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The Laundry Lease: 4 Big Issues For Buyers And Sellers

Lease Factors Buying Selling LaundromatsThe Laundry Lease is undoubtedly of the highest element of value of the laundry investment. It is critical to get and to keep your lease in line with the operating model that is intended for your laundry.

Whatever you may be considering regarding a laundry investment, the terms, restrictions and other conditions of the lease must be acceptable or the investment itself, may be at a higher than acceptable level of risk. This is true even if the business cash flow and market seem to warrant the investment.


This is also the primary consideration when making a decision regarding purchasing, selling or even reequipping a laundry.

Keep in mind that the original investment is very vulnerable in a laundry acquisition. If you purchase a laundry with an acceptable cash flow and you are planning on continually receiving a certain level of return, you should also be concerned with the continuous value of your asset. Many laundry investors fail here and invest 100s of thousands to find out that after operating successfully for several years they will end up loosing a significant part of their original investment when it comes time for selling it. The lease (not replaceable), even more than the (replaceable) equipment dictates value.

If the lease doesn't fit the intent of the investment, the investment is not secure.

Let's look at some anticipated questions that you might want answers to when looking at the lease,

1. What is an acceptable time for the lease?

Laundry developers and owners like control over the premises for as long as possible. 20 to 30 years are common. However, this is usually with a 10-year lease and 2 or 3 options for the remainder of the term. A time line of your intended investment should be looked at and compared to what you are agreeing to. If you hold the investment for 6 years, what will you have to sell at the end of that period? If too low, it may not be marketable without addressing the lease. If left too long before updating, the value could be affected and the landlord will be called on to correct the deficiency or the value will likely be less. This is the #1 cause of transaction failure and is also often avoidable.

A few notes about options,

a) Options should not be stated as personal to the original lessee. This is saying that the original lessee has the right to pick up the options but if your business is sold the buyer will not have that same right.

b) Options may be either roll over of original terms or may be different at the option points. It is very important to carefully review the full terms of the options and be sure you understand them and are acceptable.

c) Options may also be set to adjust to Market Rates. This presents an unknown factor. If your lease is up for renewal closer to 10 years away you are banking that the market rate will remain comparable to what it is today. Because of this certain safeguards should be negotiated to offset potential significant loss of your initial investment.

I might add that I expect to see ore leases set this way in the future. This is saying that the rates you would pay would be equal to the going market rate at the time. This statement should be clarified. Property leases at differing rates for various uses. So you would want to be compared either to other laundries in the area or very similar businesses. As an example, a Starbucks may pay 3 times per foot what a laundry does.
 
d) Options typically have a window of time where you can exercise them. Make sure you know these dates. If missed, you could loose. However, I do not usually recommend that you wait to renegotiate a lease to when you must.

2. How much should I pay for a lease?

The bond between property and a laundry is significant. The laundry when developed is intended to stay a part of the center indefinitely; possibly up to the point of demolition of the center.

a) In general the lease including NNN/CAM costs should be between 20 and 25 percent of the model level. However, there are many influences that need to be considered. Such as volume, payroll, utility costs and the current operating level may not be where it should. In these cases the lease may be higher or lower than these levels. Therefor it is critical that the laundry investor develops a solid model for the laundry and immediately puts it into effect. A realistic look at the market, competition and desired method of operation should point to the level that is acceptable.

b) Lease increases are usually annual and either adjusted by a predetermined annual percentage or, by the CPI. The rate does tend to change, based on the conditions of the time but seem to be running at 3 or 4 percent currently. While the CPI adjustments have been low it is likely to increase at some point. Some times there is a floor and a ceiling on these (2 6 as a for instance)
The important thing when considering is how the increases fit into your model. Your income needs to adjust with rising costs. This is another area neglected by many laundry operators.

3. Is the current lease negotiable?

In order for any negotiation to be successful there must be a mutual desire of a common goal. You must keep in mind that anything you gain will have a cost to the landlord. In situations where there is time on the lease what is the landlords’ incentive to extend it or offer lower or better terms? If the business is making money and paying rent why should the landlord give up what is rightfully his? Or, if the operator is operating poorly; not keeping clean, running out of quarters and equipment problems exist why should the landlord be penalized?

The landlord needs to be convinced.

To negotiate with the landlord successfully you must have a good model and operating plan, complete with realistic projections. Demonstrate to the landlord the logic of the plan, size of your investment and advantages the laundry will bring to the property. Property has turned a lot since many of the existing leases were created. The landlord may not understand our business. Again, the laundry is meant to be there for the duration. If I were your landlord I would expect you to approach the table ready to reinvest and then weigh your request against the needs of the property and its investment.

