The $1.3M Drive-In That Could Make You the Most Popular Person in Town

0:00Hello, everyone, and welcome back to another episode of Acquisitions anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill D 'Alessandro. And today I am with four of my friends, Heather Anderson, Mills, Snell, Michael Gurley, and Travis Jamison from Capital Pad. And we have a really fun deal. It is a drive-in restaurant in the Appalachian Mountains in North Carolina. This is straight out of diners, drive-ins, and dives. It has been open for 75 years. It is$370 ,000 of cash flow. It's a local institution in the North Carolina mountains.

0:38We have a fun time talking about it. There are some really interesting real estate dynamics where you can get a very attractive SPA financing package for this business. So without further ado, I hope you enjoy this episode of Acquisitions Anonymous.

1:03Hey, everyone, it's Bill, and I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad, and it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So CapitalPad is a marketplace for acquisition entrepreneurs, that is people who want to buy a business and need capital, to list their deals and solicit capital from other people who want to invest in acquisition deals. So if you want to back somebody buying a small business, CapitalPad is the place to do it. And if you want to buy a business and need capital, you can go on CapitalPad to be introduced to investors.

1:45So the really great thing too from the investor side is that CapitalPad takes care of all of the details that can get hairy with small business acquisitions. They handle standardized terms, standardized governance, standardized distributions all up front in black and white. Basically, CapitalPad professionalizes investing in small businesses and the returns can be really, really good. I'm so stoked they exist. It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out CapitalPad.com and tell them that Acquisitions Anonymous sent you.

2:29All right. We have a full house today, five hosts on Acquisitions Anonymous, five for the price of zero because you're paying nothing to listen to this podcast. uh so heather and mills and michael and travis from capital pad and myself bill d 'alessandro how are you guys doing fantastic good to be here we're gonna try to hammer out two episodes two deals in one recording session so these will probably be back to back so i want to get right into the first one which i am fired up about and i found on biz buy sell and i think is in travis's backyard. So this is, it says, own the legendary city drive-in, the front porch of Spruce Pine, North Carolina.

3:13It is a legendary city drive-in front porch. Where is Spruce Pine, North Carolina, Travis? Is that near you? I think, I'm not really sure. It's like everyone knows the name Spruce Pine, but I don't think anyone knows where it's at. I think this is in Western North Carolina, like in the Appalachian Mountains. You guys want to know about it? It's a surprisingly cool business. Look how cool this place looks. This place is awesome. It is the legendary city drive-in. They have$1.3 million of revenue and 370K of cash flow, SDE. And they're asking$1.3 million for it. So that is three times, roughly? But they listed the real estate's worth$900 ,000.

3:58So it's basically like, A turn and a half of SDE. Yeah. Well, it says, and I'll get into this, but it says this offering is a comprehensive package, including the prime real estate and over$230 ,000 of tangible assets. So maybe it includes the real estate, which would be very interesting. Let me tell you more. So it was established in 1950. So this business is 75 years old, doing drive-thru movies. It says, own a piece of history while you make it your own. For the first time in decades, the legendary city drive-in is available for an acquisition. A cornerstone of the community for 75 years, this is a rare turnkey and highly profitable enterprise.

4:39As I said, this offering is a comprehensive package, including the prime real estate and over$230 ,000 of tangible assets. Asset list is attached. We'll look at that at the end. Situated in a high visibility corridor with a steady traffic count of about 5 ,000 vehicles daily, This property offers consistent exposure to both local residents and passing travelers. The sale includes the land and the multi-building facility, ensuring your investment is backed by significant real estate value. It says it's a multifaceted facility, and this is what makes it interesting. Number one, the original grill, the heart of the operation, housing the main kitchen, counter service, and high traffic takeout.

5:17Also, 670 Oak Avenue, aka the expansive indoor dining venue featuring a full-service bar. All ABC, that's Alcohol Beverage Commission in North Carolina, all ABC permits are current and in place. The awning, preserving the classic Americana experience with traditional curbside dining. And then the entertainment hub, which is a dedicated area for live music, appetizers, and cocktails. It has proven revenue streams and established event venue, the primary destination for regional festivals, car and bike shows, and wedding receptions. Full-scale catering, a robust service line for corporate meetings, community events, and weddings.

