Coin-op laundromat

[Kronk]

I'm in the early stages of considering buying an existing (40+ years) laundromat. Unattended, coin-op only, good neighborhood in a strip mall. It is located several miles from my house.

According to the disclosure, discretionary income is 35k. Price is listed at 4x earnings, but it is (obviously) negotiable. I'd be in effect borrowing the whole amount (HELOC + Business Loan).

Owner's responsibilities appear to be emptying change roughly 3x/week, keeping machines in shape, keeping it clean (hiring service). There hasn't been any advertising, nor is this location really expandable to wash & fold services. I'd be keeping my full time job in addition to this.

Has anyone had experience with this sort of business? Ultimately, I'd like to have additional income that may lead to semi-retirement in 5-7 years. I'm looking for any gotchas that I haven't thought about. The ones I have thought of are primarily trying to verify income claims and how much time this will really involve (and what the heck I'll do when I go away on vacation).

Figuring that I divert all income to debt reduction, it'd take around 4 1/2 years to eliminate the debt. At that point, the income would be half of what I'd need for RE income. Which makes it appealing.

On the other hand, I'm very well aware that this might be biting off more than I'm willing to chew. Obviously since I'm posting on this forum, I don't particularly like working. Adding another ? hours per week plus the risk-associated headaches might be too much. On the other hand (how many hands is that?), assuming the financials are in fact ligitimate, this could speed up my plans for semi-ER significantly.

Any thoughts on the matter, or help on this industry specifically?

 

[BigMoneyJim]

Charlie owns and runs a coin-op laundry. I'm sure he'll have some useful info.

 

[Nords]

Charlie owns and runs a coin-op laundry. I'm sure he'll have some useful info.

Yeah, but Charlie, weren't you considering selling it? Where are you & Kronk located anyway?

 

[haha]

I'm in the early stages of considering buying an existing (40+ years) laundromat.  Unattended, coin-op only, good neighborhood in a strip mall.  It is located several miles from my house.

I am somewhat confused by the idea of a coin-op laundry in a good neighborhood. Why does a good neighborhood need coin-ops? Most desirable apartments have washer/dryer in each apartment. At worst, a separate laundry somewhere in the building.

Homeowners don't need coin-ops. I guess in older parts of town where there are lots of small apartments, such as maybe areas around universtities might be at least marginally good neighborhoods while still needing coin-ops.

Post New Orleans, I plan to give a lot more thought to neighborhood than I was aware of doing before.

Ha

 

[73ss454]

Kronk,

I owned one of these in a strip mall 20 years ago.

My advise is to stay away.
The cost of energy eats up most of the profits.
Repairs are constant, I hope your handy.
Unattended will mean damage from kids no matter how good the area is.

If you think your just showing up to empty the machines of the coins, think again.

Hope this helps,
JOE

 

[justin]

My uncle has one of these. They have a person on staff while the place is open. It isn't in a great neighborhood. Lots of maintenance, other issues, vandalism. They aren't making much money from it and it is a lot of headaches. They are trying to sell it right now.

I imagine the machines are stressed heavily since they are used a lot. And I'm sure the water, sewer, gas/electricity are pretty expensive. See if your seller will hold a note from you (ie provide seller financing). If he's BSing you about the income, you can just stop paying his loan, and defend his collection suit on fraud/misrepresentation grounds.

 

[runchman]

I have one of these myself, have owned it about a year. If you aren't 'handy', I'd completely forget the idea, because there is a never-ending stream of small problems. If you are very mechanically inclined and like that sort of work (like working on cars, etc), it can be a satisfying endeavor.

If you finance 100%, your cashflow is likely to be small if positive at all.

As to homeowners not needing l-mats, well my neighbor uses mine constantly due to issues with his septic field. Others use it because they want their laundry done quickly. Others come for the larger machines.

If you want to chat at length email me at runchman@ameritech.net, I'd be glad to talk extensively

Also visit coinwash.com, a great resource.

- John

 

[runchman]

A couple more comments: being close to your house is a plus, since you can 'pop in' regularly to check on the place. I also have a full-time job, plus young kids, so I only spend 'heavy' time in the mat occasionally.

