SCARY Gross

[MichaelCa]

This one's gross is so low, its Scary!
$3500/mo.

The area i'm looking in is a fairly dense urban area (laundromats every few blocks, dry cleaners almost every other corner).
Most mats unattended.

Moderate income, good neighborhood, low crime, & sadly not a hispanic in site. (mainly childless white cpls & singles)

I have a demog. report: 73% renter ratio. (thats mostly in 2-4 unit bldgs.)
Hi asian demog. (50%), but they are mostly landlords, and have own machines in their houses.

The subject mat is tired but clean, hasn't seen a new machine in 17 years.
ALL toploaders 22, & 22 dryers (weird "mini' 15lb?Stack dryers - by Maytag) circa 1985.
They're set for 1.25 for 45 mins. (fixed price-coin drop)

O.K., i'm worried about figuring the demographics out.
Most other mats have 1/3 F-loads (18 to 30 lbs.), & newer digital top-loaders. Mainly stack (Full-size) dryers.

One Mat 2-1/2 blocks away is for sale by a Large broker - it does almost twice gross @ 6,400/mo. (its even drearier looking, but has the better machine mix)
The other Comp. is in the opposite direction, and is new-ish, even nicer machines, very bright, but smaller, yet quite busy.
No idea as to gross.

I read Charlie's statement to go-in and just do all the *right* stuff, (e.g. Lighting, paint, new machines)_ but if the demographics aren't there... ???

This one has no-where to go but up, ...i'm worried that there may not be too much *up* there.

Any comments ?

[Anonymous]

First I would ask myself (and better have a good answer) why are two mats for sale at the same time that are so close to each other? Is a big new one about to open, or is something else about to happen in the area. Don't do anything else before you know the answer to that.


Next, do you think that something that only grosses about $40K a year is going to be worth your time? You say you will have to put all new equipment in too? Where will the money come from? The upside sounds questionable, but you don't give enough data to give a good answer right now. Work on the first question and then get back to us.

[mike]

This area sounds like a challenge.
You are right about the demographics.
If the local population has a choice between 2 or more mats, and one of them is owned or run by their particular ethnic group (or age, or social strata) that is usually a factor in their choice, (perhaps even unconciously)
So even if you upgrade, you may consider hiring a "local" attendant.
It sounds like the present owners who are selling their mats have already decided (with their knowledge and experience of the area) that it is not worth rehabbing)
I'm in an area with immigrant population (thank god !)
Some societies do not mind being crowded into a store and waiting, it's a social event to do laundry. Most wasps will not do it, they will find another store.
These are only my observations, and should not be contrued as predjudice.

[MichaelCa]

Why are 2 for sale?

Actually, only 1 WAS for sale - the $6400/mo. gross one.
It was because i decided the rent was too high, that i passed on it, just as every other potential buyer has (rent: 42% of gross - $2700)

The current owners of that one had just gotten a big promotion, and no longer wanted to be in the business, and had re-negotiated the lease with the landlord @ the same time (not very well).
Its for sale quite cheap: $50,000, 20 w, 12 dry. (22k net)

After I passed this up, i pounded the pavement, (as the local brokers have none else for sale - anywhere.), and called several owners (not easy to find!). This one looked like a good candidate for a make-over, and it turns out the aging owner's partner had recently passed away & he has been thinking about selling.

He's pre-occupied with another business, and doesnt do anything but collect the coins. (he has auto-lock + janitor).

Brokers tell me very few want to sell now - they can't get listings.

As to the area, there isn't anything else about to happen - its very built up (3-4 stories), no parking anywhere, -period.
And the only mat-using ethnic group is whites (with a few asians). The dominant (51%) ethnic group is chinese, but they're successful landlords w/o need for mats, (except as a tenant!)

Kirby: is 43,000/yr worth my time? absolutely not.
But 65,000 is, (my target) (considering it is un-attended).
So, that means i'd have to ramp-up by 50%.

The other competitor opened in '96, busiest one, nicest one. (though its a crowded small size).
"mine" is spacious, if unloved. Owner says when the newest one opened in '96, it took away a chunk of business.
(he's had it since '85) Its 2 blocks away.

His asking price? "make me an offer" is the response. He's said i'm basically just buying the location & plumbing & that he doesn't consider the machines worth anything.
I think $25-30k is about right.

He's given me gross statements since '97: steady @ 50k-48k til this year (partner died).

Oh, & the new lease doubled for him to $1750 (49% of gross) (another reason why i'd have to quickly get up to 65k- 33% of gross)

[Anonymous]

You generally don't want rent to be over 25% of gross, so be careful. Based on what you have told us it sounds like the place could have potential. Do your homework, but it sounds like it could be a success.

[CharlieS]

If these are tired mats, that kind of ramp-up is entirely possible. The rent is very high on the one doing $6400. How high is the rent on the other one? It sounds like a better deal, with better upside potential.

Start working out the numbers. Have you gotten a demographic report? Run them on both mats, see if you can figure out what sort of market share they are actually getting.

The smaller, newer, but busier mat is that way for a reason. Check out the reason. Take a load there, talk to the customers, talk to the attendants. Ask why they like this one instead of the others. Don't let on that you are anything more than a customer, new to the area! My guess is that you already know why.


Charlie

[pete f]

I have a couple observations, maybe will help confuse you more.
I do agree with Kirby, rent should be no more than 25% of gross, however you may not get that with any of those stores. The size (sq ft) may be a consideration, is the low gross store big enough to remodel into real size stack dryers and big front loads? It sounds like a maytag home style mat, many were put in small places and trying to make them bigger is expensive, like the electric panels may not take a bunch of 220v front loaders. You can knock out 2 tops for 1 25# and up FL, but you need clearance to be able to work on them down the road. Stack dryers are gas and need a few feet behind them for service space.. The other issues are parking, are they located near a c-store (bad).

