Newbie looking for feedback on purchase of an old mat (long).

[Cole]

Hi everyone, I am new to the coin-op laundry business from a potential operator standpoint, but I am very familiar with the coin-op laundry industry from a financing standpoint, as I am VP of a commercial finance company that finances predominatly coin-operated equipment. As such, I have underwritten the purchase of new and used coin-op mats for operators, but never purchased and ran one myself.

Here is the story:
It just so happens that a coin-op laundry less than a 1/8th of a mile from my house is for sale. It is in a good location (stip mall with a White Hen Pantry, Video Rental, Pizza & Tanning Salon), right on the main road, with excellent parking. The coin-op mat has been there since 1986, and the current owner has run it since 1990.

The owner has the mat listed for $80K. I met with the realtor and took a look at the place. Inside, everything was old, the place was really dirty (the floors were old carpet!) and the eq. was the original equipment (20 Maytag toploaders, 16 ADC dryers, 4 IPSO Triple load "Big Macs", an empty vending machine and a broken change machine). 4 of the Maytags, 2 of the ADCs and 1 of the IPSOs was out of order. The owner is a 'motivated' seller and wants out of the business.

After seeing the place, I received a package of financial statements and tax returns for the past 4 years, and an internal breakdown of the income by machine type for the year 2002 through Nov. This place has grossed on average over the past 4 years, $77K per year (34K on coin-op) and $43K on WDF, and was netting $35K on average per year total. This is what the owner is reporting, I asked and was told that there was some 'skimming off the top'.

I am looking for some feedback on the offer that I made:
Without getting into the water/gas usage to determine the actual amount of income, I did an assessment of the 'value' that the store has to a new owner. Basically, I took 80% of the gross income (which is what we use in the finance world for coin-op), and subtracted the costs that I would incur to replace all of the old Maytag toploaders with new IPSO 18# front loaders, fixing or replacing the broken ADC dryer and the IPSO triple load, putting new stainless steel doors on the ADC dryers, replacing the carpeted floor with new tiles, replacing all of the ceiling tiles, installing a new heating system and plumbing, new lights, and general cleanup to come to a net number of $15,500.00. I then added $4,500.00 for the 'value' of the current customer base, to arrive at a purchase price of $20K. Oh, and I would need to negotiate a new lease for the space, so there is no value to the current lease.

Does this sound like a reasonable way to assess the value of the business?

I made a cash offer of $20K on Tuesday of this past week, with a detailed explanation as to how I arrived at my purchase price. I gave the seller until tomorrow to respond to the offer. I was told by the realtor that I would hear something today regarding my offer, but I haven't received a return call yet today.

I know that $20K is 1/4 of the $80K asking price, but given the condition of the eq. and the location, that is what I feel the place is worth. Was I way off base? I am not sure if I have not recieved a call back because I insulted the seller, or if they are waiting to see if any other offers come in.

I do think that with the place cleaned up, new and updated equipment and with an owner like me who wouldn't let the place run into the ground (i.e. no 'out of order' signs or dirty condition), the place should be able to do over $100K. But I estimate it is going to cost me about $45K in equipment and labor, plus the $29 purchase price to do it. Does that sound reasonable?

Sorry for the long message. Any comments/feedback regarding this would be great. I am glad I found this MB.

[CharlieS]

This sounds like a definite opportunity. You seem to have assessed it well.

However, I can't emphasize enough, without a lease, this owner has nothing to sell you. He owns nothing. The landlord can terminate the lease at will and put him out.

Negotiate directly with the landlord for a new lease. When you get a lease, for at least 10 years minimum, preferably 20-30, then you can offer the current owner a pittance for his crummy equipment.

Without a lease, the operator does not own the customer base or the infrastructure of the property. He owns some old, worn out, relatively unsaleable equipment. If you make a deal with him, that is what you now own, nothing more. Make a deal with the landlord, who in fact does own the customer base and the infrastructure, and you will control these for the term of your lease. Take your 20K and buy more new equipment with it.

Charlie

[CharlieS]

Of course, you have already made an offer. This can be withdrawn at will.

Without the lease, you are wasting your money. If your current offer is not contingent on obtaining a satisfactory lease with the landlord, then you should immediately withdraw it and resubmit it with that contingency. This covers you.

