Buy or Flee

[Goff]

Hello -

I would like some advice if anyone is willing to give. (I apologize in advance for the length).

I have been watching the laundromats as they come up for sale in my town for the last about a year. As each one comes up I try to evaluate.

There is one that I have watched for a while. It is an unattended mat (which I like the idea of because I would like to keep my day job for now and would like to stay away from multiple employess for now).

The owner is from out of state. He owns approximately 25 mats or so scattered out in the Southwestern states. He says that he bought this mat because he was interested in gettting 6 or 7 stores here and then having a manager run them all. The story goes on that he looked and looked but was never able to find stores to buy that were to his liking so he never bought any more. Now he want's to get out of this one because it is too expensive to have just the one remote store here. He flies in once a week or so to do repairs and collect $ etc. (he has a local lady do the opening and closing and daily cleaning).

When he first put the store on the market, he wanted $ 249,000 which I thought was too much, but kept watching it and kept calling the broker every few months to see what the status was.

The broker gave me the financials -- Gross $ 130k --- the net before debt sevice was about $ 75k. After I took his numbers and added all the other things I thought I would need and added in debt. service I thought I could net 45k or so. I planned to build it up as much as I could on a part time basis and hopefully hit 60k net.

Other factors - cheap rent $ 1,000 per month gross. Good laundromat demographics (almost all low income Hispanic). Right across the street from a Big Spin Cycle. The owner says he built his store after the spin cycle was there - saying his store was a different nitch. His store is set up on free dry -- prices are about the same or slightly lower for a wash and free dry's as the Spin Cycle combined wash and dry. The Store has 4-Year-old all front load Wascomat's and Wascomat stack dryers.

8 months pass with price at $ 249,000. Asking price stays the same.

Suddenly about 5 or 6 other mats go up for sale in different parts of the city.

The Broker calls me and says that they owner is tired of making the flight and lowers the price significantly.

I ask for the newest financials. Turns out the numbers are down -- gross about 100k. When I run the numbers again with debt service I show I will only net around 25k.

Owner says (throgh Broker) that they have not been able to pay much attention to the mat. This is why the figures have dropped.

Now I must make the decision. Do I buy and assume I can get the income back up to where it was before? Or walk away?

I know it is a lot to take in with a lot of variables, but let me know what you think.

Another variable in my mind is what is going to happen with that Spin Cycle (with all the news about them getting sold and all). If they close it up it would be great. If they keep it open it would probably have little affect. If they sold it to someone aggressive, it could have an impact.

Thanks,

Scott

[Duane]

Too many variables --- too risky.


I highly doubt the Spin Cycle across the street will close. Maybe be sold, but someone will have a laundromat in that location. If it is sold then chances are the new owners will be doing what ever it takes to get sales up.


Free Dry? With the cost of Natural Gas these days how can anyone give away free drying? Unattended -- How many people just bring in wet clothes and dry them for free?



Wait it out to see if the price drops again or offer a real low ball price that you would be happy with. If he says no, then flee.


Also... It is not a "fly in" and collect the money once a week job. You will put much more time into it to keep it maintained properly. If you don't have the time to up keep the mat, then your competition will start to take your customers.

[BWJR]

Don't be over anxious, keep looking. Will
the seller release info in regards to this Mat. Utility bills - 3 years, C schedules - 3 years. will he allow you to evaluate the business by working there for a two week trial and pull money on a daily basis? If the answer to these questions is yes than do your homework. I suspect that he will balk on most of them. In reference to Spin Cycle, chances are they will be sold to another individual buyer. It might not be a bad idea to investigate if their plans are to sell the Spin Cycle Store. Find out how long spin Cycle has been there and see if he really opened the store after they were there. The situation might be that he committed to the store prior to them opening, but didn't know that they already had plans on opening. i don't trust this seller or the broker, they already lied once, they will certainly lie again. My advice is to flee quickly and look for another location. By the way how big is the Spin Cycle store in size and how many machines in the store. By the way he is probably free dry because spin Cycle probably went in there with that promotion first.

Good Luck and keep us posted,

BWJR

[Goff]

BWJR - The Spine Cycle is big. I am thinking 5-6 thousand square feet in a strip center. Full to the brim with machines, vending etc. I bet the rent on the space is very expensive and the overhead must be quite a bit. I would be interested just to see if and when they try to sell it if it could possibly cash flow...

Thanks for the advice....

[NJ Jon]

Goff -

If the Spin City is the biggest competition, and you think it may be up for sale, why don't you buy it instead of the store you're looking at?

Maybe buy the store and drop the franchise - that should save you a bundle, but the clientele will still be there. Just a thought.

NJ Jon

[pete f]

Just a different viewpoint and thoughts, not a suggestiion or advice.

The Spin Cycle will likely stay there, another owner or whatever.. I know of stores across the street from each other, it happens. Within a year or two (really about 6 months) the dust has settled, you have your customers, they have thiers. If he has had this store open for 4 years then the business is split up already between the stores, it will not change that much.

I would get the water meter readings and find out how much water is going thru the place ( and I would spy on Spin cycles' meter also) If the cash flow is around 45k, and I am guessing from the 100k gross, then a price of around 180,000 would be a fair market deal, IMO. We have seen threads here discussing 7x net making the price well above the asking price. I can assume that is to much for the market to bear, given the mat has not sold.
The free dry I do not know about, but I would not worry much about that yet. I do not know how an unattensded store can have free dry. You could change pricing on washers and charge for dry to offset that whole thing. It is somehow working. That is why you need a water bill. If the numbers add up on that then it could be a decent mat. You have no guarantee if you buy a mat down the street someone will not build a store across the street form you later on. At least here you have the damage done and know the results.


Cheap rent, unattended, good location, newer machines. I would not PAY for potential, but will always BUY it.
If the store was very near me I would give it more in depth thought.
As for your debt service, well, the laundry mat does not need debt, you do. While it is nice to have a business pay a loan and still get cash, some will not. If you are putting up at least 50% of your own cash in the deal then you should have no trouble with debt service. (offer the owner 5yrs, 8%) If you are trying for much less down then it may not work, this one or any others. You mention "only" 25k after debt... I see that as very good...Most mats do not do well highly leveraged.

[Anonymous]

Simply flee.Wait for another opportunity.

[ajay]

I would do all the due dilligence of what it's currently doing and base my offer accordingly. On a worse case scenerio, you will learn to figure out the gross based on expenses. I wouldn't insult the seller just because he's desperate to sell, but offer based on what you think the business in worth. Don't get desperate and stick to your offer. Explain the reasons why you think this business is worth the price you're offering. Go through the process and but ready to walk away if you have doubts. Stick to your gut feeling and advice from this post. Feel free to post or send private messages.....I only wish I had known about this post prior to purchasing my first store.....there are some real good people here that are more than willing to assist when asked.

ajay