Seller want's 6.5 X net

[Anonymous]

I found a mat 5 minutes from my house in Los Angeles County. The owner just replaced all the dryers with stacks, 14 new Speed Queen tops, and all new front load washers. There are 2 old 50# Dexter front loads one is broken and the other sounds like and old bus when it's running. The place is clean but the flooring is old composite tile like the stuff they used to put in schools when I was a kid. The place needs a paint job, it's pea soup green, and it smells musty inside. The fold tables need some work.
THe owner says this place nets 7,000 per month. I have not yet checked his numbers as I was taken back by his asking price. He wants over 500,000. This mat is located in a small strip mall, I would not own the building.
Would the fact that the equipment is new, the income could be verified and a favorable lease worked out, would this warent 6.5 times net? Most of the posts I have read say 3.5 to 5 X net.
I'd have to finance a huge chunk of this. I have a full time job that pays well so I would not have to count on the mat income to live. I was thinking I could roll the mat profits back into the loan and pay it off sooner. What do you all think? Half a million dollars scares the crap out of me.

[DuboisLaundry]

the new equipment is nice
sounds like it needs some cleaning up, new paint and floor (lights will probably help too)
the musty smell needs thorough investigation, not just painting over

I think 6.5x is kinda steep unless you can work allowances for paint, flooring, furnishings and plumbing overhaul into it.

how long is the lease?

[Anonymous]

I didn't get so far as to check the lease terms. The price threw me. I gues what I'm asking is this. Should the lease terms be acceptible, and I can verify that the Net is indeed 7000, and taking onto accout the new equipment, is the price that out of line? before I pay anythig I would have the place checked out by a contractor and adjust my offer accordingly.A friend of mine baught a new mat that was built by a distributor for more. His new store had no income to verify. I gues he was lucky because his mat took off the day he opened doors. He's doing very well. The area in which I live has grown drasticly in the last 5 years. Because of this I feel the area is underserved. Lots of new appartments and condos, high hispanic population. The problem is finding suitable buildings to buy or lease. If I were to find a good location I could build out a new mat of my own for about the same price, but would not have a customer base. I innitialy planed to build new. However the majority of post I could find on this site state that a newby is better off buying exsisting to learn the ropes. I'm on the fence on this one and could realy use some advice. So please everyone, don't pull any punches. What do you think?

[Von Hef]

So please everyone, don't pull any punches. What do you think?


I thought the post just above your last one did just what you are asking.... no pulled punches?

[pete f]

Contrary to coinwash, I would jump on the store if it met some basic requirements. It is close by, so will be easy to manage, a big plus. A new store will cost at least 200 a Sq ft, and have no customers, unless you put one across the street, then you have half. My check list would be
impact fees
lease
already got age of equipment
probability of the place making 7k a month for 60 months.
make the offer.

[Coinwash]

Contrary to Pete f

NO WAY 6.5. THAT'S NUTS.

Dexter front loads one is broken and the other sounds like and old bus when it's running. The place is clean but the flooring is old composite tile

The place needs a paint job, it's pea soup green, and it smells musty inside. (OK the paint is no big deal)

The owner says this place nets 7,000 per month

This mat is located in a small strip mall
I'd have to finance a huge chunk of this

Half a million dollars scares the crap out of me.

And it should


Please Think this is class Laundromat 101-Newbie Section.

Pete knows his stuff but do you???

Don't bite off more the you can chew

3.5 my friend. That's your offer....
Or just run;)

[skyfather]

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

This is exactly what I'm coming across in the LA area. It's gonna be hard finding a place for 3.5 times net. Considering that nearly all the equipment's been swapped out for new, 6.5 doesn't seem out of line from what I've seen. But that's still a large multiple. And since your initial reaction to spending a half million is that it scares the crap out of you, I think you should go with your gut instinct.

[Kitty]

The owner just replaced all the dryers with stacks, 14 new Speed Queen tops, and all new front load washers. There are 2 old 50# Dexter front loads one is broken and the other sounds like and old bus when it's running. .

When I see these posts stating the seller wants x$ in a sale, to me, it is imperative for the newbie to understand these posts to see that these posts have in the content as of the correct mix of equipment with vend pricing. No where in this post do I see the exact amount of equipment.

When the post tells me that the store nets 7K and the seller wants 6.5x the net for the sale of the store, the newbie should be able to compute the equipment/vend-price by TPD to determine the yearly gross on his own. I have never heard of selling at 6.5x net.

Unfortunately in business, it is easier for sellers to find inexperienced buyers to sell there businesses to. Arm your self with the knowledge to make informed decisions and ask the right questions.