Otherwise, your analysis seems pretty good. In fact, I think your potential is even higher, if what you have provided is accurate. Of course, location and competition are critical influences.

Charlie

[CharlieS]

Of course, you have already made an offer. This can be withdrawn at will.

Without the lease, you are wasting your money. If your current offer is not contingent on obtaining a satisfactory lease with the landlord, then you should immediately withdraw it and resubmit it with that contingency. This covers you.

Otherwise, your analysis seems pretty good. In fact, I think your potential is even higher, if what you have provided is accurate. Of course, location and competition are critical influences.

Second - In response to your valuation of the business, with a good lease, you have arrived at a decent number. However, how you got there is wrong. Come from the bottom up. What are you paying for, and how much is it worth to you. With a lease, here's what you have

Plumbing and electrical infrastructure
Minimal customer base for coin, decent WDF customer base.
A basic interior somewhat conducive to a laundromat.
Some old, relatively worn out equipment.

IPSO is not a big name in our market, but they do have some nice stuff. Talk with other distributors and consider all options. A Maytag conversion would be easy using Neptunes. Contintental, SQ, and Wasco all make good stuff. The quality of your distributor is as important as the quality of the equipment. Will they respond quickly to maintenance needs, or will they put their own needs first on the list? Talk with other operators in your state that they are working with.

Charlie

[CharlieS]

Of course, I left out Dexter. Operators seem to like them as well, although I don't have any experience with them.

My stores are Wasco and Maytag. Each has its advantages and disadvantages. Again, get your lease, make your deal, then start talking to various distributors. Come back to this board for ideas.

This sounds like a store I could get excited about, if it was in my area! (its not!)

Charlie

[vohraajay]

If you have read any of my postings you'll see that having a lease does endure a greater selling price because along with equipment you're buying the customers. In that sense, your price may be too low considering the W&F business. It's 90% profit if you do it yourself and if you put quarter in - well how much does really cost you to turn one washer - certainly not what you put in.

In general, they say a good business is where the purchase price is the yearly gross. Also, if you pay 1 week of gross to the landlord, 1 week on operating expense, 2 weeks in your pocket - that's a good business.

Charlie is right about Ipso's, they don't have a good name in the industry although they are working hard now to change that. I have hands-on experience with hubesch, SQ, maytag, dexters, whirlpools, some wasco's.

I'm sorrta partial to dexters because they look preety and they are easy to work on - that is if you ever have to. I have 10 years old dexters, the only thing I have done is replace the soap holders screws, and water valves. I also have 4 years old dexters, people can't tell them apart.

Wascos - newest model are really nice as well and guys on this listserv love them. great customer service.

hubesch, SQ, Maytag fronts-(don't know who's making them this year) have complicated computers installed. The replacement parts are costly, and it's hard to diagnose what has failed.

Also do take a look at the polls couple weeks back when you're ready to replace your washers.

Best wishes in your new endeavor.

ajay

[buddy]

According to your calculation, you will have to spend $46,000 to upgrade the existing MAT.

The going rate for Laundromat is 1 x Gross. Based on that calculation: Current Gross: 77000-46000=31000

Considering your upgrade expenses as initial investment, you could offer him $31000 provided you get atleast 10 years lease.

Based on the net formula, the going rate is approx. 3 X Net. Assuming his net of $35,000 is correct, you would come up with 105,000. Deducting $46000 in upgrade expenses you would come up with $59,000.

The net to gross ratio seems little higher than average probably because he doesn't have any attendants. He may be running it himself.

Now if this is your side investments, you may have additional expenses of attendant's salary.

[Lar Hylobates]

I love a guy that will offer 25% of asking price. I do the same thing and recall losing two different realtors at two separate times because they refused to submit such an offer insisting that it was an insult!!

I offer what I will pay, that simple!

Your deal sounds fine.

Charlie, have you ever gone directly to a landlord in an effort to burn a current tenant?? That is seriously hardcore! Incidentally, most tenants would be smart enough to have some sort of first right of renewal, but it's always worth a try.

[Fred50]

Cole,

I would contact the landlord directly. If you can negotiate a favorable lease, then the "extra" $20K could go into your remodel.

