Commercial Property W/Laundromat Inside & Addtl. Tenants

[Mitch Brunette]

Hi Everyone,

I’m new to the laundromat world, I’ve done research on a few laundromats over the years. Since then I have bought two single family rental properties and am back on the laundromat train for higher return on cash and business ownership. I found a property for sale, its a unique deal. The seller owns the laundromat and the building as one business rather than separating the two. Either way, seller owns both the laundromat and building. The building has 3 tenants aside from the laundromat. They have a 3 bedroom apartment, 1 bedroom apartment, and a pilates studio. Because they lumped the laundromat business revenue in with the overall building P&L it makes for a messy analysis and I’m looking to see if anyone has any experience trying to separate the two. Here are some additional thoughts:

1. The laundry doesn’t pay rent to the building. If the laundry did pay rent, it would increase the cash flow and NOI of the building of course, but the laundry would hardly stand on its own.

2. The building does have separatey metered utilites.

3. The laundry and building have very low maintenance expenses, as in, I’m worried they are covering something up, low. The owners owned 2 other launderies and am worried they sheltered maintenance costs in another location potentially.

4. Aside from what i said in item 3, the broker seems legit and very open to my questions. I’m concerned however that the list price of $675k at a 10 CAP is too high because if you have the laundry pay rent, the building isn’t worth that price. If you have the laundry pay rent, and then sell the laundry for what it is actually worth after paying rent, then the laundry itself is fairly close to worthless.

As I write this I know the deal might be a bad deal, but I’m curious if anyone else out there has any ideas of how else to look at this?

Thanks!

[Mitch Brunette]

Hello,

In case anyone ever needs this for help, here’s where I’ve ended up thus far and am still forging ahead. If you’ve never read a detailed P&L it can be a bit daunting, but at the end of the day a laundry and real estate P&L can be fairly simple. Here’s what I’ve done thus far:

1. Saved two copies of the existing P&L. One for the Real Estate and one for the Laundry
2. I started making assumptions about where expenses and income belonged. If it belonged to the laundry I removed it from the real estate and vice versa.
3. I found some expenses that I had no idea or thought might be more laundry than real estate and just chose a percentage and assigned some of the expense to both but totaling the original amount.
4. Figured out the debt service costs over 20 years amortized at 4% interest.
5. I had the laundry pay $1400 in rent which is comparable to what the pilates studio is paying, similar square footage, different use, seemed like a reasonable starting point.
6. Came up with a final cash flow number for both the real estate and the laundry.

The Result:
They both potentially stand on their own, and the total Cash on Cash Return after all expenses and debt service divided by down payment and some small up front expenses will range between 19%-22%. We think there may be wiggle room in the price and could grow that cash on cash return.

Next: Figure out if that is a good COC or not, age of equipment, if its over 10 years how soon we’ll have to figure in replacement and that might zap the cash flow pretty quickly in planning to reinvest.

[Jordan Berry]

Mitch! Sounds like you’ve been doing work! This is awesome!

I think you’re right that you have to separate the two out, as messy as that is. Too many times sellers and brokers try to cover up the true value of the business by selling them as a packaged deal like this.

You definitely need to include the cost of rent for the business as an expense and determine the value of the laundromat with that. But it sounds like you’re on the right track! Keep us posted on how it goes! And feel free to schedule a coaching call if you want to talk through it a little more!

https://www.laundromatresource.com/coaching

[Eli Carey]

Mitch, what did you end up doing? Did you walk, pull the trigger?

Eli

[Mitch Brunette]

We ended up walking, it was right for someone because it sold shortly after but we just didn’t feel like we knew enough yet to make a good decision on it.

[Dan Wood]

I have a similar opportunity to Mitch’s. But this is a completely stand-alone building with laundry and handful of storage units as the only tenant. Here is an attempt to break apart the business and building.

List price of the building with businesses is ~10 cap. 35k net. 350k asking.

Gross = 45k
Expenses = 10k
Rent is unknown since the building is owned (assumed 25% of gross) = 11k
NOI = 24k
@ 3x valuation = 72k business valuation.

This means the asking price for the building is 275k (350k asking – 75k business valuation).
If rent is 11k a year on 275k building with ~5k in property taxes, that is a 2 cap BEFORE any other expenses.

This asking price seems way too high. Am I missing something?

[James Berry]

Hi Dan,

I am late to this thread but I’m interested to hear what happened with your situation. Did you end up walking away like Mitch did or did you end up buying the property?

[Max Parker]

interesting information

[Author]

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