Brainstorm: Building a coin-op laundry route empire

[wadea]

I’m posting this little brainstorm to get feedback. I’m sure I haven’t yet thought of everything and maybe my estimates suck. Rip it up and save me some money and trouble. So far, this is semi-hypothetical.

My apartment complex just evicted the current provider of coin-op laundry machines, CoinMach, because the machines are old and bad and CoinMach refused to replace them. It sounds like they have not yet found a new provider. This got me to thinking about what kind of a business this would be to start.

Here's my thought process in bullets:

-Machines cost ~$750/ea. I assume this doesn't include tax or delivery, so let's call it $900/ea.

-Our old machines were $1.25/wash and $1.50/dry, but the dryers sucked and clothes were always wet after one cycle.

-The agreement with the building's management company a profit-sharing deal. No rent or utilities (dryers are electric), but a cut of the profit goes to the landlord. No word on the percent.

-Our building has 6 washers and 6 dryers for about 80 units with plenty of families. On average about 2 people/unit. So 160 residents. Assume two loads/person/week = 320 loads per week. Assume 70% of loads are dried. (320*$1.25)+(320*0.7*1.5)=$736/week. Average of $3189/month.

-12units*$900=$10800. A usable lifetime for a top-load washer is 5-8 years and a dryer is 15-20 years. I'll finance all over 5 years and consider financials for those five years, considering equity, etc. as a freeroll. $10800 at 10% over 60 months = $229/month.

-I'm totally guessing on the cost of repair and parts. In time, I assume I'll learn to do it if the cost becomes prohibitive, otherwise I'll continue to just hire someone. I'll guess $300/month for 12 machines on average. Maybe one could arrange a service contract or something.

-On a monthly basis, then:

Income: $3189

Expenses: $529
Loan repayment: $229
Repair & parts: $300

Profit: $2660

If I share 50/50 with the landlord (in lieu of rent), we each get $1330. Based on combined square footage of the laundry areas compared to our apartment's rent, I'd say that's about what the rent for that space would be anyway. Profit-sharing at 50/50 is probably about right. Maybe I'd try to get to 40/60.

Because this will start out as a spare time gig, I'll probably just hire an accountant, so knock off about $200/month. Since I'm hiring the repairs and accounting, I'm pulling down over $1000/month for collecting money, depositing money and calling the repair guy.

Over time, I would plan to expand into other apartment buildings. My strategy would basically be to grind it out. I would contact companies building new apartment buildings and call existing rental managers. I figure existing buildings already have laundry in place, but if I'm in their ear about once every three or four months, they'll think of me if/when they finally tire of their current provider. Obviously I would offer to undercut the current guy where possible. Over time, I should be able to get my foot into more and more locations.

As a note, I saw a posting of a similar business for sale in the LA area. Dude had 750 machines, two repair guys and a part-time secretary on staff. He claimed $560K revenue and $137K net profit. He claims he puts in 20 hours a week. I’d like to be that guy, but starting from scratch.

So, where are the holes 2+2? Can it be as straight-forward as it seems? Will I need insurance? What other expenses have I omitted? Is the financing realistic? Because people want non-old machines, is there a market for the used ones? At very least, one should be able to convert them to non-coin-op machines and sell as used, right?

[IdealFugacity]

I am sure you'll get some input here, but this post would probably get more valuable responses from Money Making & Business forum.

[Statutory]

If its so simple why does the landlord not just take care of it? Possibly too much hassle. But if hes motivation for not doing it himself is to avoid hastle, then why would he go with an startup instead of an established company?

Not saying you don't have a chance, but I'm sure that will be a huge concern when u pitch it to the landlord.

[squiffy]

People can obviously make money in the coin op laundry business.

But it sounds to me like you are way underestimating your start up and repair costs.

This website gives some rough suggestions for a much larger operation than it sounds like you are considering, and states that you can expect to break even in three years.

Can you afford to be in the red for three years?

http://www.mac-gray.com/la5_costs.html

What about your water and electricity costs?

[wadea]

[ QUOTE ]
People can obviously make money in the coin op laundry business.

But it sounds to me like you are way underestimating your start up and repair costs.

This website gives some rough suggestions for a much larger operation than it sounds like you are considering, and states that you can expect to break even in three years.

