Valuing a Laundromat that comes with Building/Real Estate

[Slobodan Pejic]

Hello everyone,

I am currently looking at acquiring a laundromat that comes with the real estate/building included. I just wanted to get everyone’s thoughts/opinions on how you would go about valuing that business. Would you value the laundromat based on Seller Earnings separately (adjusting for a market rate lease) and then value the real estate building separately in order to come up with the price you’d be willing to pay? What is the industry standard when it comes to valuing a laundromat that comes with real estate? I am asking because I would prefer not to pay the full market price for the building itself and pay for the laundromat separately as well since i think the value of the two are so intertwined and I am primarily focused on paying for cash flow. How would you go about thin/king whether to acquire the building or to potentially just acquires the business and attempt to negotiate a lease?

Thanks!

[Alex Alleva]

If it was me I would value everything individually. First figure out what the building is worth. Is there additional rental incomes besides the laundromat etc. Then I would figure out what the laundromat Buisness is worth by itself. I would make sure to include market rent into my expense column of the business. and personally if I was buying both together I would expect a nice discount for the package deal. Far less headaches for the seller to deal with just one person.

[Slobodan Pejic]

Thanks for the response Alex, that was my initial approach as well, but I thought about it and realized if I valued it like that wouldn’t I be paying an overall much higher multiple for the cash flow I will be receiving? Like in my example the laundromat generates ~$100K in net operating income (no other rental income from the property) and the listing price overall for the laundromat and the real estate is $700k. Although I do recognize that I would receive the real estate in this deal, which is an asset, wouldn’t I essentially at the end of the day be paying a 7x multiple (pretty high multiple from my understanding) for the cash flow (which is what we are paying for at the end of the day). Like why should I pay for the fair market value of the real estate, rather than just essentially pay for the real estate by paying a multiple on the lease payments that I am saving out on by owning the property? Any helpful information on this would be appreciated! Thanks

[Alex Alleva]

I think you are under valuing the real estate portion of the deal. Obviously i dont know the specifics but you need figure out a market price for the real estate and the business separately period. What if you decide after a year the business is not for you. You can sell the business and become a landlord. Still earning a income from your new tenant. But if you pay to much for the deal initially it will be very hard to cashflow on the building.

[Sewastian Agzedo]

The score largely depends on your goal. Do you want to purchase a business for further development or a building? If you are more interested in laundry, then it is necessary to conduct a detailed analysis of the financial and economic condition of the company. If you need real estate, invite a building appraisal expert. When applying for a real estate loan, I turned to Mortgage Broker Cambridge. I don’t understand bureaucracy, so I try delegating authority to avoid fatal mistakes. I hope you manage to make a good deal. Good luck!

[Masyn Barney]

This is a great question. I personally would much prefer to buy both the business and the real estate. I may be the odd one out though since I’m a RE investor and agent. I would value them separately and look at both as income generating.

For the real estate, what is fair market rent? Would you cashflow after paying your mortgage? There are 3 main ways of valuing real estate.
1. sales comparison approach – Building a sold for $x , building b sold for $y, so the value of building c is $z
2. cost approach – What would it cost to rebuild this building today
3. income approach – This is the method I would use. Take the net operating income and divide it by a cap rate. Essentially a rate of return. With this method I’d focus on what it would cost you to own (mortgage rather than lease) and what would you bring in. if it is cashflow positive (after reserves for repairs) then I’d say its a good deal. Figure out how much cashflow it would need to make for it to be worth owning and being a landlord if you didn’t own the laundromat. Think about it like owning your home rather than renting. Wouldn’t you rather your monthly $ go toward your own equity rather than just be lost to your landlord? Don’t bank on appreciation of the real estate but you also can’t ignore it.

For the laundromat, does it cashflow enough after paying fair market rent? If yes, then boom, you are profitable on both the mat and the real estate independently.

[Marleen Pringle]

https://youtu.be/o4R7Lo_1E0w
Jordan has a great video on the advantage of owning the real estate

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