's a balloon. So Were they going through and hashing through that? We got an appointment that's going to start here at 25. So right here, the loan assumption showing it right there, annual debt service is at $186 with a $252 stated NOI. Keep going down. You're going to see that you've got a DSCR of 1.35. So that's at the 2 point, that's at the price of 2.1, right? So if we take that back up to 3-something, you're going to see that the DSCR score goes to shit. Keep going down, keep going down. Okay. So our price is justified based on the idea that we need to cover our debt, right? To run it. And based on the number he's providing us, if we had full debt on that $3 million price, there's no way to cover that debt. All right. And now ask it, ready for this? Go ahead. All right. So we want to know what the, what the cap rate is on a commercial property that is a car wash. What, what should a car wash cap rate at? Unverified NOI, weak lease proof. Environmental and equipment risks to where we're at now. So I think that young operator, limited financial disclosure, specialty use risk, cap rate's gotta be at 9 minimum. So let's go see if we can find Dr. Her— let's go see that one. And again, like the 2% annual increase is not, that's not strong at all. No. What does it say? My cap rate opinion, what does it give us? Fair risk, 8.5 to 10, right? And so the value at a 10 is 2.5, right? And so with a 12, go down a little bit more at a 12 cap, it's 2.1, right? So we can tell 'em that's why.