Can you afford to be in the red for three years?

http://www.mac-gray.com/la5_costs.html

What about your water and electricity costs?

[/ QUOTE ]

Yes, this article describes a MUCH larger undertaking. I am talking about an initial investment really of only 12 machines. Importantly, there is no lease required. The water and electricity are paid by the host apartment complex in exchange for their cut of the profit. I may be underestimating repair expenses, but probably not hugely. The machines will initially be new and presumably less prone to needing repairs.

I would suspect my estimates are most off in the areas of the number of cycles per week and having no idea what the current profit-sharing breakdown is between machine owner and apartment complex owner.

More conservatively, maybe of ~160 residents, 80% of them use he building's machines (128). I'll lower the loads per week to 1.5 and the percent dried to 67%. I think that gives $432/week and $1872/month. Change to account for sharing at the earnings level, rather than profits. I saw on a vending machine thread that the industry standard seems to be 60/40 in the machine-owners favor.

Income: 1872

Expenses: 1478
Landlord share (40%): 749
Loan repayment: 229
Maintenance: 300
Accountant: 200

Profit: 394

So it appears I'm looking at about 5K/year from my 10K investment in the machines + a little elbow grease. This is a return of about $400/machine/year or about twice what the buy making $137K on 750 machines is making per machine. Not sure exactly how to interpret that. His costs may be higher thanks to a permanent staff, but he may have some efficiencies of scale working for him. Maybe my estimates are off. Hard to say for sure without seeing his books.

[squiffy]

Why would the apt. owner give you free utilities on 12 machines operating water and electric for as many people as you say, for as long as you say.

Until you know the percentage profit sharing the landlord will charge, you don't have full information.

Sounds like easy money. I guess CoinMach is a pretty lousy operation. If they were rational, according to your calculations, they should have bought and installed 12 new machines. Why pass up easy money?

At this rate, CoinMach will be out of business in no time, if they keep passing up profitable opportunities.

And you can steal all their contracts, by poaching on existing business arrangements.

If your calculations are correct, it's a walk in the park.

[squiffy]

Their website looks flashy. And they brag about how many machines they operate. But that doesn't necessarily mean much.

What's interesting is that if they are such a successful operation, they should be able to recognize a good profit making opportunity when they see one.

Yet they let this contract slip through their fingers. So if it's a profitable contract, but they mishandled it, then there may be other opportunities for you after this one.

http://www.coinmachservicecorp.com/

Keep us posted on your progress if you decide to go ahead, or if you get any more data.

You might want to see if you can chat up a current or ex employee of coinmach to see if they can give you any insight on the profitability of various apartment buildings.

[BradleyT]

Wow -

Traditional multi-user laundry facilities present a number of inconveniences to residents. Machines are busy, you never know when one is available or when your clothes will be finished, too many trips back and forth, etc.

In order to make the laundry experience a convenient and pleasurable one, Coinmach has co-developed the revolutionary LaundriMate™ system. LaundriMate provides residents, in their homes, with up-to-the-minute information on machine availability and notifies them when their laundry is complete.

For instance, a resident can call the laundry room to determine if there are any washers available. If not, the system will call the resident back when the next washer becomes available. The system will also call back when the wash is complete. The same features apply for dryer usage.

LaundriMate is yet another example of Coinmach's unwavering commitment to remain on the very cutting edge of technological developments.

[j00hndayton]

Sounds like a really good idea to me. I would definatly try to figure out what the utilites would cost the landlord and how much profit he would make. If it happens to be a resonable amount then pitch the 60/40. I'm sure if you flashed a decent monthly number (thats hopefully atelast the same as coinmach) then he'll take it.

[wadea]

When I spoke to the rental manager (who works for the apartment's management co.), he definitely said that utilities were covered by them. He didn't know the profit-sharing details, but really made it sound like the management company viewed reliable laundry facilities as a service to their residents and didn't give me the impression that there was much interest in turning a profit ffrom it.

On a barely related note, it appears that starting Monday the building will be without laundry machines for a while. I spoke with some residents about this and they were unhappy about this to the extent that they were discussing negotiating a lower rent until they are replaced. We do pay above-average rent relative to the area to live in this building because of the excellent management and facilities. These residents view the laundry facility as a "feature" of the building on par with the pool, covered parking and gym.