Industry average valuation is 3 to 5 times net income. How old is the equipment; do you happen to know the brand? You can get a ballpark idea of the gross income by adding up the vend prices of all the washers (this is called a 'turn'), multiplying by 3 to get an average daily amount, then multiplying this by 1.5 (this adds 50% for dryers). This is your ballpark daily gross income. There are also ways to take the water bill, and since all the water goes into the washers, calculating how much the machines are being used.

As far as gotchas, you gotta make sure you have a long-term lease in place or you're screwed. You don't want to plunk down a bunch of cash then find out your landlord is kicking you out. And as someone mentioned, energy prices. Natural gas is projected to go up something like 70%, yikes. I'm reducing my dryer times and upping my washer prices this weekend.

I do think it is pretty low-risk, if you can fix stuff yourself. At least it isn't going to get outsourced to China anytime soon. And if you aren't in a heavy low-income rental area, chances are a mega-mat will not go in next door to you.

The bottom line question for me is, can you fix stuff. I'm constantly unplugging coin slots, replacing dryer sensors, etc. The good thing is with so many machines, it is easy to swap parts back and forth to debug problems. But if you had to call someone in for all that stuff, goodbye profit.

- John

 

[Kronk]

Thanks for the responses. Keep 'em coming.

36 washers, 25 dryers. 11 of the washers are 1-year old Maytag Neptunes. The rest are 5-10 years old.

Lease situation seems good. 6 years left on the current lease, but the business broker indicated that they would probably be willing to negotiate more years.

I'm relatively handy. Grew up on a dairy farm, picked up some assortment of skills. I generally find that once I look for a problem I'm able to discern a solution. Mechanical stuff I can generally fix; electrical is not so good.

John, would you care to hazard a guess as to what sort of average weekly time commitment I might be looking at with that sort of equipment (yeah, the older machines make me nervous)?

 

[dory36]

You've gotten several excellent replies.

From my old days as a business broker, I recall selling several of these. I was not by any means an expert in this particular type of business. But my notes from those days indicate typical pricing to be somewhere in the neighborhood of 75% of one year's gross sales to 2 times discretionary earnings.  4x discretionary earnings might be realistic if it really is fully hands-off, but as others have commented, that's not likely.

One problem with this sort of business is that most sellers will claim they took in much more than they show on the books, with lots of winks and nods. I knew of a couple of cases where an unscrupulous seller actually reported higher sales than really existed, on their tax returns, to warrant a higher selling price. Luckily, they both got caught. Knowledgeable buyers would ask for the water bills, and judge just how much business was being done using water consumption as an indicator. Sorry to say, I no longer have the notes on how to calculate this.

We also saw 80+% of the business sales with SELLER financing, not heloc etc. This put the seller's money where his mouth was -- sellers usually didn't want to finance a freshly painted disaster-in-waiting.

If the seller won't offer any financing, then you want something to give you comfort that the seller isn't hiding anything. One method is to convert the purchase price to a percentage of gross sales, and then figure out how many gallons of water that would work out to.  Then make your deal, but as part of the deal, escrow xx% (like 50% or so) of the purchase price with your attorney for the first year.

Why gross sales? Because discretionary cash flow is fairly arbitrary. Why water consumption?  Because you need an objective indicator of volume of business.

After the year is up, the seller gets the entire escrowed amount if the gross sales (as indicated by water consumption) is 90% or more of the sales in the year before the sale. If under 90%, then the purchase price is retroactively prorated to reflect the actual volume.

This puts the seller in the hot seat as regards inflated estimates of business volume.  

Purchase price should relate to risk. If the seller is willing to take more risk, he should get a higher price. Maybe 4x discretionary earnings.  If the seller is putting all the risk on you, I'd be looking at 1.75 - 2.25x discretionary earnings.

Finally, check your private messages -- I did an online appraisal program (including statistical comparisons for coin laundries) for someone else a few years ago, and the demo is still online. Not fair to him to make it public, but maybe it will help you.

 

[maddythebeagle]

As to homeowners not needing l-mats, well my neighbor uses mine constantly due to issues with his septic field. Others use it because they want their laundry done quickly. Others come for the larger machines.

