Machine Age and Purchase Price

[Palmyra Jim]

I have talked with several local laundry owners who are running what appears to be successful operations.

I am developing a concern about the age of the equiptment and the price. When I add all of the physical assets at the price the dealers are telling me for the age of the equipment, then the equipment is about 50% of the asking price. (washers, dryer, boilers, extractor, carts, tables, coin counter, change machine and so forth.

The 95% of the machines are working. There are 6 old SQ dryers that look like they should be removed and retired. The owner is going to guarantee the equipment and work with me to train me.

Here is the equiptment list and age:

35 Huebsch Top load washers: 5-7 years old
15 Maytag Top load Washers: 15 years
13 Double laod Wascomat 13 at 14 years and 8 and 12 yrs old
4 SQ Double loads at 10 years old
9 Milnors: 2-55#, 7-35# all 15 years old
28 Dryers: SQ stacked/30# 15 years old
11 Dryers: Continentals 7 yrs old
13 SQ 10-15 years
4- 670 BTU Heaters: 15+ years old
4- 250 holding tanks: 15 years old.
2 changers with upgrader_15 years old

This is the business that is grossing $210,000 per year with 4 part time employees and the owner working 12-15 hours per week collecting coins and repairing. Annual expenses show $5,000 maintenance for parts for each of the last 5 years.

Asking price is $250,000 and we are setteling in at $230,000 for two locations. He is taking a very small down payment on the second location and holding paper. No competition at one location and one small uncared for competitor within 3 miles of the second location.

The price is clearly monthly net x 45 which is at the lower end of purchasing. Cap rate is 24%. The locations appear to fit all the positive criteria with 30+ years of successful operation. Most likely a small town intergenerational tradition.....

Throwing another $20,000 into renovations and an instant hot water system should be all the "planned expenses for the coming year.

What do you all think?

Jim

[Silent Roo]

You are not buying an asset. This is the purchase of an income stream. I can do a value for laundries three ways. Value to me at wholesale, Market Value, and Sale price. Meaning what I would give in liquidation for equipment only Often 10 to 15 cents on the dollar, Market value of the equipment. Cost to replace with equipment of the same flavor. And finally what is it worth.

You are thinking like you are kicking tires on a family car. Rather than a taxi service. They may have cost. IE both cars worth $25000. However the Taxi Service might cost you 100000 rather than the 25000 because it produces income.

My thoughts on the deal would be the repairs seem a little low especially with the age of the equipment. If you are handy you will be ok and close to that.
My biggest concern is most top loaders have a life span of 6-10 years. Those maytag top loaders are probably based on their age a model that is hard to beat however at 15 years . Most of the equipment is on the old side, however that is reflected in the price. Knowing that you will need to replace 'blocks' of equipment in the next 5-10 years have at it.

I know mats in my area that have a similar set up that run for years making money. As long as it stays clean and no one comes to town.....

[Palmyra Jim]

Thanks Silent Roo,
It is a funding stream I am purchasing. I do not see myself just collecting the quarters and running. I see building and expanding the services to pull in more revenue with more utilization of the machines.

I will set up an capital improvement fund as your point is well taken. Machines will need to be replaced with newer models...

Thanks to all,
Jim