Tale of Two Laundries

[flaxdax]

Hello to all from a TX newbie. My husband and I are interested in purchasing a coin-laundry here in TX and we have been trying to become as informed as possible to make an educated decision. We stumbled on this site and have found extremely valuable information, THANKS!!! Any assistance/knowledge would be greatly appreciated. We want to purchase real estate w/existing business. We have narrowed our sights to two options. Both would require re-locating, but not a problem. Because we have an infant and a toddler, we are trying to decide which would be the best scenario.

Both options are located in small towns and have 20+ yr history. We have viewed past tax forms, but not had a water analysis yet (Didn't know about that until viewing your web site). After all numbers considered (gross, net, debt services, etc.) we would take home approx. the same amount. Both have a mix of newer and older machines. Both have WDF services, which we would keep. We viewed both and have met with both owners recently. The problem is we don't know which is the most important issue to sway us one way or the other. On one hand, Option A comes with 3 mats, great real estate (500k combined), asking 1 mil, and is in a beautiful destination town. However, at no time did we see the mats packed, one specific mat only had 1-2 cars each time we saw it. The other two had 3-7 cars at a time. We have driven there 3 times to spot check. There is moderate competition. We would accrue higher debt with this one, plus cost-of-living higher.

On the other hand, Option B has only one store with real estate approx 130k, asking 500k, and is in an industrial town. It was packed the two days we were there. We drove by to spot check multiple times and even the parking lot was packed. It's an older store, needs cleaning and some tlc, but the customers were literally standing because there was not enough room to sit. Crazy thing is, the store is only utilizing 2/3 of the space. There is little competition and is in a great location for its customers. We would accrue substantially less debt to purchase.

You would think this was a no brainer, but my husband and I are differing on one issue. With an existing laundry, how much value do we put on the real estate to make an informative decision? Should we go for the cash right now in the single mat which should produce much more w/elbow grease, or hope that the real estate will bring us higher cash later on the 3 mat combo? Are we making this decision tougher than it needs to be? Again, thanks in advance for your expertise/knowledge/comments! --Y'Vette

[fluffy]

I can't really speculate on the future commercial real estate market in your area. Of course it's great if you can own the real estate from the laundry business perspective and both seem like interesting options. Your immediate take home cash flow is higher with the lower debt service option, but you should also consider the following years cash flow. Does the second mat have older equipment vs. the other three? I would try and value the business separately from the real estate and if you get appreciation from that it's an incremental bonus and not the driving factor as to why you purchase the business. But I don't own my real estate (wish that I did).

[Kitty]

Your saying that Option A offers 3 stores at double the sale amount of Option B but you should net the same as you would if you took either option?

Did you say Option B has potential for inprovements and did have people waiting in line and in an industrial town? I'd say Option B. Get your feet wet and take some baby steps before you take a jump off the high dive. Although the rewards may be greater with the 3 mats down the road the possibilities of one or two of them being a loser or great.

Why don't you give us more details, along with equipment details as well.


Kitty

[flaxdax]

Thanks for your input, I value the info you two pro's have offered. More specs as follows:

Option A: There is WDF at 2 mats, but one breaks even for labor. The other makes up for it, as it includes commercial accounts. All 3 have paid employees and are very clean and would require minimal owner time at the mats. Two have real estate space for add-ons. Combined machines include:
102 Top Load Wash-12-13 yrs old
8 Top Load Wash-2 yrs old
14 Front Load Wash-7-8 yrs
28 35# Gas Dryer-2 yrs
14 30# Gas Dryer-13 yrs
10 35# Huebsch Dryer-6 yrs
2 30# Stack Dryer-1 yr
5 30# Stack Dryer-7 yrs
1 30# Stack Dryer-13 yrs
13 vending machines owned

Option B: WDF does not currently have commercial accounts & would be run by owner or have to hire employee(s). Store is not clean or kept up, bldg is 3300 sq ft, but approx 950 sq ft is not accessible to customers. Would have to be remodeled. Nonetheless, the demand is huge in this town. Machines as follows:
46 Top Load Wash
8 Dbl Load Wash
8 Trpl Load Wash
11 Dbl Stack Front Dryers
6 Single Front Dryers
2 Dryers that look obsolete.
4 Vending machines-2 owned/2 leased
Dryers fairly new, Top loads definately will need replacement sooner than later. Will need to get dates.

Didn't think to take into account the dates of inventory to decide between the two. Please let me know how much this changes things, if at all. THANKS!!! --Y'Vette

[Anonymous]

I'm a relative newcomer with 1 unattended mat that I've owned just under a year.

I'd be very afraid of taking on 3 mats at once, especially with employees involved and having an infant at home. Just seems like a lot to bite off at once, especially when option B sounds like a winner anyway. Suppose your employees up and quit one day, leaving you with WDF laying around, a drop in income, and a quick need to hire someone. Scary thought for a guy like me that has a regular full-time job as well.

Would this be a full-time gig for you, or do you have a 'regular' job too? Maybe the situation would be different for me if I could pour all my time and effort into it.

I agree with what someone said about getting your feet wet with 1 first. Heck if you remodelled and increased the income, maybe you could turn around and sell that one for a healthy gain THEN buy the 3-banger.

- John

[pete f]

I am always more interested in a busy store, particularly if it would be hard to have a new neighbor, ie, mat, built nearby. The real estate value should be done the normal way, CAP rate, build rate and comps. Then average them out. To help with the CAP rate use a percentage of the mats gross income, when I have done consulting for people who are looking at mats I use 20%, though the number could be from 15% to 35%. Many lease are Triple net, so leaving in taxes, ins could be OK. The bank is going to want an appraisal anyway, so a professional will be involved, maybe you want to bring him/her in early.

[Kitty]

Even after taking the real estate equation plusses or minuses into this. If Option B has a demographic area of families and your average household is at or above 3 persons I bet Option B would do the best. An upgrade to front load machines will give a much better wash to current customers as well as offer a much better WDF service.

If you could bite off Option A I'd suggest Option B and upgrade immediately if it has the business you say and you have researched the area thoroughly go for it,. But, I'd want to know there are not other plans for another laundry coming in before I jumped.


kitty

[CharlieS]

I'm with B. You are new to the business and 3 stores will be overwhelming. Plus it already has good business and has room for improvement. The downside is the future cash flow, but other opportunities to buy mats will probably come up if you really want them. The other downside is that if there is this much business, a competitor is more likely to consider building a mat in the area. Still, I'd go with B.

Charlie

[flaxdax]

Thank you all so much for your expertise, you brought up many good points I had not necessarily thought to consider and/or put emphasis on. Option B does sound like an obvious choice for a first time business, but recently found current owner is "lacking" certain documentation/paperwork. We see a "red flag" and are putting the brakes on Option B at this time. This would be a full time gig for my husband and I and we may go against the odds and try for Option A. All the paperwork is there, the numbers are good, but it does seem to require more risk. Therefore, it is extremely helpful to know that this site exists with wonderful people who know the business and are willing to share their knowledge. Thanks a bunch!!! --Y'Vette