In my area, some folks have holding tanks, meaning all of their wastewater needs to be hauled off (esp. for people around lakes). I know several people that do all of their wash in town at one of these.

 

[dory36]

A - Coin washers, especially if unattended, are a great place to take tarps, anchor lines, tents, carpets, etc that might damage your home machine. :

B - there is a lot of valuable info in these pages about uses for the leftover dryer sheets you will undoubtedly find in your laundromat.

But on a more serious note -- if the neighborhood is somewhat upscale, look at adding wash-dry-fold, using the washers and dryers not in use. The (relatively inexpensive) employee needed to do this work provides a valuable set of eyes in the premises.

 

[runchman]

Thanks for the responses. Keep 'em coming.

36 washers, 25 dryers. 11 of the washers are 1-year old Maytag Neptunes. The rest are 5-10 years old.

Lease situation seems good. 6 years left on the current lease, but the business broker indicated that they would probably be willing to negotiate more years.

I'm relatively handy. Grew up on a dairy farm, picked up some assortment of skills. I generally find that once I look for a problem I'm able to discern a solution. Mechanical stuff I can generally fix; electrical is not so good.

John, would you care to hazard a guess as to what sort of average weekly time commitment I might be looking at with that sort of equipment (yeah, the older machines make me nervous)?

I've got older stuff too. Don't sweat it if you are 'mechanical'. They are designed for service-ability, so they aren't too bad to work on. As for time estimates, hmmm.. sometimes I'll only go in once per week and do a collection. Maybe stay there an hour or an hour and a half. Counting money, doing accounting, maybe another couple hours per week. I don't really count that though since I can do it at home at my leisure. If you have a machine down, you might spend a few more hours debugging/working on it. So maybe 10 to 15 hours per week?

The best assessment I can give is this: I've had mine a year, I have a 40-hour per week engineering job, two young kids, and I don't find the mat personally 'taxing' at all.

I have a good cleaning lady, my doors are on a timer, so it doesn't 'own' me at all. Vacations, well there is another story. I went to Hawaii for 2 weeks, while I was gone a guy had his clothing locked in a frontloader that was having an issue. Came back to a torn-off handle. I had given my cleaning lady all the keys, prepped her on how to fix simple issues like pressing reset on the change machine, and how to refill the change machine once while I was gone.

For $30 per 6 months, you can join the 'premium' section of coinwash.com. Post any problem there, and very knowledgable techs reply very quickly. It has been invaluable for me. I wouldn't let the electrical scare you. If you can disconnect a screw in sensor from one dryer and swap it with another (and you can, trust me), you'll be fine.

As an aside a lot of people don't like those neptunes, but that's another story and no biggie.

I can help you with the water consumption analysis if it comes to that.

I'd go in on the sly and add up the $$ on all the washers, and figure out how many turns-per-day the guy is claiming to be getting (gross income). If it equals 6, beware!! Industry average is something like 3.

Is there vending? Room for vending? Soap machine I presume?

- John

 

[Nords]

As an aside a lot of people don't like those neptunes, but that's another story and no biggie.

We were replacing our washing machine last month (Maytag Performa, bad construction) and started running across Neptunes in the classifieds.

Neptunes seem to have a great concept (front loading, low water use, highly efficient) with terrible execution. The worst complaints come from users who are having terrible mold problems and control panel circuit card burnouts. The manufacturer has a "four calls before replacement" policy that hopefully doesn't apply to your machines in their industrial environment. I'm used to seeing a few negative consumer responses & customer-service complaints when I'm shopping the classifieds, but the Neptune has evoked an amazing depth & breadth of angst.

So if you really want this place, research the Neptune records a little deeper and don't pay a premium for them.

 

[Mr._johngalt]

I am somewhat confused by the idea of a coin-op laundry in a good neighborhood. Why does a good neighborhood need coin-ops? Most desirable apartments have washer/dryer in each apartment. At worst, a separate laundry somewhere in the building.

Homeowners don't need coin-ops. I guess in older parts of town where there are lots of small apartments, such as maybe areas around universtities might be at least marginally good neighborhoods while still needing coin-ops.

Post New Orleans, I plan to give a lot more thought to neighborhood than I was aware of doing before.

