Looking to build a mat - 100% financed

[rmathome]

Ok, I probably got your attention.

Here is the deal. Here in NJ there is a building that was previously a Dunkin Donuts but it is now closed. Because of this, I ASSUME that there is adequate, water, gas, and electric hookups since they must have powered commercial equipment - ovens and things. I know the building does have gas and electric because I checked the meters. It also has a drive-thru which I would use as a drive-thru drop off. It is about 3300 square feet.

It is on a very busy street in densley populated, blue collar, suburban area. About a mile from a major expressway that is heavily trafficed by workers (as is the street the DD is on).

Additionally, it shares a parking lot with major Supermarket, major Pharmacy, major bank, and a KMart. All of these stores share the same parking lot. And are on the corner of a pretty big intersection. I figured these are some prety good anchors.

I look at this building and wonder how it CANT do great business.

There is no real competition that I could find - at least nothing more than a couple of small mats - and they are not on this main drag.

Im sure the lease for the building is very high since the location is so good. But since I have basically no money, I figured I could get in with:

1) Minimal changes to the building to accomadate a laundry. Im assuming 75k... is that fair? If so, Id finance most of that.

2) 100% financing/lease of all equipment

This gets me into a killer location at very small price... but Im heavily financed. Well, more than heavily - completely.

Is it even possible to profit this way or am I in dreamland?

No matter how I cut it, I would need to finance 100% in some way - whether it is home equity, bank loan, friends, family, or any combination of these.

What do you think?

[rmathome]

I pretty much know that the answers to come back will be "youre crazy" but here is how I think of this, tell me where I am wrong.

Lets say you build a mat for $450k. You use all cash, no financing. Now, if you did things properly and ran your store well, you can expect about a 30% return - is that correct? That would be a profit of 150k per year. Now, that isnt assuming anything outrageous, its assuming you planned properly and managed well.

Now, if you were able to finance the entire deal, a $450k loan, at 10%, for 15 years is about 5k per month. Thats 60k for the year.

Take that out of your profit and $150k-$60k still leaves you at $90k.

Now, I MUST be leaving something out here, or miscalculating, but I dont see where.

[David]

It is on a very busy street in densley populated, blue collar, suburban area. About a mile from a major expressway that is heavily trafficed by workers (as is the street the DD is on).
But what is the makeup (demographics) of this area. If you're going to spend/finance this kind of venture, pay the extra a get a demographics study. There are ways to roughly calculate your customer base. (Help me out here somebody.) There are a couple of percentages of certain demographics that will tell you if you're in the right location.

Cashflow in the beginning is always a problem. How are you going to pay for things while your store builds it's business to profit levels?

If I remember, New Jersey has some pretty strick building codes and startup costs for laundromats. Check your local municipality for details.

[Aromaz]

Save your time and money. If the area needed a new mat there would already be one or more.

[rmathome]

David,

Its about 2 minutes from my house, so I know the area and demo well - although i am having a distributor get an evaluation.

Its blue collar and its a neighborhood that, over the past 5-10 years has been changing its demo... many more spanish and black in an area that was at one time predominantly white. And much more populated than it was 10 years ago. Many renters, I know this through experience of seeing the illegal renters all over which I HATE - not from a report.

[DuboisLaundry]

1) I would not assume that Dunkin Donuts had the size of water and sewer service that a laundromat will require

2) I think the debt service on ANY new business built with 100% financing would sink the ship in short order

[KJD]

My question would be IF it is such a great location why did the Dunkin Donuts close?

[pete f]

My question would be IF it is such a great location why did the Dunkin Donuts close?


That was my first thought. Second thought is who is going to loan all this non secured money?? Third thought is the posted has not read much here, the theory is very flawed. There will be NO 15 yr notes available, tyy 5-7 on equipment, again, owner must pay buildout on his own funds, borrow against what? His Yugo? OK of they repo that, but does the poster want to risk his home on the deal?

[rmathome]

two completely different businesses,with different needs, etc.

Is there any relevence?

[pete f]

two completely different businesses,with different needs, etc.

Is there any relevence?


Yes, it has do due with cash capital invested. Both business need it. Or it could be poor location of the building, in which case no business may ever make it. I know a few of these locations, always turnig over, they are cursed.

[William]

The 30% return is on YOUR money, not the banks. Did you calculate the payment on $450,000? How much is left over then? What interest rate did you pick? Expect it to be over 10%, and expect a 7 year term. Do that math, get back to us on the return.

By the way, that 30% return frequently quoted does not always assume that the owner is paying himself a salary. What is your time worth? Budget $2,000 per month as a salary, deduct that note payment from above, and let us know how much your net is going to be...

