A Quick Question

[Anonymous]

This may have been discussed previously on this board, and if so, sorry for the redundancy.

I have (what may be) an opportunity to take the first step towards purchasing a mat.

The mat's in a pretty good location with equipment all less than 5 years old. It's owned by an absentee owner. Collections and deposits are done by one of his attendants, as is supply purchasing. For what I believe to be obvious reasons (poor management) he shows no profit.

His asking price would be fair if the mat was making what I think it could be making if properly managed (about $170k). The offers he has are around $130k. He'd like more.

What do you think about the proposal to lease/purchase the mat. I'd lease for 1 year with the option to buy at, say $150,000 and on agreeable terms.

True, he benefits from 1 year of my hard work, but if I can turn it around I may still be getting a deal. And, it takes all the risk out of buying, since if it doesn't realize what I think it can, I'll give him back the keys and walk away.

Anyway, I know alot of you have worked non-traditional deals, and wanted to get your opinions. Thanks.

[Anonymous]

What would your lease terms be like? Seems like you could end up just paying for a years worth of work with no return.

I'd look carefully at where the profit is going to come from if it isn't making anything today - in other words, where is the waste that you believe you can eliminate?

Is there an immediate reduction in expenses by getting rid of the attendant, for example?

I'd be careful if there aren't obvious problems killing profit at present.

On the other hand, if you are looking for experience maybe it would be a good way to go to get your feet wet in the business.

I know nothing about lease deals so take my words for what they're worth - i.e. nothing !

- John

[Anonymous]

Thanks Runchman. I appreciate your thoughts.

My thinking on the lease is something nominal.....$250/month. Whatever we settle on, it's better than the $0 he's getting now.

I should have mentioned, I plan to do all the due diligence normally conducted, but I think I'll confirm what he's already told me. He's not making anything.

I have a suspicion that the gold is in 1) taking the keys away from the attendant and 2) applying even just a little day-to-day management.

What about an escape clause in the lease.....I can get out of the lease with 30 day notice? If the profits didn't start immediately, I could get out sooner than a year.

P.S. Why do I think there's gold? The last time we met, I looked at some of his Sam's bills for purchases his attendant made (and he paid for). Saw things like pork tenderloins, spaghetti sauce, etc. And no, he doesn't serve food at the mat!

[Gary C]

If after all the due dillagance is done if you still think it will make money maybe offer 130k now then the other 40k in one year based on some agreed up profit numbers. No profit still in one year then no 40k if you are making say 20k then you pay up. Something like that might work. Plus it will tell you just how much confidence he has in it.

Gary

[Anonymous]

My thinking on the lease is something nominal.....$250/month. Whatever we settle on, it's better than the $0 he's getting now.



Not to be cold (but I will anyway), but you ultimately don't care what is in it for him, you care what is in it for YOU.

Maybe you could strike a deal where you split the monthly profit that you can generate? That way you get the management experience, and if you end up not making anything, it doesn't cost you $250 per month. Or maybe you give him the entire profit and 1/2 of it goes towards a down payment credit on the place.

Just thinking out loud, so to speak,

John

[fluffy]

If you can work a deal like that, go for it. If someone offered me a deal like that as an owner however, I would tell them to pack sand. It's hard to believe that this person has invested a significant amount of money in the mat and doesn't care enough or doesn't need to show any return. If he really didn't care about money it seems he would have sold for $130K.

[mike]

I think almost any deal that you could structure, would be hard for YOU to enforce.

He remains the owner !

If it starts to make money, prying the mat from him may involve court time.

Did the present owner not read the same bill you saw for pork tenderloins ? (............mmmmmm.....pork.....mmmmm)

I think you are probably right, if the "truth" is that an attendant has the keys, the place MIGHT be making money. (could be a selling ploy)

I think you may have to just buy, offer him less, or much less in writing.

Owners often get "offers" of this and that, but never in writing.

Good luck.

[Anonymous]

Sorry to be so long in getting back to everyone. After posting the original post, I went out and took another look. Good strip mall location (I'll need to get a look at the lease), newer machines, but poorly maintained with some out of order. A separate "video room" with about 8 arcade machines, many also out of order. Six column soap vendor, cold drink machine (no longer stocked) and snack machine. An unenergetic attendant moving laundry around between machines. Definitely suffering from a lack of attention.

I got busy, or maybe cautious, and never called the seller back. He just called me. We discussed the potential terms of a lease with an option to buy.

I'd have to run this all by my attorney, but what we discussed and he seemed agreeable to is I'd sign a 1 year lease, $0/month, but take over rent, utilities, payroll, etc. With the lease I'd have an exclusive option to buy, @ $150,000, with a % down and the rest financed. Escape from the lease would be allowed with 30-day notice, no penalties or further obligation.

What we didn't discuss, but I'll propose next, is that I'll re-key all laundry, arcade and vending machines at his expense, to immediately eliminate any further possibility of theft. His attendant/manager has the keys to the changer for God's sake!

To Mike's point, I'm not sure how I'd enforce the option to buy, but figured if the attorney wrote it up right, the seller would be motivated to do so or face some type of litigation.

To Runchman's point, I'm really not looking at this to gain experience. I have one mat now that has built steadily over the last 3.5 years, so I'm actually hoping to apply my learnings here to this (potential) new location and build it well beyond the $150,000 value level.

The reason I'm approaching it this way is that it takes the risk out of the equation for me, at least the major part. Yes, I'll prepay some expenses, but the revenue over the first month should cover this, if, as the Seller claims, there is a major theft issue going on.

To Fluffy's point, I'd personally never accept this type of an offer as an owner either. So I'm not really sure what's driving him. Does he like me a little more than the cash buyers he says he has, so prefer I take it over? Does he really have a cash buyer or is this just a ploy? Is it just that he can't stand the thought of letting it go for less than $150,000?

I can't answer these questions, and I guess in the end, it doesn't really matter what's driving him.

I know you guys will play devil's advocate, which I hope you do. I'm looking at this as an almost risk-free way to buy my next mat (at the right price).

Let me know what you think.

[CharlieS]

A key component is missing.

1) what is the length of the remaining lease on the building. This is critical.

Other comments. What he wants is irrelevant if the deal doesn't work for you. If his best offer is 130, try 140 not 170.

The rekeying is not a big deal. New boxes are 20 to 25 each, plus rekeying changers. Figure $1500. Another $4-5K for repairs to machines and easy facility upgrades, such as paint. Get rid of the attendant, completely. Go unattended. Far less headache and more profit. If you really insist on being attended, still get new attendants in this case and dump the old ones. Make him get rid of the attendants. You don't want to get stuck with his unemployment tax. However, it sounds like you have probable cause anyway. Depends on your state.

Buy it or don't do the deal. The lease does provide a good exit strategy, but I'd rather own it and be done with it. You are still going to have to invest money.

Finally, plan to attend the clean show (june in orlando) and attend all of the CLA trainings, including the newbie trainings. Worth every penny for a new owner.

Charlie