5:51and weekly staples, which says high engagement programming, including karaoke and trivia nights. Total asset inclusion sale includes all real estate and$230 ,000 of equipment and assets. It's a turnkey operation. Move forward immediately with all equipment, ABC permits and branding in place. You have a 75-year legacy and a multi-generational customer base. The inventory says, this says there's$80 ,000 in inventory, which we got to believe is like food, not included in the asking price. but the$234 ,000 of FF &E is included. It says they have 18 employees, five of them are part-time, or sorry, five of them full-time, 13 of them part-time.

6:30Facilities, the grill area houses a commercial kitchen, the refrigeration and the counter service space. The drive-in curb area provides convenient curbside service for customers. There's also the indoor dining and full-service bar area where guests can enjoy cocktails and beer while listening to live music. There's additional outdoor seating and picnic tables, relaxed and inviting atmosphere three restrooms blah blah blah the sale includes the real estate again the properties are prime location it's in the tri-county area of avery mitchell and yancey counters counties which offers an exceptional place to live work and invest spruce pine continues to experience steady growth has become a sought-after destination for visitors and businesses alike just minutes from the grassy creek golf course and the ymca of mitchell county they have lots of festivals around lots of restaurants within a 10 mile radius they're open Monday through Saturday they do breakfast on Saturdays blah blah blah you can do all kinds of other things host different types of events the current husband wife ownership team is willing to remain on for a transition period ensure a smooth handoff the owners are wanting to retire enjoy their grandchildren and travel and there is a map here of exactly where this is and this is just north of Marion, North Carolina, about probably, I would say, 30 minutes northeast of Asheville.

7:49Okay, it's an hour from Asheville. So this is like in the foothills, the Appalachian Mountains in North Carolina. So what do you guys think? I love this one. It's so cool. The pictures are amazing. It's like hanging off the side of the highway, like carved into the side of a mountain, sort of. And when you like, I think, rewind to some of the original purpose of like these SBA loans for acquiring these companies, like this seems like the real original like thesis behind it. Like this business that's been around forever that needs to transition. There's no other way to do it besides SBA loan. This seems like a nice fit for that.

8:27I love this. Yeah, I would agree with you. It does seem like a nice fit for that. And it seems like it's priced really fair. I mean if if 900 of the million four ish of asking price is real estate value I did some quick math If they're not paying rent, which I doubt they are in their in their pnls The the cost of a 900 000 25 year real estate loan is about 85 000 a year So I kind of locked that off of the cash flow that they said the 370 sde So I took off the 84 for the real estate loan and another$100 ,000 for like a salary. Came up with about$200 ,000 of cash flow. And you're still only paying two turns of EBITDA for the business and then buying the real estate at market value.

9:15I mean, that's very, very fair value. It seems like a really good deal. But you do have to want to live where this is and you have to want to run this kind of business. I mean, in fairness, where this is, is not far from Asheville, North Carolina. You could live in a suburb of Asheville and be to work in 30 minutes. 2 ,500 people live here. Lifted up. Spruce pine. What is the appeal of spruce pine? I'm saying this as a Texan. The reason I ask is, towns like this in Texas, we don't move to. So why do I want to move to this one in North Carolina? Oh, man, North Carolina is full of towns like this where people flock to them.

9:53it's probably very pretty that's the difference michael it's pretty no we have pretty there's just pretty much nothing out there that's what we have yeah um i mean this is a what a gem of a listing for someone who is like interested in living in the middle of nowhere who wants to have this like small town life um and you know you hear all time of like uh searchers like they're buying a job but just make sure it's a job you really like like this is the the perfect example of that if you wouldn't have a job where you're you know working the bar having to be like the center of a community type of thing this seems like a great fit for that oh yeah and you're making you know after everything 200 250 a year right or 200 a cash flow which in spruce pine north carolina is pretty good and that's a lot pictures this place is packed.

10:47Yeah, and you're also like the coolest guy in town because you own the local watering hole and the thing that everybody stops by and it's a tourist attraction. It seems like the only thing they're missing is like an arcade and a pool table and you're set. It is not very big, so that is maybe an advantage or not. The drive-in part is confusing me. Does it just mean you get served in your car? It's like a Sonic. It's not a drive-in movie theater. It's Sonic. so it's like a thonic restaurant you can see these uh blue kind of awnings so you drive it so it's this is basically what this is like three or four different dining formats all together and also has like live music and like reasons to come hang out this is like pre-food truck food truck yeah so i mean it's it's like your old school you know diners drive-ins and dives like you know that show like that's what this is about like you pull your car up like you know an old school like A girl would skate up on roller skates and take your order and bring your food to your car and hang the tray on the side of the driver's window.