[kbc747]

Stop and think here, you are talking about investing $500,000.00 and are not looking for it to pay you. If it is being bought as an investment then look at it as such, after all your bills what is your return going to be. There are a lot of businesses out there that will pay big returns on that kind of investment. Expect something, for me it cannot be less than 5%. So is it going to be an investment or a job or both? We often crap on bankers for looking at things so business mindedly and that they never put in the human factor etc. But if you follow some of thier rules it helps you to seperate the emotion of buying and having with the reality of where it will leave you. Be careful, be wise but most of all keep your emotions in check. Just bcause your friend was successful in no way makes your investment a sure thing!

[William]

Here is the simplest way to figure it to me. If you borrow $500,000 at 8% for 7 years your payment will be $7,741.50. So you will be $741.50 per month in the hole.

If you pay cash, your return will be 84,000 on 500,000. That is around 17%. Deduct a salary for your time, and it will be less.

[Coinwash]

BINGO
kbc747---William

[amartlock]

It's very general when people say 3.5 to 5 times net should be the price. It's really about what the market will bear. In SoCal, the market will bear nothing less than 5 to 6 times net. The fact that you have virtually all new equipment makes 6.5 times net seem reasonable. As with everything else, mats are more expensive in SoCal.

[Coinwash]

You’re looking at the NET !!
That's the Point.
Nothing else.

Everyone wants top dollar to sell there laundromat and that too is OK. Hell I have sold a few laundromats to people who came in to the mat with cash and paid me WAY over the amount it was worth with out asking me what I wanted for it. YUP I sold it in minutes.
Do your home work.

But the point is you want a Laundromat that you buy to make you money!!! THAT'S the point.

This is not an easy business....

[Anonymous]

The 6.5 X net was my first question. It seemed high to me. I'm not just looking at the price asked. Currently I'm trying to obtain water bills, find out if the musty smell is poor cleaning or bad plumbing, and calculate turns per day to obtain the claimed 7000 net per month. Once I'm back at the house I will list the types, Quantity, and vend price of equipment here in the forum as I don't have that info at my current location. Perhaps I should have done that at the beginning of the post. My intention was to find out if I should bother checking into this mat at all with a 6.5 X net asking price. Some who have replied say no way, others think maybe. Perhaps I can talk him down some?
I have been using this site like a study guide for the last two months or so. I value everyones opinion as you all have the experience in this buisness and I do not.
If I list the info stated above could someone give me a hand calculating the TPD?

[Anonymous]

I am not sure why anyone would spend $500,000 on a business that makes 17% return and spend numerous hours there. You would be better off buying a well managed Mutual fund and have less risk.

[skyfather]

I like William's idea. Run the numbers first. Do they meet your requirements? Find that out first before getting into the details. In all likelihood, the numbers given to you are inflated, so you should make a mental note to downgrade the numbers.

As to your specific question, no 6.5 times net is not out of line in the LA area.

As to the numbers, William said you'd get a 17% return with 100% down. Most people don't put 100% down even if they could.

As to financing, there's only a couple of banks in LA that will finance a startup (yes, you are a startup in their eyes even though the business is an established one). You need 50% down minimum. Your cash on cash return is 13.7% Anything less, you need an SBA loan with your house as collateral. Returns are 4.3% with 20% down and 9.5% with 30% down.

Based on 14 toploaders, I'd venture this mat is small. If my guess is correct, that's a pretty small store to net 7000/mo in the LA area. Meaning the store has a higher average TPD for its size. Assuming the 7000 net is remotely accurate, then maybe the location is a goldmine. There are *A LOT* of people looking to build new mats 2500ft and bigger in the LA area. There might already be one in development nearby. New apartments have new laundry rooms, which is competition.

If the numbers work for you, there's still the issue of your gut reaction: Scared to crap. Don't underestimate that instinct. You shouldn't be scared when investing in a business. Maybe look for something smaller in price.

[skyfather]

Forgot to add that most business loans are variable. I assume a 10% rate (roughly prime +2) for the numbers given above. And we all know where interest rates are headed.

Also, just because 6.5 times net is not of line doesn't mean anything. Real estate at $357/ft isn't out of line either right now, but there's no way in hell I'm paying that much for real estate.

[Anonymous]

Its amazing how people will work for so little and gamble so much.

[Walter]

In most instances, the asking price is negotiable. In SOCal, you can expect to negotiate a price approximately 10-15% below asking.

The really important thing is to do careful due diligence. I looked at one store which claimed it was netting 10k/month - after 4 weeks of intensive digging, I determined that it was really netting 6.7k monthly. Many sellers are very cavalier when it comes to stating what the store is netting. Several areas of particular interest should include. Wages & taxes withheld (is the owner actually paying worker's comp, etc). Also, is he claiming the store is fully attended, but shows only 2k per month in wages? Also, cost of repairs & maintenance - many owners show zero! on their offering sheets. Utilities - make sure to compare utility gas costs for the past six months - don't simply accept a 12 month average.