It seems you believe that a laundry is a passive investment. Throw $450,000 at it, and $150,000 comes back. Try this on: you pay $450,000 and the laundry does gross sales of $100,000 per year. Subtract expenses. My guess is your bottom line is a negative number. How do you figure that every laundry has gross sales equal to 30% of the cost of building it? Could be more, could be less. Neat idea though.

Dunkin Donuts can get by on far less than a laundromat in terms of utilities. What is the size of the sewer line? Is the power single phase or three phase? What is the size of the water line? Will $75,000 convert a building from a donut shop to a laundromat? I doubt it. What size is the building? You are going to need 3,000 square feet minimum, 4,000 would be better.

Bottom line - as Pete says, if it was easy everyone would do it. If making money in the coin laundry business was easy then there would be no hedge fund managers, they'd all be in the laundry business.

[rmathome]

William, Im not assuming it is easy. The 450/150 numbers I used were simply a rough estimate because I have read - in many places - that a 30% return on investment is very acheivable in the laundry business. even when I look at laundies for sale and people that post on here asking about mats for sale - it seems that, as another example, a 200k asking price tends to have about a 60k net... 30% Of couse, these numbers arent verified, but that does seem to be the number I see repeatedly

Are you saying that those numbers are achievable only if you leverage part of the investment?

I used 10% interest rate - but I used a 20 year loan (I think thats what I used)

Your example of 450 and t hen 100 gross sales would be a laundry that doesnt measure up to what is considerd a good laundry investment - doesnt it? I mean, wouldnt 450/100 NET be more typical of a good investment.

Again, this is hypothetical and I am using what I believd to be a reasonable good store that turned outto be a reasonably good investment. Not the best case store and not the worst case.

By the way, Im not trying to be argumentative here, just learning.

[William]

Ok, maybe I have had too much coffee today...

But, you have to look at this differently. It is much easier to price an existing laundry than it is to tell you what the return on a new one will be.

The assumption you need to make is what are your gross sales going to be. Not what your return on investment is going to be. Start with the top line, gross sales, and then work down the P&L.

Don't confuse an income statement item (gross sales, net profit) with a balance sheet item (asset value, i.e. cost to build). You cannot make any assumption about income based on assets. You could build a beautiful, state of the art, top of the line, very expensive, million dollar laundry and have a great return, poor return, or negative (loss) return.

You could buy used equipment, shoe string build out, dumpy building, and make a fortune.

Assets do not predict income!

Figure out whether you are meeting an unmet need of the community. Determine, as best you can, what the sales potential is. Then figure out how much it would cost to meet the needs of the market. Then decide if it will make money.

[rmathome]

ok, I see exactly what you mean. How can you estimate gross sales? Im sure the things that come into play are demographics, surrounding stores, traffic flow analysis, etc, etc, etc. but even armed with that info, how does it into the form of a gross sales estimate?

Do I just have a distributor do an overall analysis? Can they be trusted?

[TLR]

First you must have Capital to secure the borrowing of the 100% financing. If you have none - all this talk is irrelevant.

TLR

[fishmanz]

You don't have enough money to implament your plan. A 100% financed mat with new equipment will not make it. Just because it has a gas line doesn't mean it has the volume you will need to run laundry equipment.

My building was a laundromat for 50 years before I got it and still had to double the size of my gas line.

[Amex]

I would bet the distributor will conclude that it is a great location and they have plenty of equipment to fill it up.

[Silent Roo]

Actually, it probably is as good as any laundry location out there.

Here are a few thoughts. 3000 Square feet is going to run you more than 450K. The rent on this location will probably keep you out. Often this 'prime' of a location is not ideal because of the rent. If you can save $2-3 a foot it becomes a huge number. Often I find locations for stores that are $5-7 cheaper for an almost as good location. You can save thousands by not being in the shiny new strip mall. but having a good location.

To hook up in NJ may cost you upwards of 50-100K Cash. This is an amount you can not finance.

Second NO bank will finance 100% even with leased equipment they want a good chunk down. To do this you will need to come up with 100k that is off the book loan. Also the addition 350 is going to be at a fairly high rate. Especially if you plan on leasing.

Lastly, Do not assume because there is not one there, one will not work. I have built 28 laundries in the past 10 years. 25 are making money 1 is less than 1 month old and will make money and 2 I told the owner not to build. All were built in locations that were good some were built close to competition, some where built in saturated markets, some where even built next to owners who said they were certain I was nuts
that this town could not support 2/3/4/5 laundries.