11:47You guys seen that from the 50s? That's what this is. Currently reminds me of a flea market, given those flea market vibes, but I can see it. I will say it is listed by a real estate broker, this Chris Cornette guy. I looked up his phone number. He has the URL listed with Chris.com. That is a great real estate URL. Love it. What this place is, is Lindy. It has been around. It's been here for 75 years. It's food and alcohol and live music, like not going anywhere. I think your biggest risk here is if somehow this town dies. Yeah. The other big thing with these is this is super seasonal. so I can't remember like obviously like when the leaves change people flock to you know western North Carolina um there are probably long dry spells uh in spruce pine but there is there is there is probably still like a permanent population there just like you know cashers and other parts of North Carolina that have become more of a destination um but I would be worried about a little bit of seasonality here just in terms of the way you model the cash flow around the debt service that's a good point mils you've really got two you could divide this in half there's a real estate and there's an operating business and that's what heather kind of tried to do at the top thinking about financing them differently and to me before you even think about financing them i think you have to value them uh you can't take good old chris cornett at his face value that this real estate is worth 900 grand, which he seems to think it is, right?

13:32At the end of the day, it's on the side of the road in the middle of nowhere. Is this real estate really worth$900 ,000? So I would want to get, and by the way, real estate is only worth what you can sell it for or cashflow from it. So I would want to underwrite first how much of this 1.375 million is in fact hard real estate value or not. Now, let's say it is 900 grand. Then that leaves to your point, Heather, about a little under 500K in value for the business. The problem is the business isn't worth anything without the land. Yeah. So like it would be pretty hard for you to get your capital out without closing the business and selling the land later.

14:16So I think you really need to kind of model some kind of, you need to have a plan for terminal value here if you're going to buy this thing. Heather, can you refresh me how the real estate portion works when SBA loans? I know it allows you to pay it off over longer periods of time, but how is it valued? Or just give me whatever you want to give me. They're going to want a commercial appraiser to come in and tell us what the value of the real estate is. And then a business valuation vendor to say what the value of the business is. uh they'll put the two together and in the sba program if the real estate is worth more uh than the real estate then the real estate is worth more than the enterprise which seems to be the case here then they could the buyer could get one loan for 25 years and put both the enterprise and the real estate so there's a big advantage to that from a cash flow perspective but but to bill's point the hard part is actually the two values because the real estate and the cash flow are kind of intertwined, this is probably the highest and best use of this property.

15:17There's not something else you could sell this real estate for, unless I'm wrong, and maybe there is, but if there's not something else you could sell this real estate to be used for, then the value of the real estate really is tied to the cash flow of the restaurant that's on it. So it gets tricky. Well, to be more specific, the value of the real estate is tied to the rent that the restaurant that's on it can pay. Yeah. Yeah. Right. Right. If you were to sever it from the, from the ownership of the restaurant. And I don't know if Spruce Pine, if you could demolish this thing and put up a whole bunch of condos and make everyone in Spruce Pine hate you.

15:55But I, you know, I don't know if there's demand for, for condos on this thing or, or whatever. It doesn't seem like it really looking at the map. Yeah, probably. It's more of like a bed and breakfast town. About to fall off of it. Sorry, that 370 of cashflow. I'm going to guess when someone's owned a property like this, this long, they're not charging rent in their P &Ls. So I think when you come along and apply an occupancy expense or a rent or whatever the loan amount is going to be, your SDE is going to shrink by about$84 ,000 because that's what it costs you if you borrow. I was going to say probably more, right?

16:31Because let's say, you know, let's say this business makes like if you had to pay rent. Let's say it could make$250 ,000 a year after paying you$100 ,000 or$120 ,000 of rent. And I mean, what does a property like this go for? Is it a eight cap, 10 cap? I don't know. Let's say it's a 10 cap just because I want to do easy mental math. If they pay$100 ,000 a year, maybe the property is worth a million bucks. So there is a quiet thing about what happens to cap rates in random places like this, they tend to be significantly higher than the big cities. So like, let's say you were in Charlotte, you know, I have a buddy who buys properties like this and he's like, yep, that's a 15 cap.

