Why You Should or Shouldn’t Put Coin-Op Laundry Machines in Your Rental Property
Author: Joshua Dorkin • URL: http://www.biggerpockets.com/November 9th, 2006 •
Last year, someone raised a question on our landlord forums in an attempt to figure out is it worth it to invest in coin operated laundry machines for rental properties. Let me start by saying that I’ve never purchased one because I remember back to my college days when the machines were always breaking down — and my roommates would use slugs and pantyhose to get around paying. That is not to say that these machines are a bad investment, but I just never got over it. The price of being stubborn . . .
Avoid Putting Coin Operated Laundry Machines In Single Family Rental Properties
For single family units, I’d probably stay away from going with these machines. There is nothing that says cheap landlord more then a SFR with a coin-op laundry machine. Do I think you should avoid putting any kind of laundry machine in a single family? No - I just think a coin-op would be in bad taste (no one ever said I was lacking in my opinions!). I would allow my tenants to buy their own and have them installed, and if you’re looking for another option, you could always offer laundry on site and increase the rent to cover the cost.
They can be a Good Investment in Multi-Families
What about multi-family properties? It can definitely make sense financially to put coin-op machines in larger properties. The more time those machines are spent chugging away, the better you’re going to make off. The only question is whether you want to deal with the headache of the thing. With that in mind, consider that you can actually lease machines, and this looks to be the best of both worlds (see comments from rye below for more info).
In addition, you can make extra revenue from change machines and soap vending machines. They all help the bottom line!
Now that you’ve got my thoughts on the matter, I wanted to share a few ideas from some of our members:
SamGreen:
I’ve read around that it is not worth it to invest in a machine unless you’re looking at a 4plus building. The only positives seem to be value-added bonus points to your tenants - saving them a trip to the laundromat. It doesn’t seem like an investment with a great return unless you’ve got enough units.
Thelandlady:
The washer broke down in my duplex, and I opted for a coin-op replacement, even though it cost twice as much ($600) as a non coin-op. Even with the added up-front cost, this one will have the opportunity to pay for itself, where the non coin-op wouldn’t.
rye:
If you want to lease the equipment ( like MacGray, CoinMach), they like the agreement with 50/50 split of revenue. Owner is responsible for space and utility (big expense). If utility expense is over 25% of total revenue then you have a problem. They are responsible for maintenance and collections. For obvious reasons they like long contracts up veto 5yrs.You can certainly negotiate the agreement to increase the % of revenue in your favor. Also, make sure that washer/dryer have a counter. Otherwise there is no easy way to determine the exact revenue.
If you’re interested in adding some change to your monthly gross, check out the vending yellow pages for some good coin-op laundry resources.
What are your thoughts?
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Joshua Dorkin
Charles Feldman
Ted Karsch.
Troy Schuricht
Anwell Tsai
Richard Warren
Jim Watkins
I hope this information is useful:
The three largest laundry service companies (LSC’s) are CoinMach, Mac-Gray Corp, and Jetz Service Co. None of the three have a presence in all 50 states. Each market will most likely have several smaller, local competitors as well.
Coinmach and Mac-Gray Corp. are publicly traded companies. Coinmach’s symbol is “DRA”; it also has a security called an “IDS” unit, trading under the symbol “DRY,” which consists of one share of stock and one bond of some type. Mac-Gray Corp. trades under the symbol “TUC.”
You can research Coinmach and Mac-Gray Corp. by going to the SEC’s website at http://www.sec.gov. Read each company’s 10-K report (annual report) to learn about the industry. The more you know about their business, the better your chances of negotiating a favorable deal for yourself.
The lease is structured such that the owner/property manager is lessor and the LSC is lessee; i.e., you as owner or property manager of the building will be leasing space to the LSC to place their washers and dryers.
As the commentator, rye, mentioned above, you can negotiate your cut of the monthly take of the machines. I would add that Coinmach and Jetz (and probably everyone else) will also pay a signing bonus or decorating allowance to induce you to enter into an agreement with them. Don’t forget to negotiate here as well.
Everyone seems to focus on the money; however, the terms of the lease are, IMHO, even more important. There are two clauses that you must insist are removed from the lease: 1) The rollover clause states that if you don’t give notice within a certain time frame, the lease will automatically renew for a successive term. For example, one of the leases I looked at provided something to the effect that if I didn’t terminate the lease within the first month, of the last year of the lease, it would automatically renew for a new term. At the time, we were talking about a ten year lease. So what this clause was saying was that if I didn’t give notice in January of 2016, it would automatically renew for another ten years. No thank you. I got it changed to 30 days notice on my part. 2) The right of first refusal clause. This provides that even if you cut deal with another company, your current LSC can match the offer and retain your business. You don’t want this one because it reduces the incentive for competitors to make a strong offer for your business when your lease is set to expire. Basically, you don’t want to be tied to the LSC after you sign your lease; you want to be an unobstructed free agent at the end of your lease term so you can once again negotiate the best terms for yourself, including an additional signing bonus/decorating allowance. As I mentioned earlier, this is an extremely competitive industry (I discovered this by reading Coinmach’s annual report, BTW), and you should be able to get the terms that you want, within reason.
