Red Flags?

[LandoftheRich]

Am now premium...felt like a tool posting this specific type of question without supporting the board.

OK here goes. Looking at the following mat conveniently sandwiched in between my home and full time job (10 mins from house, 15 from work). Here's all the info given to me by the broker:

Asking Price $334,000
Gross sale $239,200
Gas $21,600
Electric $6,600
Water $10,800
Cable & Phone $960
Rent $52,800
Labor $26,400
Sewer $1,800
INSURANCE $1,440
MAINTENANCE $1,000
Total Expense $123,400

Net Profit Before Income tax $115,800

TOTAL MACHINES= 69
WASHER= 39
DRYER= 30
5 MACHINES OVER 10 YEAR OLD REST UNDER 10YEAR
8 YEAR LEFT IN LEASE


Right off the bat the maintenance figure seems low and the utilities only add up to be 17% of the gross. Its my understanding that should be closer to 25%. I'll be looking into what % of income is coming from WDF and of course will be doing my homework to prove those #'s above are legit. But before I get to that does anyone else see any other red flags?

[laundryman79]

I think 25% of gross for utilities is too high. I've always said it should be 18-22% or so. I thought the sewer charge was low in relation to the water charge and the gas seemed a little high. The water and sewer thing can be explaine just from the city this laundry is in. Every place is a little different. I would call the local city water dept and ask what their billing rates are. All in all I think it is worth looking at further.

The asking price seems low. In my area 4 x net revenue would be a minimum asking price. That would be $460,000. If it was me I would ask for a higher price. I would check a little further as to the sellers reasons for selling.

[pete f]

Am now premium...felt like a tool posting this specific type of question without supporting the board.

OK here goes. Looking at the following mat conveniently sandwiched in between my home and full time job (10 mins from house, 15 from work). Here's all the info given to me by the broker:

Asking Price $334,000
Gross sale $239,200
Gas $21,600
Electric $6,600
Water $10,800
Cable & Phone $960
Rent $52,800
Labor $26,400
Sewer $1,800
INSURANCE $1,440
MAINTENANCE $1,000
Total Expense $123,400

Net Profit Before Income tax $115,800

TOTAL MACHINES= 69
WASHER= 39
DRYER= 30
5 MACHINES OVER 10 YEAR OLD REST UNDER 10YEAR
8 YEAR LEFT IN LEASE


Right off the bat the maintenance figure seems low and the utilities only add up to be 17% of the gross. Its my understanding that should be closer to 25%. I'll be looking into what % of income is coming from WDF and of course will be doing my homework to prove those #'s above are legit. But before I get to that does anyone else see any other red flags?

Just from a quick overview I see a couple things. From a value is it worth point, because it is heavy w/d/f and I run self serve unattended, can not comment to much, though I know a w/d/f mat will have substantially less utility ratio than a self serve unattended mat..

Pros are proximity to your home, age of machines. What I would dig deeper into:
w/d/f Do any customers account for a substantial amount? will you retain that customer(s)?
Will employees stay on? Do they know about the impending sale?
The LEASE. You must have a clause in your intent to purchase that you require additional lease periods at terms suitable to you. After you settle on a price and sign purchase agreement, you talk with the landlord and see what longer periods you can get and the rate. You need at least another 10 years, 2 - 5 year options.
Maintaince is low, but not really wrong. Some years repairs are small, other you spend more. Most of the machines are less than 10 years old, so should not be heavy repair

Payroll.. A mat is open about 14 hours a day, so 1 person at $8.00 is $112 a day, x 365 days is $40,880. Is it running partly unattended or are you also buying yourself a part time job for $8 an hour? There is nothing wrong with that, I just let go most of my $8.50 an hour cleaning job recently after 10 years, but still will work part time at it ( at the mats of course!)

[mike]

I would look at the insurance,

at that price I do not believe you are covered for anything

(maybe just tuesdays)

[Joshp615]

How long have they owned the business? How much time is left on the lease?

[William]

Why does it have to be a red flag? What if it is a green flag? It is always possible that this is a good deal!

Go into any deal with an open and balanced mind. Not everyone is selling because their mat sucks. Not everyone is telling the truth, good or bad. For all you know it is the deal of a lifetime, or a dump.

It seems that everyone around here assumes it must be junk or it would not be for sale. Perhaps the owner is old and wants out. Perhaps the broker did not price it well. Perhaps it truly is a dump.

Dig deeper, and realize that you will likely see whatever you want to see...

[Rich]

I agree with William why does there have to be a red flag. I am in NJ and the numbers you have posted make this place certainly worth checking out. As far as utilities go and not knowing what kind of machines you have and vend prices. Comparing to my stores gas sounds about right, Electric if the place is not aircondioned sounds about right. Water and sewer seems way to low, I would expect atleast 20K a year combined water and sewer. Maybe a typo on the sewer charge? maybe not we don't know your rate. You need to get the gallons used anyway. 8 years on the lease is to short, you need atleast 2 5yr options on that. And Pete as got into the payroll part with you.