Ha

I always thought this might bge a good part time business, but never did it or
even seriously looked into one. However, I do agree that the "better
neighborhoods" are less likely to need one. I assumed if I bought one the
neighborhood would be lower economic scale. An aside, when I am in Texas
I use a laundromat in the small town nearby. Why? Because of the ambiance.
I am in town all the time anyway and meet lots of people there. Also, it
is squeaky clean with lots of reading material. We do not have facilities inside our condo-I don't even know where the on-site units are located. I just like to
do the laundry in town while I am running errands. Now that I think of it, this
area is probably a good place to own one. Lots of weekenders, overnight
boaters and campers.

JG

 

[tozz]

I suppose if I was in Texas I would probably go to the laudromat for entertainment, also.

An aside, when I am in Texas I use a laundromat in the small town nearby.  Why?  Because of the ambiance.

 

[Kronk]

Gotta say, this is a great board.  Lots of great information.

The business broker sent me a water consumption analysis (35k gal/month).  He's claiming 2 turns per day.  The big red flag for me, though, is that he's saying 85% of the washer turns are the Neptunes (15 gal), which means that the top loads (32 gal) are barely used (1 cycle every other day(!)).  Honestly, I have nothing to compare this to, but it does seem a bit unlikely.  If (instead) half the cycles were the top loaders, that'd be 1.5 turns/day, and would reduce gross earnings by $16/year.

These doors are also on a timer.  There is no vending machine (there is a deli next door).  There is no change machine.  I'd have to check on a soap machine (doubt it)... when I stopped by, the owner was emptying quarters, so I didn't actually go inside.

Basically, the owner hasn't put much of any effort into this business.  Which doesn't bode well for deferred maintenance.

It is in a college town, but most of the college students are closer to a different laundromat.  There is a chain wash & fold down the road, so I don't think there is much to be done with that.

I still like the potential benefits of this, but I'm starting to lean away from it.  I'm not sure that there is enough income here to warrant it.  My real life income is really good, taking this on would lower my average working hourly rate at around 10 hours per week.

 

[Nords]

He's claiming 2 turns per day.  The big red flag for me, though, is that he's saying 85% of the washer turns are the Neptunes (15 gal), which means that the top loads (32 gal) are barely used (1 cycle every other day(!)).

It's hard to trust the numbers if the machines don't have their own meters. And it's hard to believe that the Neptunes are used so much more unless the machines (not the owner!) track how much money goes into them.

But, yeah, the deferred maintenance issue is a great opener for negotiating down the price...

 

[TromboneAl]

If you buy it, you can put up a big sign:

"Please Recycle All Dryer Sheets!"

 

[tryan]

It is in a college town

Brings a tear to my eye remembering a game of "Ride in the Dryer" back in my college days.  Of course only the unattended joints were good for this.  Here's a couple tips: 1) keep the door open so you don't get too hot; 2) have your buddy hold the door button down during your ride 3) brace yourself real good against the outer wall.  And enjoy the ride!  Well worth a buck.

For extra fun ... ride the dryer after a few beers.  

 

[HFWR]

Another downside to laundromats: cleaning college student barf out of the dryers...

 

[laurence]

Another downside to laundromats: cleaning college student barf out of the dryers...

 

[dory36]

He's claiming 2 turns per day. ...

When we sold business that were mostly cash businesses, or the sales claims were suspect, sometimes the buyers would park down the street, watch the number of people who come and go for most of a day (and sometimes on multiple days), and then determine if the patron traffic matched up with the sales claims.

You can probably determine pretty easily the average loads per customer, by hanging out for a few hours inside (maybe doing your own laundry). Then do a "stakeout" and see if there are enough customers to make the numbers work out.

I will say that the people who bought laundromats said afterwards that they were more work than they expected. (But then again, so did the buyers of every business we sold -- non-business-owners were always surprised at the amount of time they had to spend dealing with all the stuff involved with business ownership. But having no employees with the one you are considering should ease that considerably.)

 

[73ss454]

IMHO owning a laundromat is like owning a boat.

The best day is the day that it's sold.

I speak from experience on both counts. If I had to choose one to take back it would be the boat. (well I think so, give me a few minutes to decide)