Go through all the clauses of the lease and counteroffer on all the ones you find objectionable. For example, in both leases I looked at, the LSC wanted me to pay their attorney’s fees if we ended up in court. I countered with either the loser in any legal action pays the winner’s attorney’s fees, or no attorney’s fees. We ultimately ended up with the loser paying the winner’s attorney’s fees. Another clause provided that the venue for any legal action would be somewhere in Kansas. Since I live in Omaha, NE, I asked for, and got, the venue changed to Omaha.
IMO, you need to be very careful in thinking through the pros & cons of establishing a laundry room in your rental property. There are issues of security & liability to consider. If something were to happen to a tenant (robbed, assaulted) while doing their laundry, you may well be sued and held liable if you have not taken reasonable security procedures: are your entry door locks & entrance buzzers in working order; are there security gates on windows; have tenants complained in the past about building security issues, etc.?
The hassle may be worth it for larger facilities where there is a potential for a large revenue stream, but if the net income to you is small, you may well ask yourself if the upside gain is worth the downside risk…
I found you also may use some product to turn ordinary washer or dryer into coin-op wahser or dryer, like a company:weavefuture, any one knew
there are more products like this
Hypothetical situation:
1. You have a superintendent of a 50 apt residential building.
2. He has to deal with an offending coin-collector on a regular basis who pick-up coins from the coin-operated laundry room in that building.
3. The superintendent has an influential friend working for the building’s management company.
4. The coin-collector foolishly disclosed to the superintendent that he’s only been working for a few weeks on his collection routes on a 90-day trial basis (which means the coin-collector is not yet in the union).
Question:
Is it advisable, in order to get the collector to behave, for the
superintendent to approach the coin-collector (taking advantage
of the information that the coin-collector foolishly disclosed to him)
with a subtle threat to have him terminated explaining to him that the superintendent could have someone call his employers threatening to either pull the leasing account (for the coin-operated laundry machines)away from them or threatening not to have the lease renewed for a new term unless the collector’s employers terminate him immediately?
If no, why not? In detail, what could be the legal ramifications should the coin-collector be terminated as a direct result of the threat presented to his employers?
Could it be proven that the termination was the direct result of the superintendent’s wrongful and malicious interference of an employment relationship between the coin-collector and his employers? If so, how?
I’m going coin-op laundry in my triplex after 15 years free. Cheap — a dollar a wash, 50 cents to dry. I’m fine with my tenants getting free laundry, but they always have friends who come over for weekday beers and laundry. Encroaching friends and my too-nice tenants will always exist. So coin-op is the best solution.
Actually there are several other considerations to take into account -
A coin op washer counts as a “commercial washer” (even if you only have one!) and as such will need additional waste-water impact fees in most urban and suburban areas- these run about $1500 *per machine* here (Houston) and I’ve heard some cities that are much, much higher (the LCS’s wont tell you about these fees since if you get caught, the fines are your responsibility-not theirs).
Some municipalities consider the debris from the lint traps of commercial laundry machines to be a ‘hazardous waste’ which will require a permit to handle, store and additional fees to dispose of. (once again, the LCS’s figure what you dont know wont hurt *them*)
While 99% of the time you will probably get away with not having the proper fees paid (so long as you dont have any new construction or repairs that bring out a building inspector for any reason) the fines can get pretty hefty and you *dont* want to be the 1% that gets caught (I’ve heard some of the mid to large size complexes receiving six-figure fines PLUS having to pay all the fees owed)
And lastly, in some jurisdictions if you have any commercial washers or dryers the space they are in is automatically counted as a ‘laundrymat’ (or ‘washateria’ for those of you in the southwest) and will require specific use permits and may conflict with zoning.
My advise is to contact the local utility district, zoning boards and building permit offices and check on the specific codes relevant to your area before making this decision- dont just listen to the LCS sales pitch.
Wow! Great information, Kevin!
I agree with Tony above. After having free laundry facilities in a 8-plex we own we have finally decided to go with coin operated washers and dryers. This is not a matter of making a couple of hundred of dollars extra a month. Cost of electricity, water, and cleaning fees for the laundry room which tenants continue to trash have left us with no choice. We also have had the “friends of tenants” problem. Sad to say that a few tenants will ruin it for everyone. Our only other option would be to close the laundry facility.