Brainstorm: Building a coin-op laundry route empire (F&I X-post)

[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?

[kjander]

I like it, seems like a great opportunity. The only thing i can see that could be a problem is making sure you have a contract that covers you well. It seems like the previous machine owners didn't have a right to stay there. If you are financing something over 5 years I would make sure you have a contract for 5 years. I doubt that used coin run machines have agood resale if you don't get a contract renewed or the complex gets sold.

[celiboy]

There was probably a reason the previous providers didn't replace the old machines with new ones....if it was such a profitable location they would be keeping up the place. Also, any split you have with the landlord would be based on the gross revenues and not net...the landlord will not care what your expenses are, nor would it be feasible for him to determine if what you represent as your costs is accurate. Those kinds of splits are always based on gross. You mention the guy who profit 137K on 750 machines. If you do the math, that's less than $200 per year per machine in profit, so your numbers are far too ambitous.

[Mike Jett]

You'll instantly overlook those residents who will not use those machines for their laundry.

A lot of people just take it elsewhere, to a friend or relative's house. Other people wont do 2 loads of laundry per week per person, that's pretty ambitious also.

Just slow down and try to do a little more research.

Seems like a decent prospect, imo.

[wadea]

[ QUOTE ]
Also, any split you have with the landlord would be based on the gross revenues and not net...the landlord will not care what your expenses are, nor would it be feasible for him to determine if what you represent as your costs is accurate.



You mention the guy who profit 137K on 750 machines. If you do the math, that's less than $200 per year per machine in profit, so your numbers are far too ambitous.

[/ QUOTE ]

Both good points. Thank you. It would make sense for the deal to hinge on a contract. Also, in principle, I would be happy with any profit.

Concerning Mr. $137K's business, one thing is certain and another is probably true. First, I do not fully understand the business and have a limited ability to estimate revenues and anticipate expenses. Second, my building may represent a more profitable micro-market than his average location. This is contrary to the fact that CoinMach is letting it slip away, but that may be related to the practices of that particular company.

I also just realized that it is certainly possible that <100% of residents in my building make use of the building's laundry facility, further reducing revenue.

Thanks for the feedback.

[spex x]

From personal experience, here is what I can tell you about the coin-op laundry business. First, your biggest expense by far is utilities. Gas and electric can eat up about 35% of gross or more depending on your equipment. The second biggest expense is maintanence, although on new machines, it will be negigible. For the sake of argument, let's call it 10% of gross per year.

You should buy more expensive machines. In the long run, they'll last longer, run more efficiently, and break less. Good Sqeed Queen machines cost about $1000 each plus installation. Sure, you could get the Whirlpool machines for $750 each. But they're crappy. Its not worth it in terms of time a headaches. Good Sqeed Queen machines can easily last 15 or 20 years. If you need 12 machines, I'd plan on spending about $14,000 total.

You vastly overestimated how much laundry people do. You're not going to get 2 loads per person per week. More like two loads per household per week. And I'd guess that only 70% of the households will use your service.

On the bright side, you can easily raise your price to $1.50 for washing, maybe even $1.75. Make them pay for the convenience. I doubt you'll lose many customers if you raise your price. Also, you overestimated the number of peoople that'll wash but not dry. I'd say about 93% will both wash and dry.

On the other hand, you didn't consider insurance expenses or utilities. So that is a bummer.

Alright, so lets do some financial analysis. We'll assume that the terms on your financing are $2000 down, $12000 note for 5 years at 10%. if you raise your price, your average sale is 2.98 and you'll get 2 loads per household per week, and you've got 56 households. We'll also assume that your rent will be, say, 20% of gross. I definitely wouldn't pay any more than this. This is a monthly analysis.

Gross profit = $1335
Rent = ($267)
Utilities ($467)
Maintenance = (133)
Insurance = ($70) guessing, prob less
NET PROFIT = $398 per month

Now, considering that you live in the complex, i'd guess that you'll spend maybe 2 hours per week dealing with the business. When you move out, add 2 more hours per week. So you'll be making maybe $50 per hour while you live there and $25 per hour after that. But in 5 years you'll own the machines outright, so you'll have fewer expenses at that time. Also, your net will be a bit higher b/c of tax advantages. For instance, you can write off depreciation and you can write off your commute home (travel from a first to a second job is deductible), plus all your normal expenses too.

Overall, I think that it looks like a decent way to own your first business with very little risk. There is a decent upside for someone who wants to devote the time.

Looks like a good deal, even if not as good a deal as you originally thought.

[wadea]

Thanks for the great feedback. It sounds like you know what you're talking about. Obviously, many of my estimates were uneducated guesses.

[ QUOTE ]
First, your biggest expense by far is utilities. Gas and electric can eat up about 35% of gross or more depending on your equipment.

[/ QUOTE ]
The rental manager told me that all the current dryers are electric and the ultilities are all paid by the complex. In exchange, rather than rent, they receive a share in the profit. He didn't know the percents.

