overpriced broker listings make me wanna build

[skyfather]

Hi all, after reading through many years worth of threads I think I'm finally ready to post one myself.

I would like to buy a mat by winter of this year so I'm still in the tire kicking stage, but broker listings in the greater Los Angeles area are outrageous. Anywhere from 4.2 to 5.9 times the stated net. You figure most of these stores have old equipment that needs replacement soon, and the total cost of ownership makes the idea of just building a new one out very tempting.

Plus, financing for a newb is nearly out of the question. Even with prior business experience and cash flow from the existing mat, the bank views my entrance into the mat business as a startup. That means, no loan from most banks. If I had money for 100% cash, then I would probably be in Hawaii right now. There's SBA loans, but so much red tape, paperwork, and fees.

On the other hand, distributors seem very willing to finance equipment purchases even to first timers as long as you put up at least 30-35% of the total investment. It just so happens that my estimate for construction is right around there, effectively giving me 100% financing on the equipment.

Yes, the risk is much greater than buying an existing mat. If I do my homework correctly, cash flow breakeven should come in 6-9 months. I'm gonna have to have pay for cash flow anyhow, whether that's inflow from an existing business or outflow while I wait for a new mat to break even. At least if building, I can choose my own equipment, use cards, and lay it out the way I want.

Of course, if I make an error, I may never break even and could lose my shirt. But that's a risk I'm willing to take. I have a day job that I'm keeping to pay the bills. This will be my second job. More importantly, it's the job that I'm going to like. The one that will give me satisfaction.

Still gathering info on the build vs buy question. Any comments or suggestions will be greatly appreciated. The one thing for certain is that I'd like to own a mat, whether new or existing.

Thanks!

[pete f]

I have done both, building is not always cheaper than buying. You can get burried in contractor and permitting and impact fees alone that add up to a used mat. Toss in extra buildout, 6-9 months paying on a lease, equip payments while waiting to open. You must pick your location very wisely, I have seen and heard of many who did not. If you are finding very old mats at 5 and 7 times then don't buy, keep looking. You may find a location in your search. I spent 3 years looking when I built my new one, which was a laundry back in the 50"s, saving me on impact fees. My most recent purchase I was in the hunt for about a year. I bought the building with a regular commercial loan, and gave the owner a second on an investment property for payment on the mat. I'll use my cash and resources to re model it. One thing is for sure, if the numbers do not add up, move on. I have made offers on many mats, and did not buy them.

[kbc747]

That's just it they are listings, no one would ever list for what they would sell for, so find one you like do some homework and they show the owner where they are wrong on the price and back up your offer with proof. If I was to list mine today I would be in this area for price cause you never know when that some one with more money than brains or wants a job for his kid is going to walk in the door and pay what you want. It's a game, hard to raise the price but I can always come down. And then again if the numbers are there to justify the price you may have to pay it if you want it. I always have been willing to pay a little more for a successful business over one that is failing. My last offer was for 2 acres of industrial land I bought for $105,000. to build a mini stoarge on. The trucking company beside me wanted the property and 2 weeks after I bought it he offered me $225,000. I said no and then this spring he came back with a offer of $350,000. Deal is he needs more land and this time I think we might talk. A second 1.25 acre parcel I bought for $21,000 had a offer this spring of $129,000. Point is you never know why people pay what they pay for things.

[skyfather]

I heard that in some cities impact fees can run 2500 per machine. That's ridiculous. Washing clothes is a basic necessity of life, clothing being part of the trio of shelter and food. Whether people all have their own washers or go to the mat, it has to be done nevertheless. Don't think there's any additional impact to the sewer system.

Saw your slide show. Think I read that you mostly did that yourself. Wow, that's impressive. Looks like you even did your own bulkheads. Thank you for your suggestions. I will keep an eye out for existing locations as well and won't try to hurry things up. Made a few errors (biggest one being location) on my last business mostly because I rushed things.

As for location, that seems to be the kicker. Pick the wrong one, and I'll never see breakeven. In the LA area, all the good ones were already picked decades ago. But I'm prepared to drive all streets and look at al houses and apartments within a half mile radius, even inspect apartment laundry rooms for a worthwhile location.

Have you ever had landlords cover some of the construction costs or lease payments? With a 10-30 year lease, many should be willing to cover some of the improvements or offer free rent for several months.

