Launromat/Motel Purchase - Posted by Joe Hartpence

Posted by Matthew on October 26, 2002 at 12:54:09:

You are correct,but he is going to do it hands on. This reduces his outlay for maintenance,his wife will work the desk, thereby creating additional income. the other key is that its owner finance, they might have had possibly some issues getting a loan. Commercial deals on mom-pop operations don’t always make “the numbers” were supposed to see,and there is alot of “cash” room rentals,I had a friend who ran his parents place. its personal more than professional.this guy is now somewhat retired and problably wanted to do some fishing and spend quality time with the wife.
Just another perspective

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:

  1. At this asking price am I correct the cap rate is 8.58%? (60061/700000 = .0858)
  2. At this cap rate is this a good deal?
  3. Ray says that the ?value? should be 3-4 times the gross receipts for motels. $489,000-$652,000. What should be offered?
  4. The interest on $450,000 is $31,500. That would leave $28,500 for income.
  5. 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.

Joe Hartpence

Re: Launromat/Motel Purchase - Posted by Karan

Posted by Karan on July 18, 2003 at 07:18:37:

Would be interested in seeing how things worked out. I’m a CPA but more into Real Estate - started looking at motels now to gain an understanding. When you plan to work yourself, you must allocate a reasonable salary for your efforts otherwise you tend to overstate the return on the investment ie. it is your effort and not the investment that is earning the income. Also good to have a good buffer of margin for unexpected or unanticipated expenses - there are always some.