CHICAGO — While purchasing a coin- or card-operated laundry can be a great investment, when a store comes up for sale in your area, how do you know if acquiring it will be the right move for you?
That’s where due diligence comes in. It’s important to research and analyze the existing business and real estate thoroughly before making the decision to buy or not. American Coin-Op asked three experts to weigh in on store acquisition and the criteria they would use to judge a store’s merits.
Larry Larsen, of Laundromat123.com, has more than 30 years of experience in the ownership, management and construction of Laundromats. He is a licensed real estate broker active in the sale of coin laundries.
Brad Steinberg is co-president of PWS, a California-based company that says it is the largest broker of existing and new Laundromats in the United States. PWS, established in 1968, opened its 3,000 Laundromat earlier this year.
John Vassiliades is CEO of Chicago-based J. Vassiliades & Co. With more than 40 years of industry experience, Vassiliades is a licensed business and real estate broker responsible for brokering the sales of over 1,000 coin laundries.
Q: What kind of local area market and demographic research should a prospective buyer do if they’re serious about a certain property?
Larsen: A demographic survey should absolutely be obtained by a buyer. Do not rely on shortened summaries provided by brokers. The Coin Laundry Association has a program providing demographic studies. The most important issues to review are total population, percentage of renters, age of the surrounding buildings, and ethnic makeup of the population.
Steinberg: This is obviously very important, especially when building a new Laundromat. This business is about finding a location with the right balance of demographics and lack of competition.
Vassiliades: When buying an existing store, demographics are not as important as when building new, with the exception of knowing if there has been any shift in population that would affect the business. Also, knowing who your customers are. It always helps to know what percentage of families you’ve got in the area, how big they are, what ethnic groups are in the area.
Q: How closely should a prospective owner examine the exterior, interior and physical layout of the business for sale? What details should they be looking for?
Steinberg: I believe the most important factors of a Laundromat’s success are location and the lease. If you can purchase a good location with a good lease, someone can always replace the equipment and be a better operator than the previous owner. Obviously, if a store has a tired interior, bad layout or old equipment, the purchase price should be reduced accordingly, but those are not deal breakers.
Vassiliades: The buyer should be examining all of that, especially the machines themselves: washers, dryers, water heaters, especially the HVAC units. I’ve always encouraged (clients) to have experts come in and give their opinion on the condition of the equipment. If there seems to be a problem with plumbing or electrical, that should be checked, too. If the buyer is planning to put in more or larger equipment, they’ll want to know the capacity of the plumbing and the electrical.
Larsen: When you purchase a home, you normally obtain a property inspection or survey. This is a detailed written report by a professional inspector and includes ADA [Americans with Disabilities Act] compliance, and roof, mold and building code compliance. You should hire a property inspection for your Laundromat. Typical pricing for this type of service should be $300 to $500.
Q: What role might the store’s water usage/sewage output play in the decision-making process?
Vassiliades: In places like San Diego, New England, Texas or any of the coastal states where the sewage is taxed at a higher rate, you’ve got to check on that. Some states will charge a fee for each washer. … I always like to check (the water usage) because that’s the most reliable source for determining what the store is doing (in sales) and has been doing, as a second check to tax returns or P&L statements.
Larsen: Water bill analysis is not as useful as in the past. The variety of machines, water level settings, inaccurate water-use claims and the mix of equipment hinders even an experienced analyst. The results of a water bill analysis is an estimate of current and past income and certainly not a predictor of future income. Obtain as many years of the water bills to observe trends in water use.
Steinberg: When acquiring an existing Laundromat, it is always good to do a utility analysis to make sure the numbers being reported by the seller are accurate and legitimate. This can be done by correlating the amount of water each machine uses with the vend price to determine an estimated washer income for the Laundromat.
Coming Thursday: State of equipment; labor situation; financials and target numbers