Skip the seller if you can as he has nothing to sell of value. If the equipment is all 16 years old, then the current owner will have to pay someone to cart it off.

Valuation should take into account not only the value of the lease and the net income, but more importantly the likelihood of the continuation of this cashflow. With old equipment in a rundown place, it is highly unlikely without serious work - your $$ and your sweat - that the cashflow will be there.


Good luck,

Mark

[pete f]

You missed some important numbers, like how much the lease is now, and what impact fees are running in your area. 20k would not even cover the impact fees for 10 washers near me.let alone the electric/plumbing/sewer/dryer exhaust/intake bulkheads, etc costs.

You may be overlooking impact fees/ buildout costs/expenses that have much value. I am as cheap as they come but realize when something will work for me I don't screw around for a few dollars. It would probaly cost around 100k to redo the store with new stuff and make it really nice. It is very likely the coin business will double or even triple.
You can not build a new store from scratch for 120k, or even 150k.
You could pay 40-50k for his mat and still be in a nice postion.
I do not like to pay for w/d/f but 43k a year in w/d/f is outstanding and has much value for the years it took to develop that. And the fact the dreary store has that much says something.
A burned out store that still makes money is a great remodel situation. 2 times net is 70k, I would be supprised if 25k even makes it back you you in the form of a counter offer.
As for Mark's comments, skipping the seller and going to the landlord is a legal web which I would not venture. The sellers or broker will sue for using confidential info, and the building owner not likely wanting to get mixed up in a suit themself.

[Cole]

My offer to purchase for $20K had contingencies, one of which included negotiating a favorable lease with the landlord. The customer was on a year to year lease, at a rate higher than the going rate in our area, so negotiating with the landlord to get in the location for less than the current rent is doable. Also, I know the landlord on a first name basis, as he owns several businesses and real estate in town, so I am confident to be able to hammer something out. I appreciate the input and advise with respect to that.

I did hear back from the real estate agent today on my offer of $20K. He said that the owner countered with the full asking price, but would be willing to talk if I come back with an offer that has more 'meat' in it. He said the owner is very motivated, but not desperate. I am thinking about offering him $40K, with $8K down and 5 year seller financing at 6%. Depending on how financially savvy the owner is, he may not realize that the PV of that $40K offer is $29K and he may be better off not having to worry about me making the payments over 5 years and walk away today with $20K cash. I would only be out of pocket $8K now and can use the owners money for 5 years at a reasonable rate - which will allow me to have more money to put into improvements in the store. What are some thoughts on that offer?

As far as the gross vs. net income, all of the WDF income was done by the owner up until about a month ago. He has now hired a part time attendant to do it. That attendant may be willing ot stay on board (if both them and I get along). This would be a side venture, so I would also hire an attendant.

How much more income do you think I can realize from just the coin-op if I upgrade all of the eq.? I am trying to decide if I even want to do WDF and deal with an attendant.

This site is great. Thanks.

[Fred50]

Pete F,

I respectfully differ with your opinion. If I understand correctly, the current owner's lease has expired. If you negotiate directly with the landlord and you get a new lease, you should have no problems with impact fees as the space is already a mat. You get the customer base, electrical, plumbing, etc .

You can then possibly buy the equipment for scrap value and use it in place until you are ready to replace it. If not, you can even put used stuff back temporarily.

As we see from Cole's latest post the ante is now quite a bit larger than $20K to the seller!

As far as legal issues go, (I'm not a lawyer) Cole went to see the business as a laundromat for sale. He is approaching the landlord for a lease, not buying the business. My wife is a RE agent and problems usually arise when the seller tries to sell to a buyer that the agent introduced shortly after the agent's agreement expires.

You guys know by now that I'm not into sticking it to someone for the sake of it, but if the current owner let the lapse lease then tough on him.

[CharlieS]

I am a Realtor. Some comments.

Hylobates - First, any offer, regardless of how the realtor feels about it, must be conveyed to the seller. Failure to do so is a violation of the Realtor code of ethics.

Cole is limited only by his personal agreement with the Realtor and any non-disclosure agreements he may have signed. I won't comment on that without further info. If this is on the general market, the realtor showed the business, Cole has very little obligation to the realtor or the seller, at least in this state. It all depends on his agreements, if any, that he has signed. If he has signed nothing other than the offer, he has no obligations.