[LandoftheRich]

How about yellow flags of cautious optimism? I hear what you guys are saying and am going into this with an open mind. I'm just trying to do my homework, gather facts and spot any potential problems ahead of time so I'm not blindsided after the purchase when there is no recourse. Sorry if it came off overly-negative. I'm from NJ afterall!

I had the same questions regarding lease and payroll - haven't heard back from the broker yet on this. The water co. did give me the average usage per month (over the last year), 185k - 195k gallons/month. I asked for annual usage for the last few years but they said that info was only available for the account holder. Next step, finding out the types of machines an doing an analysis...

I'm very excited about the potential here and will fill you in on any more details. Thanks guys! Everyone on this board is such a big help.

[pete f]

How about yellow flags of cautious optimism? I hear what you guys are saying and am going into this with an open mind. I'm just trying to do my homework, gather facts and spot any potential problems ahead of time so I'm not blindsided after the purchase when there is no recourse. Sorry if it came off overly-negative. I'm from NJ afterall!

I had the same questions regarding lease and payroll - haven't heard back from the broker yet on this. The water co. did give me the average usage per month (over the last year), 185k - 195k gallons/month. I asked for annual usage for the last few years but they said that info was only available for the account holder. Next step, finding out the types of machines an doing an analysis...

I'm very excited about the potential here and will fill you in on any more details. Thanks guys! Everyone on this board is such a big help.

It will be tough doing machine analysis beacuse of the w/d/f. Based on what you said water was and gross and ratios, gross may be as stated.

[LandoftheRich]

The mat is mostly absentee owner at this point due to the seller moving out of the area...and it shows! Last time I was there I counted 5 washers and 6 dryers out of order. Owner says he would typically spend 15-20 hours per week there before moving. Also says 15-18% of the gross is from WDF.

Mat has been in operation since 1980. The footprint leaves much to be desired (narrow front but runs deep). There are 2 other laundromats very close by and both are nicer with a more ideal space. The plus is there are A TON of customers to go around...lots of massive apartment complexes close by...this mat does an average of 190,000 gallons/month.

Now for the fun part. I've done a water analysis based on the average turn price there for wash+dry - $4.76. I calculated their average gallon use per turn at 65. This came to $166,230 coin. Assuming what I'm told about the WDF % is accurate, that puts the gross somewhere around $195k a year.

Thats well below the initial $237k gross figure I was given....as well as the revised $233k gross figure that was posted when the broker re-listed the mat on 8/1/08. Their revised expenses are $137k. Lets say the WDF % and expenses are accurate. This means the mat is only netting $59k a year...this is in comparison to the $115k net originally providing (they are now saying its $96k).

I asked for lots more info - years worth of old utility statements, checking account statements, lease specifics, etc. The response I got was no surprise....make an offer and they will show me whatever I want.

If you guys were me, what would you do next? Bottom line is I'm still interested in the place even though its only netting $59k....just not at anywhere near their listing price :)

[William]

Make an offer based on what you think it is doing. Have plenty of contingencies. Escrow the money with your attorney (not the broker). Then review.

The IRS website has good formulas for determining revenues based on water usage.

Or, even better, pay Pete F a few bucks and he'll do it for you.

Good luck!

[pete f]

I agree with what Willaim said, except me value the mat, as I stated, I do unatended only. You have general info to proceed, so make your offer based on what it is worth to you. Your offer will have contingencies for you to prove the seller wrong. If you are satisfied after your due dilligence period, then you go to closing.

[LandoftheRich]

I think I agree with what William said too...especially about Pete doing the valuation!

Come on Pete, you've got universal respect on this board and a wealth of experience. Your estimate on a mat's value is bound to be more accurate than a newbie's. Even when WDF is part of the picture. I can always go by the sellers estimate of that % with a contingency being to prove that income, right?

I've been doing what the moderator says: "search search search read read read". Enough to the point where my eyes were bleed bleed bleeding. And I came across the post in 2005 where Pete offers his services in return for a donation to coinwash.com. Seems to me that kind of guidance is worth it. By not overpaying in the first place and avoiding other pitfalls you potentially save yourself thousands.

What do you say - game for one more?

[pete f]

I think I agree with what William said too...especially about Pete doing the valuation!

Come on Pete, you've got universal respect on this board and a wealth of experience. Your estimate on a mat's value is bound to be more accurate than a newbie's. Even when WDF is part of the picture. I can always go by the sellers estimate of that % with a contingency being to prove that income, right?

I've been doing what the moderator says: "search search search read read read". Enough to the point where my eyes were bleed bleed bleeding. And I came across the post in 2005 where Pete offers his services in return for a donation to coinwash.com. Seems to me that kind of guidance is worth it. By not overpaying in the first place and avoiding other pitfalls you potentially save yourself thousands.

What do you say - game for one more?