17:15Why? Because nobody else is going to be buying something like that out in the middle of nowhere. And he had a building like that that if it was in his big city would have sold for a five cap. And he's like, yeah, I sold it for a 10 cap out in the middle of nowhere. So if you double it, maybe if this is a 15 or 20 cap, Now your real estate's worth$500 to$750, something like that. But do they throw in the margaritas for free? That's what you got to ask. So one thing that's interesting about this is they have a tremendous number of Google reviews. For something that is, you know, off the beaten path in a small town, they have 451 Google reviews.

17:54And it's four and a half stars. for contrast the spruce pint tap room has 11 reviews like that i think this is a happening place there is a place on the opposite side of town which is it looks like a half mile away called heft's restaurant that has 655 reviews but there is it's a totally nondescript bar like it just is a regular restaurant this is at least like the nostalgia of the drive-in and the front porch, because I think it's like on your way into town. I think there's something, there's some value to place on that, but it seems like the reviews back it up. How much of the success of a place like this is because the owners are basically the like ambassadors for the local town?

18:38I mean, you look at the pictures of the people there, it looks like the entire town is there hanging out together with these folks. Like if I'm some random, let's say from Texas, six foot five, no hair, just some random person and not that friendly, Like, am I going to have the same amount of luck that these guys are going to have? I think you have to absolutely become the surrogate. There's a, there's a really cool like little restaurant right across the street from my office here in Five Points in Columbia. And it was this couple who started it like 40 years ago and they were just synonymous with the business.

19:12It wasn't their name. It's called the gourmet shop. and a young, very networked person in town bought the business. And now she's synonymous, but it took multiple years of overlap to buy this little, it's like a place where you can get chicken salad sandwiches and they have really nice, they serve alcohol for lunch. But it's very similar. I think you have to assume the persona and the business has to assimilate you and the town has to assimilate you. Definitely got by that role. I also think these are hard businesses to run. You're getting just, like you have to wear all the hats, which you do in all of these small businesses.

19:54But I feel like in like the restaurant industry, it's even more. Like I was just on their Facebook page and they're posting tons of pictures all the time. Just thinking of that, of setting it up, of like running to get cups, of like it's always going to be just something, something, something. The dishwasher is broken and yeah. Yeah. I mean, it's a restaurant, right? So it's open during the times that you want to be hanging out with your family. This is like the curse of all restaurants is that they're open nights and weekends, right? Which is a bummer. I would be Diligencing Kind of the secondary Management layer in place I mean if you had Let's say you were like You had two One or two Really good GMs That have been there For a long time I wonder if there's some way To Kind of cut them in Lock them in To you know Give them single digit Owner equity Ownership percentages And keep them around Kind of to ensure Some continuity And so you don't have to be there 24-7 I doubt this business Is big enough to have Two GMs but I get what you're saying.

20:54Like, I think that's the hard thing about it is that on a business this size, you may have somebody who's been there 20 or 30 years, you know, alongside the ownership, but there's a very thin layer. Like Travis said, you are, you're handling the management, you're handling scheduling, you're handling payroll, you're probably handling placing the food orders for the week. Like you're the social media person posting on Facebook. You're thinking about like, what are our specials during the, you know, dead season? Like you're doing all those things, maybe short of being a hostess and a server. And you do that too sometimes.

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22:39They're not pushy people. They'll just kind of tell you, hey, here's what your business is probably worth. And here are a few things you could do to make it worth more. And hey, maybe don't sell it right now. Do these things. Come back to us in six months and you'll get a much better multiple. So if you're thinking about selling your business or you're thinking about buying a business, especially in the e-commerce space where they're very, very strong and been doing this for over a decade, go check out Quiet Light Brokerage over at quietlight.com. The big diligence item is what is my day-to-day going to be like?

23:08Because you are buying a job. You just better like the job. Yeah. Yeah. Like they say they have five full-time employees and 13 part-time. I bet the part-time is a hundred percent seasonal. Yeah. That's a good point. I personally love it when I see things like this just shut down for like five months a year. Yeah. Yeah. Yeah. If you can afford to do it, then it's the way to go. I mean, a lot of these guys are losing money on the off season anyway. If you, I guess typically the hardest part about that is getting your staff back the next year because they go do other things. A lot of these towns though, like thrive on that seasonality.