Again, without a lease, this seller owns nothing of value here.

The big question is how the landlord feels about it. Since you know the landlord already, I would approach him, first about a new lease if you buy the business. In that conversation, I would work in a question about the possibility of a new lease regardless, without buying the business. This seller obviously does not realize how precarious his position is without a lease in force. He will be much more amenable to any kind of offer when his lease is terminated. He should never have let himself into this position.

Hylobates - Yes, I have approached a landlord directly, in nearly an identical situation. The landlord told me that he would give the current operator the right to renew, which he did, but still has only a month to month lease. That was reasonable, and we both respected each others position. I was unwilling to buy from the operator at his asking price, which was 60K for a mat grossing 200K, but losing 15K a year and with very very old equipment. The landlord was the original operator, sold the business but not the real estate, was making good money, and did not want to screw the operator he sold the business to. I respect his decision.

Frankly, even though I am forced to rent my 2 current mats, I really, really, really, really, would prefer to own the real estate. I hate being under the thumb of a landlord.

Cole - that is another tactic you could consider. Offer to buy the real estate from the current landlord. You already know him. Then you control the real estate, can terminate the lease at your own will, and take it over. This is the ideal best of both worlds, and would absolutely be the best deal you could make. I would far rather invest my money in the real estate then in the old equipment. The landlord may not want to sell, or may have tax concerns. In this case, get him to consider a trade, where you would put this under contract, contingent on him finding a suitable replacement, using a starker exchange. This would defer his taxes, allow him to upgrade to an even better property, leverage his investment again, and be great for both of you. And guess what! No real estate commission because no agent is involved. Lots of ways to make this kind of deal happen.

Charlie

[Cole]

The location is in a strip mall, so it is not a stand alone building. I know from looking up property records that the landlord purchased the property for $550K in 1998. As I mentioned, there is a White Hen Pantry (c-store), Pizza place, video rental and sun tanning place located in this strip mall with the laundry mat. Therefore, I don't think that purchasing the property is going to happen (i.e. not sure own wants to sell, and would probably bring an asking price over $1 million dollars).

The only agreement that I signed was a Confidentiality Agreement. I have no other obligaitons to the RE agent or the owner. Of course, I cannot go around town talking about the location being up for sale or about the financing info I received. Aside from the RE Ad in the paper, there is no other way to know that the place is for sale (no sign in the window of course).

I am thinking about talking to the landlord about the mat and about rent in general, to get a feel as to where he is at. He may want the current owner out, because the condition of the mat brings down the overall 'value' of his strip mall. So we may be able to get creative in how to get me in there to take over the location.

After thinking about it and reading the comments here on this board, I do think that talking to the landlord is the best thing to do. As some have said, this owner let the lease lapse and he may (or may not) know how that affects the 'value' of his business. Of course, from the RE Agent's point of view, he is saying that I should be able to negotiate a better lease rate with the landlord, so he is attributing value to that position rather than a detraction of value.

Any other suggestions before I talk to the landlord?

[Follow]

imho, I would pay $40K with a min. of 10 year lease.. i will NOT try to kick him out and get the place for free..it is NOT right to do it ...that's me...

[pete f]

I was a Realtor also for many years, I gave up my license a few years ago becuase I like the laundry biz better.

the standard procedure for buying a business is to make an offer, get something accepted on price and terms, and as part of that offer, a contingency on lease terms acceptable to you.
Talking to a landlord beofre you have a signed contract is not really the best way to go. If you try and strike a deal to cut out the seller I guarantee lawsuits will be filed, as part of that confidential agreement you signed, you can not use your knowledge of a year to year lease to your advantage now.
You are trying to value the place like a lender would, that is why you thought a 20k offer on a 80k price was OK. The offer of 40k with only 8k down is not very serious either. 40k cash and you might get a counter. The guy makes 35k a year and is probaby sitting on 50k in impact fees and knows it. Why would a landlord want to give you a better deal on rent than he is getting now?
Back to basics.

[Cole]

Thanks for your feedback. I received a call from the realtor this afternoon, he said that he is presenting 2 offers to the owner today, and wanted to know if I wanted to present another offer.