On the income side, there is often GROSS exaggeration of what the store is netting! Check your water calculations carefully, and also use your common sense - if the owner claims he's grossing 15k-20k a month, observing the store over a weekend will tell you if it's even in the ballpark.

Vend pricing - LA is notorious for low vend prices. If the vend prices are low, your volume has be very high and your machines can wear out very quickly.

IMO, this could be a reasonable deal, BUT leave no stone unturned. Check and doublecheck everything yourself.

Also, are other stores being built in close proximity that could cut into your net?

Good Luck!

Walter

[Kitty]

WAS,

First and foremost, thank you for bringing your questions to the bulletin board. The members would not respond if they did not think you or the topic warranted discussion. Sometimes, the same topics do get more "air time" than others here on the board, but that is usual with many boards, and some posters may get annoyed and answer abruptly sometimes, but will answer. But the point is, we appreciate your time and effort it takes to bring a question to the board, as well as those who have taken the time to bring you answers.

Some time these answers can sting a little, and it would be kinder if the posters would tone the answers down a little for those not quite as seasoned, but sometimes it is necessary to bring a harsh tone so some one not so seasoned so it is realized it is a risky game out there.

Kitty

[Anonymous]

Thanks Kitty,
I think some people misunderstood where I was coming from. I’m sure it’s my fault. I should have been clearer in my initial post. Regardless of the tone of the reply please believe that I read it very carefully and do not take offence. It may not be what I want to hear, but I’m sure it’s something I need to hear. I have studied enough posts to understand that you can't take a sellers word for the profitability of a mat. I have intended all along to do extensive due diligence. My intent was to find out if a 6.5 multiple was out of line for the area in which I live. I had a broker tell me that 6 X net was average for southern California. Then the first mat I find for sale that I would consider buying is for 6.5 X net. That is why I initially posted. I was not going to take his word for it. I have read the books, spoken to dealers and brokers, and gotten advice from acquaintances who own Laundromats, but I have learned the most from researching the posts on this site. All the other sources of information seem to have an agenda and paint a rosy picture intent on selling me something. I knew I’d get a strait answer here. People who live in other parts of the country feel the 3.5 to 5.0 is the average asking price while those who live in southern California seem to believe that 6 X net is the average for the area. This is good to know as I was under the assumption that the 3.5 to 5.0 was the average nation wide. I need to rethink my entire strategy. I have re-run the numbers from what I had expected to borrow against what I would need to borrow for a 6.5 X net sale price. While I could do it, I won’t. It would not give me a decent ROI. I’d basically be working there for free. I’m going to continue due diligence on this mat for sale. Perhaps the owner and I can come to an agreement that we can both live with. If not then it will be a good learning experience. It’s good to know that you are all here with sound advice and a harsh dose of reality when it’s warranted. I still intend to post the equipment numbers and vend prices in hopes of someone assisting me in the TPD, perhaps this evening.

Bill

[Kitty]

Thanks Kitty,
All the other sources of information seem to have an agenda and paint a rosy picture intent on selling me something. I knew I’d get a strait answer here.
Bill

THANKS BILL!

Kitty :)

[pete f]

Contrary to Pete f

NO WAY 6.5. THAT'S NUTS.



I have 2 mats I would not sell for less then 7x, and I am in Florida.
Like I said, basic exam if meets requirements I mentioned, then price is there. 500k for a mat, yes, would scare me too! Net me 7k a month, I'll take a look. Takes money to make money. The key here is a the ability of the mat to continue the cash stream for at least 5 years. The poster noted hard to find locations nearby, Dig deep, maybe hit gold? Never know.

[Boxer]

Pete ,Pete, Pete, I would love to sell my Mats 7% 8% How about 15%

But I'm a realist. I see where coinwash is coming from. This guy is a rookie not a pro like you.
Bases your buy price on 3.5 and crunch the numbers then move up the percent to see if the price is viable.
I don't buy the idea of where the mat is at Alaska ,NY , FL
The Rents are different, But money is what we are looking at.
How much Money will I make and how much will it cost to run

But the Fact is how much money is coming in to your MAT NOT HOW MUCH the SELLER thinks it's worth or how much money the Seller SUNK into it.

Everyone thinks that their Mat is a GOLD mine.



BUT the facts have to be laid out and this one smells.

[Anonymous]

But on the other hand, if mats in soCal sell for 6x net because there is enough demand, then that's what your stuck with. You just have to decide if it makes sense to YOU to be in the business at that multiple. If not, then good luck finding one for 3x net.

Kinda like houses - I think a decent 3 bedroom house should go for under 300k. But no matter how hard I try out in san diego or san francisco, I'm not going to find one anywhere near that price. So I have to decide - do I want to be a homeowner there? Answer, no, not at those prices.

I guess my point is that you guys can espouse all you want that 3 to 5x is reasonable and anything else is outlandish, but in the end it is all what the market will bear.