Tell me the washer prices and dryer price and I will toss out a potential number.
It will be based on 85% of water usage 15% to w/d/f which I am not sure of calcualtions, but would assume 2.5 gal =1.00 w/d/f, maybe you need to provide w/d/f charges, ie, $ per #.

[Kitty]

How many WDF customers? You should be able to figure on WDF nettingn 55-60 % after factoring the total costs. For every customer you should be able to figure 40% profit on every ticket that is only if your WDF clerk is also the main attendent for self serve as well.

Get wdf tickets or scope out what is being dropped

[LandoftheRich]

WASHERS
Maytag Top Loader 14 lb qty:6 $1.50
Wascomat w620 20 lb qty:15 $3.00
Dexter Thoroughbred 300 20 lb qty:5 $3.00
Huebsch 35 lb qty:3 $3.50
Huebsch 55 lb qty:2 $5.25
Wascomat W185 50 lb qty:2 $5.25
Wascomat W125 35 lb qty:4 $3.50

DRYERS
4 (8) Huebsch double deckers dryers
20 Huebsch single dryers
25 cents / 8 minutes

WDF
75 cents / #

Thanks guys...haven't been able to gauge the number of WDF customers yet. But I do know the person doing the WDF is also the main attendent. Guessing I wont be able to get a look at the tickets until after an offer is made.

[Kitty]

Take a look at the competitors mix and determine how the consumer is utilizing machines, you may find it would be beneficial for you to add larger machines.

This would help in utilities and add more sales dollars.

[ericnyc]

WASHERS
Maytag Top Loader 14 lb qty:6 $1.50
Wascomat w620 20 lb qty:15 $3.00
Dexter Thoroughbred 300 20 lb qty:5 $3.00
Huebsch 35 lb qty:3 $3.50
Huebsch 55 lb qty:2 $5.25
Wascomat W185 50 lb qty:2 $5.25
Wascomat W125 35 lb qty:4 $3.50

DRYERS
4 (8) Huebsch double deckers dryers
20 Huebsch single dryers
25 cents / 8 minutes

WDF
75 cents / #

Thanks guys...haven't been able to gauge the number of WDF customers yet. But I do know the person doing the WDF is also the main attendent. Guessing I wont be able to get a look at the tickets until after an offer is made.

How do you know that the current owner did not raise prices right before trying to sell the mat? Just something to think about...

[pete f]

The sweet spot here is the mat is near you. I messed with numbers a little, can prove 205k but that does not mean 225k is out of the question either. The asking price of $334 is high, but I bet you could not duplicate this mat for under that price, and you have good will to boot.. The mat does seem viale, thought the lease needs to be addressed. As I like to ask, what are your expectations, time involment and overall financial strenth? I do not need your kids daycare times or your balance sheet, but just to put the job in perspecetive..overall you have acid test of about 202k coin.

[LandoftheRich]

The thought had occurred to me, Eric. But that doesn't seem to be the case. The two closest competitors are priced the same or slightly higher...and their WDF is 89 cents/lb.

Pete, I am looking to devote approx. 20 hours of my time per week. Most of the time I'll be able to do more but because I plan on keeping my FT job I cant guarantee I'll be able to do more than that every single week. Fortunately, I do have friends/family who are happy to pitch in as needed. Another benefit to the place being so close I suppose. Having lunch with a local mat owner from this board on Thursday to hopefully get a better feel for the business.

As far as expectations, its a laundromat and I'm not expecting to set the world on fire here with massive profits. My goal is to make some positive movement for the future and add to my current income. I expect my main challenge to be machine maintenance. There will likely be a steep learning curve for me on the repair side and I'll no doubt need a lot of help in the beginning....but I plan on that not being the case 6 months into owning.

I'm lucky to be in a strong position right now financially (no kids so no expensive day care bills!). I've been building up my cash position and have sizeable home equity to tap into.

[pete f]

great answers. Don't worry about fixing stuff, that is what this board is made of. When I bought my first mat I was very worried, had no idea how to fix anything, and I come from a mechanical background.. My mother told me don't worry, dryers are made by dummies. Now, no offense to those workers at ADC or any other dryer company, but it did sooth my soul..And she was some what right, it has been easy to repair dryers as needed for the most part.

[William]

Of all of the deals over the past year or so this one makes the most sense. That includes the $3,000 mat!

You seem to have a good head on your shoulders as well, so I think you'll do fine.

Offer a price you can live with either way - buy or walk away. If you get it fine. If not fine. Do some research. Throw Pete F a couple of shekels to run the numbers. Then do the deal.

If you buy at the right price, it doesn't matter what you sell it for.

The only think I have noticed is that the current pricing is a bit wacky. Tops are ok, doubles seem high, triples low, others who knows. Check your market to see what is going on.

Good luck, we'll call you "owner" next time you post.

William

[LandoftheRich]

I made an offer on Friday...figured it was time to sh** or get off the pot! Thanks again everyone, I'll post an update when something significant happens.

[CENTEX]

Good luck with the negotiations, just shook hands on a deal for another one on friday myself. Glutton for punishment I guess. Good luck.