23:41Like I know folks who own like cabins and Airbnbs, you know, in places like this. And they'll have like a person who, you know, is maybe like a bartender at a place like this, who also does their cleaning. You know, it's remote, it's a remote business for the people I know. They don't live in those towns, but they need somebody who can like at the drop of a hat, go, you know, clean the unit in between bookers. And so, you know, I think there is like the whole town kind of thrives on that in a way. So, I mean, ultimately, let's assume you want to, you kind of want this job. You want to make 200 plus, run in a restaurant in the Appalachian mountains.

24:22You know, maybe this is a second career for you. Maybe you want to quasi-retire. How do you, it seems like I can get a 25-year SBA loan for the whole thing. Right, Heather? Yeah, you can. It means the amortization is functionally nothing. And what are the rates for a real estate loans. Probably better than an operating business, right? Yeah, they are better. They're usually about a point lower than for just an enterprise loan. The bank has a longer time to make money and they will charge less. And there's collateral. So I'd say like eight and a half percent here, maybe eight. It's good financing.

24:55It's long-term financing. And I bet this deal pencils, which is my favorite. I love when that happens. It never happens. It's your favorite because it's so rare. Yeah, exactly. I'm like, did you guys see it? It works. You just have to be willing to do a ton of work. Yeah. It seems like a great fit for someone who's already kind of in this role in the industry. Maybe they're a GM at some restaurant and they just kind of want to have their own to do it their way to like maybe build some equity value over the long term. They can, they've saved up enough to do something like this. It seems like a good fit because they already know what they're getting into.

25:30And to your point, Travis, you could probably, someone like that could do this with almost no money down. I mean, because you've got the great debt on it and you could get probably some seller financing. I don't know how that kind of interplays. You've got to be full standby, you know, whatever, but you could probably put very little into this. You could put as little as 5 % down on SBA if your seller would carry a note of another 5 % that is on full standby there. You know, you're not required to make any payments while your SBA loans outstanding. So to your point, if you had the right resume, a bank would not do that type of aggressive structure if you didn't have the perfect resume.

26:10So if that restaurant person came along, didn't have a lot of money, could get the seller to give them that standby note, they could get into this with very little debt and it would still pencil back to, you know, because it's priced right, it would still pencil that way. So this is a nice deal from that perspective. So you could be into this for, I mean, let's say it doesn't go for the full 1, 3, 7, 5. Let's say you get them down to 1, 1 or even 1 million, right? Something like that. You could be into this for 50 to 100 grand of equity. Yeah. Right. And you will be making six figures year one, paying down your loan.

26:48And maybe you structure and Heather, I don't know the sensitivities around here. Can you structure a little upside for the seller, like another hundred grand or something over time? They won't let you do that. SBA won't let you put any upside or earn out or anything like that for the seller. Can you employ the seller? Not unless they roll over equity, and that's a whole other mess of a structure. So the SBA does make the seller leave within 12 months if you buy them out fully. If you don't buy them out fully, then the seller has to personally guarantee your loan. And, you know, not many people are getting the seller to sign up for something like that.

27:24I don't know. I mean, honestly, I don't think it's, I think that the SBA thought that sellers were doing roll over equity out of kind of greed, that they were going to make all this money, but that's not really why it was being done. So they thought they were going to make all this extra money. So if they're going to do that, they have to personally guarantee the loan. But I think the SBA misunderstood why some sellers are doing rollover equity. It's usually a transition issue, not because they're going to make so much money on the rollover equity. See, every time I see a regulation, I think someone was doing fraud.

27:58And they want to try to figure out, like, why does this exist? What sort of fraud is this blocking? Yeah, yeah. And, you know, I wonder if it's like, you know, you have it. You're basically you're trying to launder the PG to somebody else. Right. That's what people think. I honestly think we have a lot of rules where one time it happened and then we, you know, overreacted and we created a rule as if it was happening dozens and dozens of times. And it probably wasn't. Yeah. Yeah. One thing we haven't talked about on this one is the incredibly limited ability to generate any more revenue than the business is generating right now.