He said that the owner is willing to do seller financing for 5-7 years at a point below prime. I advised him that the most I would offer at this point is $40K, with 20% down. He said that he has another party offering a 'substantial cash offer', but would also let the owner know about my new offer if that cash offer falls through. I am sure it was a salemanship move to see if I was really interested in going higher than the $20K cash offer. In any case, if someone buys this place for more than $40K good for the seller.

As far as the lease is concerned, it was presumed by the RE agent that the rent would be lower if there was a lock into a long term lease as opposed to a year to year lease. Of course, on its face it doesn't make sense as to why the LL would lower the rent, but he told me that is what the LL said he would do to get into a long term committed lease.

At this point, I am going to sit back and see what transpires with the 2 offers that were supposedly going to be delivered to the seller today. I have a funny feeling that I will be getting a call in a week or so from the RE agent looking to continue negotiations on a purchase price. We shall see...

Thank you everyone for you input and feedback. If I don't purchase this mat, I will be looking at other mats in the area for which I can get into the business.

[Follow]

I had almost same thing...old loundry, dirty, many machine out of order, most of the time ' change machine out of order.. people were smoking insde the loundry mat,no attendence, etc...

the x owner could not hande work load...they have 2 other loundry 1 CC store.. they had 1 year lease left and every 2 years landloard increase $100 a month.. so, they put in newspaper at a very good price than ather loundry mat that i already looked at which was same conditions...

Here is what I did....I call them first thing in the morning and get app. (after looked at the mat) next day we meet (noon) we cut a deal %12 lower then original price... than , got a App. with landlord and ask for same rent and 15-20 year lease increase of Consumer index...well...landloard did not accept, insist of two - year lease, increase of $100....
I did try to explain to him I am basically buying the costumer base and lease, machine are not worh much...well... after hard negetiation he increase 5 year lease...I did not accept, than we had a another final meeting.. this time I went there with facts that almost all of the loundry mat business and owner requares min. of 10 years lease get in,(he told me other wise before) because , I told him that my investment at this loundry will take 5 years to recover and I will not get into lease that I will not know what will happen after 5 years later, I said I will not invest and work for nothing..
I was almost getting out of there and he realize it.. than I got my 10 years lease...
well...I have been remodeling slowly almosta 3 months, All of my costumers are very happy, x costumers are coming back and they are very surprise to see new look(even x owner was so suprice) landloard is very happy to see this too..LOL..( I am keeping place very clean, all of my machine are working, change machine is great conditions..I am trying to keep my costumer happy- some of them so happy that taking adventage of me--not working machine deal so they can get a free wash-- (I put money and machines works fine) LOL..they know i am new owner.it is .OK.

I do spend most of the time helping costumer every day..asking them how they are doing, do they need help, any questions, openning door for them to get in (90% of my costumers are Mexican- they bring min. of 5- to track load..)etc..Sometimes I am helping them carry their basket from their car or to their car...

if there is anything wrong with machine, I am fixing right a way, If I can not , I am giving them money to use other machine, I am giving them soap that they wasted on nan performing machine..

weekdays ; business is picking up now, weekend I am short on Dryers, too many costumers are waiting.(I know it is no good)..I am running around to get them a dryer(moving dry clothing to folding tables..all of my costumers are keep coming back and bringing their friends... Looking for more Dexter Stack dryers now and add some more washers too..
I am also become a friend most of my costumer..
well.. I don't know how long I will keep up this , I hope will last long..( I am not bored being here everyday, because I also day trade on stock market in my office))
good luck to all of new loundry owner, we are in the service business, so keep them coming back to your loundry mat..

[Follow]

cole...I would like to tell you that I did missed to buy one loundry mat in your sitiations before...( before buying this laoundry mat)
I did offer well below the market price /offered price and waited to seller come down on price and finance...
week later there was a another buyer.. I did think that they are playing games, but I did offer little more but other buyer bid my price, I offer more, that was the offer that i can affort to pay max.!!! you know what!!?? I got bitten at that price too.. finally, matt sold $25K more then originally sellers were agree to sell me but I did not accept that price. before.. LOL..LOL..
so, before it gets really HOT, give them little more money and get it.. don't waste your time..( if you think you can get this mat remodel and make much more money)
good luck