- John

[Walter]

IMO, these days, in SoCal, there's still money to be made. However, this is often not through long term holds and grinding out decent monthly cash flow (i.e., earning money the old-fashioned way), but rather through purchasing, renovation - sometimes quite minor - then flipping the store back on the market.

I saw one store last year that sold for 390k, 9 months later was resold for 480k - no changes to machines or store cosmetics or gross or net sales.

You need to pick your spots very carefully, but it's being done all the time. Kind of like day trading... For many of us, it seems like an obnoxious way of making a living...

Walter

[William]

It is clear that there is a speculative premium, or "greater fool" theory at work with these prices. You have to dermine if it is more risky to be in the game or out. I take a very black and white approach. It simply will not pay for itself. I would pass, but I might also miss an opportunity as a result.

[pete f]

Why is gasoline so high in CA? Why are houses so high? I do not know, but appears to be that is what that market is. So if a decent mat would go for 5x in another state, 6.5 times does not sound like a throwaway.
Good luck on finding a mat with newer machines netting 7k in any state for 3.5 times. Let's get real here, we all want a deal, but those kind come along far and few between.

[Anonymous]

OK, I said I'd get the makeup of the machines in this store so here goes

new 5 Dexter front load 25lb model # WCNAASS vend price 3.25
new 15 Dexter front load ?lb model WCAD18KCs-12 vend price 2.25
new 15 Speed Queen tops vend price 1.50
old 3 Milnor 35lb front loads vend price 3.50 these look old but run OK
old 2 Speed Queen front loads (don't know what they are) vend 2.50
I don't think these work.
old 4 Speed Queen front loads model # SC30MD20U60001 vend 3.25
these look OK and run OK
new 32 Dexter stack dryers model # DL2X30QSS Vend .25 for 8 min.

I have read other posts that show me how to calculate turns per day. But thats with knowing the gross and net. All I have is the claimed net. I need a little help here. I have no Idea what monthy overhead would be for a store with this makeup claiming 7000 net per month. I was hoping someone with some experience could take a SWAG at it. This will help me to decide if I wan't to try and work a deal with this guy. Before I start asking for his bills and statements, I'd like to have a point of refrence. As always I appreciate any advice given.

Bill

[Walter]

Was,

IMO. the seller should be more than willing to give you at least a high-level breakdown of Expenses & Income.

EXPENSES:
Lease - length, terms, condition; options (if any) & rent escalations
CAM charges - if any
Utilities
Employee Wages, if any
Employee Taxes
Janitorial - "clean & close"
Insurance
Trash
Parts & labor for repairs
Miscellaneous supplies & sundries

INCOME:
washers & dryers - broken out separately, if possible
"wash & fold service" - if any
soap, soda, candy, arcade sales


Obviously there are other expenses, but at least with this abbreviated list you can begin to make an educated guess as to whether it's worth pursuing. If you like what you see at this first stage, then you can go back to the seller with more refined questions... If the seller isn't willing or able to give you this data, then STOP. Any business asking 500k has to have its act together - believe me, 98% of owners know EXACTLY what their INCOME is, and should have a reasonable handle on their major EXPENSES.

Again, good luck!

Walter

[Anonymous]

Thanks Walter,
I'll ask for the info you listed.

[Anonymous]

I Guess I'm trying to arm myself with as much info as I can and gain from the experience of you folks on this site so when I do sit down with his documentation it will allow me to spot inconsistancies.

[Coinwash]

Here's a little more info...


Click here For the newbie who needs a start. (http://www.coinwash.com/temp/For the newbie who needs a start.pdf)

[skyfather]

Wow, those are some pretty high vend prices. Never seen prices like that in the LA/OC area.

[Kitty]

At a very rough guesstimate at 4tpd I calculated no more than 175K in revenue, this is without the machines that are not in order. You did no state the water usage so rough calculations may be between 50K-80K water/sewer month, so check the usage ans also see what the other guys come up with as well.

IMHO it will depend greatly on the nut you put down whether you will be able to sustain the location with the expenses it will take to keep the location dated and machines in working order. In this business it is imperative you continue to upgrade and stay ahead of the competition, if you pay too much for the business where you are unable to make the improvements necessary to spit polish the mat almost immediately at the time you purchase and keep the cash flow positive you may want to rethink this one?

[Anonymous]

If its such a great location where the price is that high and you really want to have a store there just build a new one down the street. Just make sure the location can support a new store in that area. Sometimes its the best way to do it.

[fluffy]

That's great advice Neal...use the proprietary information of an operator against him. One of the reasons I have a non-disclosure statement which prevents such actions.

Obviously there's no one answer to "what price is too high" - it all depends on the cash flow and the likelihood of it continuing. Do a discounted cash flow analysis (look on the web for examples).