[kbc747]

This is mostly done in big shopping centers where they collect percentage rent. That is your rent is looked at as a percentage of your sales and when your sales go above that number for the year you pay the higher amount. If your sales were 250,000 and rent was $25,000 your percent is set at 10%. So if you sale $500,000 you will now pay the landlord $50,000 in rent total for that year. I have never seen any landlord invest in a store that wasn't under a percentage rent deal.

[skyfather]

I was thinking that the inflated list price would wash out with the inflated net. Which would still leave the sale at more than 3.5 times net. Maybe that's the market rate here. There's a lot of cities here that won't even allow additional mats.

Is it possible the real estate boom is affecting pricing as well? Rising real estate pricing make landlords push through ever increasing rent hikes. And long term leases protects against that to an extent with CPI based increases or fixed 3-4% hikes. Just a thought. Seen a lot of businesses moving when renewals come up at market value.

[TLR]

Real estate boom and stock market jitters have people wanting to invest in a hard asset that they can manage and run them self. Many older couples paying cash for their businesses - rather than putting money in stock market.

TLR

[garrett]

Not to be rude, but if you had a mat in the L.A. area that was making money would you sell it at 2.5?

[amartlock]

No way! I'd sell it for what the market would bear and that's a lot higher than 2.5 X net in SoCal.

[Walter]

At least in major cities in California, mats are currently selling for multiples between 5.5 and 7.5. This is the case even when utility cost spikes have cut into margins, and even for stores with relatively short leases.

It's a seller's market, and in my opinion, one that isn't going to be changing any time soon. I recently sold a mat through a broker, and we had many offers at multiples of 6, several at 6.5, and one at 7.4 - the offer we finally went with (these were all cash offers, with no notes to be held by the seller). And this included "adjusting out" the nightly maintenance costs! This was disclosed up front to the buyer, who was happy to make the purchase anyway. The actual multiple was in the range of 7.8.

There is a lot of speculative "flipping" going on in the L.A. area, with many stores turning over after 9 months, with the new owner having invested 30k in new dryers, but with asking prices really jacked up. Guess what? These stores are selling quickly...

I've also noticed that some of the large brokerage developers are finding that their spec stores are sitting on the market longer... But then again, their asking prices are astronomical, with high monthly rent/cam charges...

Walter

[skyfather]

Here's one that's listed at 4.8 times net with a lease that expires in 2 years with a 6 year option at market. Unless someone talks to the landlord this is a dealkiller already.

Here's the stated details just for comparision sake:

2000 sq ft
24 toploaders
10 25 pounders
3 50 pounders
15 stack dryers
all are 7 years old, so gotta spend 19k to replace the t/l's soon

currently owned for 2 years
gross: 13500
utilities: 2974
labor: 950
all other exp: 5975
net: 5501 (can't be, something's wrong with this figure)

This place is located in a dying shopping plaza. Looks like there used to be a grocery store long ago. There's a couple of vacant units. Pavement hasn't been slurried in years with wild west weeds growing up through them. Place looks dead. Landlord doesn't care. Seems like other tenants don't care either. Plus a brand new mat in a pretty good shopping center opened not too far away.

If I were to build, new machines would cost me about 133k. Add other equipment (changers, carts, wtr htr, etc) at about 20k. Construction at about 65k. That adds up to 218k. No sewer impact fee for my area, but still finding out for water tap. Will negotiate with landlord for free rent during 4 month build out (delays to be paid by GC on contract). Equipment delivery delayed to the latest time period to save on payments. Musn't forget 10% murphy's law reserve and 6 months working capital. Building just might be a viable option.

Yeah, it sure is a seller's market out there. This is the first store I've seen and it's pretty lousy. If the market in SoCal is this crazy, then a decent store might be priced out my range. Am I missing something here: Is this store really worth 4.8 times the stated net?

[garrett]

I have no facts to help me on this, but I think your construction cost, especially in California, is way off. Plumbing, electric, walls, floors, bulkheads, tables, ceilings, duct work for the coolers, return air cut into the roof, etc... Not to kill your dream because I don't know the numbers, but I think the plumbing alone will cost 65k. These guys charge a fortune just to repair. And if you are going to build, build big out here or someone will come across the street and put you out of business.

Maybe someone who knows can help out on these cost?

[skyfather]

You caught me. Construction is the only item I don't have reliable numbers for. But that's because it's too early to start getting quotes. I think 65k is reasonable for no tile floors, minimal walls, painting existing ceiling, etc. I was quoted 15k for saw cut plumbing and venting work in another business last year. So guesstimating from that. Although Pete f said someone quoted him in the 30's for plumbing alone on another thread.

