Is Auto Repair Shop A Risky Investment?

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I am a new investor looking for some seasoned advice. There is an auto repair shop for sale, with a good tenant, long lease, and cap rate at 9.5. Problem is that my insurance company (State Farm) will not insure due to risks, and potential problem of finding another tenant down the road needing this type of building. My gut is saying that the risks outweigh the nice, but not spectactular, cap rate. Thanks in advance.

Comments(8)

  • cjmazur9th April, 2005

    was looking at an industrial condo project. The broker noted to me that there are 2 business that do well independent of markey conditionsL

    Medical
    Auto repair.

    My concern would be 2 fold:
    Code violations /Condition Use permits. Does the city want to get rid of this business and your zoning is going to change.

    Environmental risk.
    fuel, solvent, motor oil contamination

  • KDJDED11th April, 2005

    Thank you for the comments so far.
    Here is some additional information.
    There is a long term lease in place for the existing tenant. The facility has 2 bays for RVs, which is good for all the tourists and retirees in Western North Carolina. Location is good; on the local main road and right next to the highway going from Asheville to South Carolina. Seller is retiring.
    My alternative is a small office building, with a cap rate 1% lower. Any additional comments welcome.

  • commercialking11th April, 2005

    Does the office building have more than one tenant or is it a single-user as well?

  • KDJDED11th April, 2005

    Thanks for the follow - up.
    The office building is small, and has 10 small office suites with own bathrooms, and joint entrance/hall. It is currently 100% occupied, but I would put in a 7% vacancy factor. This would require more management time.
    Kevin

  • KDJDED5th May, 2005

    Thank you for your comments. My risk tolerance is better suited to the office building. I appreciate your time and expertise.
    Kevin

  • sffs3332612th February, 2006

    Lenders will provide a max of 70% on this property type, 90% CLTV with a seller second. It could be a straight 90% SISA with a strong borrower. The lender issues will be possible EPA concerns identified through an envirronmental questionairre.

  • sleeve39629th August, 2006

    This makes a real point that hits home with me. + one of my first investments was a three acre salvage yard in miami. Little did I suspect that the city had an agenda on all grandfathered salvage yards in the inner city area. I found my self unable to get any loans once the city code sharks and enviromental aristocrats began to crack down on thirty year old issues that were no longer happening. My advice be sure you have an exit strategy or at least some kind of clearance from the city hall puppets. Good luck. Sleeve


    Quote:
    On 2005-04-09 18:11, cjmazur wrote:
    was looking at an industrial condo project. The broker noted to me that there are 2 business that do well independent of markey conditionsL
    <BR>
    <BR>Medical
    <BR>Auto repair.
    <BR>
    <BR>My concern would be 2 fold:
    <BR>Code violations /Condition Use permits. Does the city want to get rid of this business and your zoning is going to change.
    <BR>
    <BR>Environmental risk.
    <BR>fuel, solvent, motor oil contamination

  • richnathan12th July, 2007

    Old Post, but still useful.

    We are involved in an autorepair/salvage yard.

    Yes a lot of risks, environmental concerns and city tug of wars. We shut down the auto body painting unit after the environmental costs got out of control.

    We ended up master leasing the facility to the new potential owner. He has the option to purchase soon and will probably default on the option as he has cannibalized the business and ran it into the ground. We will probably turn it into boat, RV and ministorage as residential has sprung up around it.

    The car business is truly for those with the heart for it, much like construction. But the biggest issue is all the screw-ball people that you have to deal with. There are a lot of dirty politics and shady business to deal with. Still a viable business and you would be surprised how many people want more than anything to own a junkyard! (lots of fun as a kid!)

    Best of luck

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