Launromat/Motel Purchase - Posted by Joe Hartpence
Posted by Joe Hartpence on October 26, 2002 at 11:05:16:
I have been in the SFR arena for 5 years now and as a newbie to the commercial side I have some questions.
I have purchased a house from a couple and they are buying a motel in Missouri.
I am playing with the numbers as an exercise.
The subject property is a Laundromat with 20 washer/dryers, 9 motel rooms and 11 cabins. There are 6 acres of land with a 3/2/2 house for the owner. The ?new owners? plan on working the business hands on. Also there is additional space for more development (i.e. rooms, retail, etc)
The 9 motel rooms rent for $40/night and 7 cabins rent for $69 and 4 cabins for $129 The ?season? is 9-10 months with Dec-Feb the slow months.
The laundry is the only one in town. It is busy all year.
The asking price is $700,000(was $750,000) with $250,000 down and the owner will carry $450,000 at 7% interest only. Owner selling due to age and health.
According to the 2001 tax return the following numbers apply:
Advertising - 5525
Car and truck - 1603
Insurance - 6150
Legal - 1728
Office expense - 2436
Repairs - 2620
Supplies - 12465
Taxes - 3640
Utilities - 30400
Wages - 30452
Other expenses - 6520
Total expense 103539
Gross Receipts 163600
(they say $240,000 because of cash but we will go with the return)
NOI - 60061
Mortgage - 16,340
Interest - 7130
Depreciation - 23097
My questions are:
- At this asking price am I correct the cap rate is 8.58%? (60061/700000 = .0858)
- At this cap rate is this a good deal?
- Ray says that the ?value? should be 3-4 times the gross receipts for motels. $489,000-$652,000. What should be offered?
- The interest on $450,000 is $31,500. That would leave $28,500 for income.
- Am I missing anything?
Thanks in advance for your help. It?s so great that we have a forum where we can ask what if questions.