If bids come in too high, there might be options. Or I can just buy an existing store if the costs are too much. I second Garrett. Anyone have recent quotes?

[pete f]

you might want to talk to a local distributor about your idea and get a better handle on costs. It is not uncommon to have the buildout cost as much as the equipment. Stuff just adds up.

[quartercounter]

some areas may be less to build than buy depending on the gross revenue of the mat you will have to know what the building costs of the area are to know until then no one here will be able to answer the question every area is different
if you decide to buy a mat at 5x times its gross be sure you know what that really means

[skyfather]

A SoCal distributor said a good rule of thumb is $50-60 per square foot. A second one just gave a ballpark cost of 120k on a 2500ft pad, which works out to $48/ft.

Hope this helps anyone else needing construction info. It sure helped me, as I'm 90% thinking to build now.

[amartlock]

Good luck to you building new. I'd wager it'll be up for sale within a year at a big loss. Pay heed to the experienced owners on this board, they know what they are talking about when they say your first mat should be an existing one.

[Mr.Clean]

I built my own and avoided those outragous broker rates!! Sure there are hassles and concerns but that goes for anything worth doing!! First the lease, we worked out a deal with the property owner that we have NO LEASE PAYMENTS FOR THE FIRST YEAR AFTER OPENING!! That has been huge for our business. Second the permits and contractors. The permits were really easy and with the exception of the mechanical engineer who was a complete bafoon I did the build out myself. This ain't rocket science!!! Sure I took bids in the beginning from plumbers, carpenters, electricians etc. Their prices thought probably fair were really high. I did sub out the electrical because it's above my max of 110 volts and those guy have good habits:>) I have been up and running since Nov and already avg just over $200/day. We keep the place very clean, we help the customers with getting their laundry both in and out of our place, we have soft jazz playing and we get on a first name basis with our customers. This is also extremely beneficial as I can't tell you how comforting it is for new customers to hear us speaking on a first name basis with our customer. It always leads to them offering their name!!!!!

Give people a good product and a clean safe place to do it in and they come back, often with others!!!!! Now we are nowhere near the true potential of this store but then word is getting out and every month has been better than the last. I know that my competitors are feeling it.

Bottom line, take of people and they will take care of you...

Mr. Clean/D2BC

[pete f]

A SoCal distributor said a good rule of thumb is $50-60 per square foot. A second one just gave a ballpark cost of 120k on a 2500ft pad, which works out to $48/ft.

Hope this helps anyone else needing construction info. It sure helped me, as I'm 90% thinking to build now.

You are 250k going in, I bet it is more like 350k comming out.
There are owners who have been able to trim costs by doing alot of the work themsleves, me included. It took me 3 months just to get a permit. DIY does not always work and I had a contractor I knew very well who built many mats working on the permit. Also, I had to cough up another 17k in beatification costs to get that permit, which was part of the hold up, they did not like my landscape plan. I was not allowed to play with gas, water, sewer, electric or mechanical. I did the grunt work, bulkheads, painting, etc. I also have a location where a few other small mats had closed down, it is in a very bad part of town, nobody wants to enter. What made it a decent location is lack of any other laundrymats around. Most locations are taken, it took me 4 years to find one, and I was looking to buy used and remodel. This is after owning 4 other mats for many years, all of them I bought used..

I do not see how you can build new when you have no idea of what you need or where to put it. Buy used, run it for a few years, find out about the business, as not everyone likes it, then use your knowledge to build new if you find the right spot. You can always sell the used mat, even if at a loss I bet the odds are it would be far cheaper than the gamble on a new mat. Where ever you are looking there has already been many local operators who have passed on the site, so proceed with caution. I am talking about suburban areas, small town type mats and location are a little different.

[skyfather]

Thank you all for the words of caution. Nothing set in stone yet. Still too early, although preference would be to buy existing.

[Anonymous]

We have people from California building and buying laundromats in Las Vegas because of the prices there. I am wondering how its going to work out for the people being so far away from there store. I just met a guy building a new store here yesterday.

[Anonymous]

Mr Clean,
How much did you spend to build your mat that does $200 a day. I think I would be trying to dump the place with numbers that low. What type of reutrn can you possible be making with those numbers?
Thanks
Ewire