4. Should I use an attorney to review the lease?

If you are reading a lease and have questions that you can not understand yourself and sufficiently answer; or if have doubts of what you have been told, I strongly recommend that you find an attorney that specializes in retail leases and have him explain things to you. Some areas that might be threats to the security of your investment should be discussed or negotiated with the landlord. Established leases are not easily changed. There are likely to be parts of the lease that you just don't like but yet acceptable to move forward with. Or, maybe you will find the one out there that I have been searching unsuccessfully for that is all good. Writing new leases, if acceptable to the landlord will likely come at a high cost and may not be improved at all. Unless it is unacceptable and the landlord is willing, I would recommend trying to work with the existing lease in most cases.

Chuck Post About The Author: Chuck Post specializes in selling coin laundries and consulting with laundry buyers and sellers. Let my associates and I help guide you on the path to success: Laundry Specialists * Expert Witness Services * Coin Laundry Valuations * Monthly Workshops On Buying & Selling Laundries. With 25 years of experience buying, selling, valuing, retooling, analyzing and giving expert court testimony about coin laundries, Chuck Post is one of the nation's leading experts in the field. Those interested in buying, selling, or starting a laundry business should contact Chuck at 619-227-5711.

Categories: BizBen Blog Contributor, Deal And Escrow Issues, How To Buy A Business, How To Sell A Business



  Helpful Resources To Assist In Selling And Buying California Businesses

Steve Erlinger: Laundry Broker, Consultant - Orange/Riverside Counties

I specialize in the laundry industry (Broker/Consultant at 949-500-5893) - Riverside, Orange Counties. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat.

Chuck Post: Laundry Broker, Consultant - Orange, San Diego Counties

Our services, in addition to brokerage include design, equipment selection, remodel work, marketing plans and on going support. My Associates and I are available to anyone interested in discussing the coin laundry business; new investors and current owners, too. Phone Chuck Post at 619-227-5711.

Larry Larsen, Broker, Laundry Specialist - Orange, LA Counties

Larry Larsen, Realtor has over thirty years of experience in the sales, ownership, management, and construction of coin laundries. He is a licensed broker active in the sale of coin laundries, a licensed insurance agent specializing in coin laundry insurance. Phone Larry at 714-630-9274.

Mike Hurrell, Broker: Coin & Card Laundry Specialist Brokerage

Providencia Properties Inc in association with Golden State Laundry Systems is a full service Coin Laundry Real Estate Broker. At GSLS you will receive personalized attention from our professional staff of coin laundry experts. To sell or buy a Southern CA laundromat call Mike at 310-223-2240 X209.

Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance

For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

Laundry Broker Explains Laundry Leases: 4 Big Issues For Buyers And Sellers

Chuck Post (Southern California laundry broker and consultant) discusses what laundry buyers and sellers should consider when reviewing and considering a laundromat lease. A must read for potential laundry buyers and owner/sellers of card and coin operated laundromats. Reach Chuck at 619-227-5711.

LA County Laundry Seminar - How To Buy A Card Or Coin Laundromat: 1/26, 3/23

Looking to buy a LA County card or coin laundromat? PWS Laundry is presenting their next Los Angeles, Southern CA seminar Thursdays on 1/26 or 3/23. For details click on the link above: Southern California Laundry Seminar - How To Buy A Laundromat. For details and to RSVP call 323-721-8832.

Selling A Laundromat? Top Tips: Valuation, Pricing, Finding Buyers, Resouces

Laundrys are popular choices among business buyers as they often can be successfully run as an absentee run business. You need to be strategic about when you sell your Laundromat so you don't get taken to the cleaners! Peter Siegel, MBA (at BizBen) provides laundry purchase financing - 866-270-6278.

Due Diligence Checklist: 10 Key Items To Investigate When Buying Businesses

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Thinking About Selling A Small Business? Know These 8 Factors That Matter

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Purchase A Business With Limited Or No Cash - Financing Tips For Buyers

Purchasing a business with no money down can be difficult, but not impossible. Financing a business purchase or down payment can often be accomplished with these strategies from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) at 866-270-6278.

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What are the actual "provable" adjusted net earnings (cash flow) of a small to mid-sized business being purchased? Buyers need to look carefully at all financial info for the "real" adjusted net income or cash flow. Peter Siegel, MBA (business purchase financing expert) at 866-270-6278 explains.

See All News, Tips And Events


Steve Erlinger Coin Laundry Broker
Chuck Post Laundry Specialist Southern California
Larry Larsen Laundromat Broker
Business Purchase Financing SBA Loans


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