Can the high gross store be made an even higher gross? You mentioned "dreary" looking. If it had good parking, was not next to a c-store, has a good mix of realitivly modern machines, than maybe a face lift, like a new sign, paint, light fixtures would boost that store up 20%, giving you closer to the 33% without having to drop 70k or more on new machines and another 25k on new electric/plumbing/etc. You need to boost the low gross store 35% to achieve the same results. In the end, they would both net roughly the same.

[Lar Hylobates]

Michael,

where are the laundries?

[MichaelCa]

Monkeyland

[MichaelCa]

Charlie: Low-Gross one is 1750/mo - will take a stab @
negotiating with landlord perhaps to 1600/

Pete: To achieve 25% rent, i'd have to reach 6500-7000/mo
from the current 3500/mo. Only reason current owner is making money, is he's been skipping every 2nd AND 3rd rent pymt: He only pays every 3rd mo. Neat "discount" huh ?

Talk about not paying attn. to your business...

Clearly the landlord is an understanding person, as this has been going on for some time. (they inherited the property)

As to your question of making the High-Gross store even higher:
thats a tough moving target (6% inc. each yr.) meaning in 5yrs rent would move from 2700/mo to 3600/mo.
Just to maintain a 33% ratio, i'd have to reach 11,000/mo.

And that store is "booked-up" spacewise (20 washers).

That was why i walked away from that deal.


The low-gross store is larger, and has space to spare even beyond its current machines. Also, it has a 3ft wide "Alley" behind the existing 15lb Stack Dryers. So, i'm guessing i could still fit ADC stack dryers there - even w/ the lgr size.

Charlie, you're right about that Newer (6yr old), smaller, busier Mat 2 blocks away: Basically, its bright, and looks & feels new-ish w/ SQ stainless FL & digital Maytag Tops.
Also, found out that it's run by a pretty successful Mat owner (owns 4 in other areas) who achieved minor fame a few yrs. ago for starting a luxury Mat concept (Lattes, designer interiors, expensive wash-prices), but he did NOT do that with this one, except for .25c higher TopLoads.

Demographics?
It doesn't hurt that he's got 2 blocks of 5-6 unit apt. bldgs across the st., versus the one i'm looking at having all 2-3 unit apts. nearby.
I got a Demog Report for both his and me: Nearly identical Pop, # of units, and renter/owner ratio - 71% renters.
# of ppl per unit is 2.4, amongst renters its 1.9

Parking isnt an issue - because there is none, for any any store. Nearly all customers walk, so i set both reports @ 2 block radius, which roughly matches store distances: 3-4 blocks to each other.
(there is some overlapping of these 2 stores in question, which is worrisome to me, so i set the DemoReport at only 1 block radius in his direction)
There are 7 stores in this area (1/4 sq. mile).
3 of them (by observation) are busier (and nicer) than the $6400/mo high rent store for sale.

I still dont know how to tell what market share they (or anyone) are getting though.

thanks for your comments.

[Lar Hylobates]

Come on now. Are you afraid I will buy these dogs? Where are they?

Maybe we can be partners. I've got money but don't like to work. You seem young and eager.

[MichaelCa]

something tells me you're uncomfortably close... :)


email me

[CharlieS]

A mat doing only 3-4K a month is hardly worth the trouble, especially with high rent. The key to this mat is to buy it right, fix it up, and increase the gross to a reasonable number while decreasing or holding your expense steady.

If the current owner is defaulting to the landlord, go talk to the landlord now. He can declare that owner in default and cancel the lease. The current owner could take his machines, but that's about it. You want to replace them anyway. You could even offer the landlord a $10K bonus, or similar such payment, to cancel, and enter into a new lease, and still be ahead of the game. The landlord can also seize the equipment for the unpaid rent.

A current owner, either on a month to month, or in default of his lease payments, has no lease. All it takes is the notice required by the lease for the landlord to terminate the lease and seize the property. Unlike a residential rental property, commercial property owners can generally use self-help eviction by simply changing the locks and seizing the property, once they have terminated the lease in accordance with the lease provisions. Unless the current operator declares bankruptcy or files suit, this works. Never offer any substantial amount to such an operator, because he doesn't really own the business he is offering to sell, the landlord does.

If this guy isn't paying his lease, he probably isn't making anything. He will probably sell for next to nothing anyway. The approach I am recommending is aggressive and requires a willing landlord, and some tough cojones on your part.

Demographics, - run the numbers that you have from both mats, and see how they fit. don't just use the short radius numbers. The larger radius should also work, but remember that you will have a smaller and smaller overally market share as you expand the radius. Make logical assessments of the market share in each radius and you may be surprise to find how welll your numbers work.

Charlie

[Anonymous]

But what if not possible? What is the "too high" limit, 50 percent? 60? I think 50 seems to be the average around my neck of the woods, I honestly haven't ever seen a mat for sale with rent less than half of gross...

James

[pete f]

But what if not possible? What is the "too high" limit, 50 percent? 60? I think 50 seems to be the average around my neck of the woods, I honestly haven't ever seen a mat for sale with rent less than half of gross...

James

You are digging for info, good for you! Keep rent at 25% or less or die.

[DaveLevenson]

But what if not possible? What is the "too high" limit, 50 percent? 60? I think 50 seems to be the average around my neck of the woods, I honestly haven't ever seen a mat for sale with rent less than half of gross...


If rent is significantly more than 25% of gross, you're buying yourself a job, and working for your landlord, no? Even at 25%, you're basically dividing the profit 50-50 with the landlord.