[ QUOTE ]
You should buy more expensive machines. In the long run, they'll last longer, run more efficiently, and break less. Good Sqeed Queen machines cost about $1000 each plus installation. Sure, you could get the Whirlpool machines for $750 each. But they're crappy. Its not worth it in terms of time a headaches. Good Sqeed Queen machines can easily last 15 or 20 years. If you need 12 machines, I'd plan on spending about $14,000 total.

[/ QUOTE ]
This sounds like good advice. The $750 machines were the first ones I could find a price for without having to enter info to get an email quote. I don't really know the difference between good and bad machines...yet.

[ QUOTE ]
You vastly overestimated how much laundry people do. You're not going to get 2 loads per person per week. More like two loads per household per week. And I'd guess that only 70% of the households will use your service.

[/ QUOTE ]
Based on other responses, this sounds more accurate than my original estimates. Excellent.

[ QUOTE ]
On the bright side, you can easily raise your price to $1.50 for washing, maybe even $1.75. Make them pay for the convenience. I doubt you'll lose many customers if you raise your price. Also, you overestimated the number of peoople that'll wash but not dry. I'd say about 93% will both wash and dry.

[/ QUOTE ]
This is true. The nearest laundromat charges $2.00/wash. The dryers add time with each quarter, so I have no idea what that costs, but probably also >$1.50.

[ QUOTE ]
Alright, so lets do some financial analysis. We'll assume that the terms on your financing are $2000 down, $12000 note for 5 years at 10%. if you raise your price, your average sale is 2.98 and you'll get 2 loads per household per week, and you've got 56 households. We'll also assume that your rent will be, say, 20% of gross. I definitely wouldn't pay any more than this. This is a monthly analysis.

Gross profit = $1335
Rent = ($267)
Utilities ($467)
Maintenance = (133)
Insurance = ($70) guessing, prob less
NET PROFIT = $398 per month

[/ QUOTE ]
So, here's another run of the numbers. By my math, $2.98/sale x 56 households x 2 loads/week = $333.76/week. Multiplied by 52 weeks/year and divided by 12 months/year = $1446/month. I'll assume profit sharing (in leiu of rent) is 50/50. Payments on the loan you describe should be $255/month according to the calculator at fool.com.

Gross profit = 1446
Rent = (723)
Utilities = included!
Loan pymts = (255)
Maintenance = (133)
Insurance = (70)
NET PROFIT = $265/month for first 5 years ($520/mo. for some time after)

Average over 10 years = $392.50/month

You're also right that plenty of deductions will be available to sweeten the bottom line. Also, if I can get a 40/60 split, that's another $145/month in my pocket.

[TwoOuter]

A couple other thoughts from someone I know in the business, keeping in mind that he's in it for the long haul:

1. Buy quality commercial equipment rather than the sub-$1000 top-load washers and dryers. Machines from Wascomat et al run more like $3k -$5k. Obviously it's a bigger investment but the maintenance costs are lower and they'll provide many more years of service.

2. Learn how to fix the machines yourself. Depending on where you live, washer and dryer repair can be very costly.

[spex x]

[ QUOTE ]
So, here's another run of the numbers. By my math, $2.98/sale x 56 households x 2 loads/week = $333.76/week. Multiplied by 52 weeks/year and divided by 12 months/year = $1446/month. I'll assume profit sharing (in leiu of rent) is 50/50. Payments on the loan you describe should be $255/month according to the calculator at fool.com.

Gross profit = 1446
Rent = (723)
Utilities = included!
Loan pymts = (255)
Maintenance = (133)
Insurance = (70)
NET PROFIT = $265/month for first 5 years ($520/mo. for some time after)

Average over 10 years = $392.50/month

You're also right that plenty of deductions will be available to sweeten the bottom line. Also, if I can get a 40/60 split, that's another $145/month in my pocket.

[/ QUOTE ]

Yeah, I forgot to add debt service. And generally, my number were janky and wrong. Your numbers are right.

Also, if the local places in your immediate area charge $2 per wash, I'd charge probably 2.25. As for drying, typically, customers pay .25 for a set number of minutes. Usually its about .25 for 5 minutes. You can set those dryers to whatever you want - .25 for 4 minutes, whatever. IMO, it looks like you're making out better. Prob its a 15 or 20 min cycle for 1.50. Thats great. Keep the dryers the same price, but raise the washing to just over the market rate. After all, you're providing them with the convenience of not having to schlep all their dirty undies to the laundromat. They'll pay for the convenience.

[spex x]

[ QUOTE ]
A couple other thoughts from someone I know in the business, keeping in mind that he's in it for the long haul:

1. Buy quality commercial equipment rather than the sub-$1000 top-load washers and dryers. Machines from Wascomat et al run more like $3k -$5k. Obviously it's a bigger investment but the maintenance costs are lower and they'll provide many more years of service.

[/ QUOTE ]

I agree in principle, but I do think that this is overkill for the type of investment that your talking about. You'll never service that amount of debt.

[ QUOTE ]

2. Learn how to fix the machines yourself. Depending on where you live, washer and dryer repair can be very costly.

[/ QUOTE ]

Yes, some companies offer training seminars for owners. Take advantage, b/c w/ only 6 machines you can't really afford to have even one out of service for days at a time. Plus, the maintenance will kill you over time if you always gotta pay someone.