Moses Kagan on Real Estate

Beware of laundry leases!

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When you first buy a building, you’re likely to be approached by someone, often the management company you hire, about signing a laundry lease. It will be pitched to you as a convenience for your tenants and an opportunity for you to make some extra cash. Be careful!

What’s a laundry lease? It’s an agreement whereby a laundry company agrees to place, operate, and maintain coin laundry machines in your building. In exchange for allowing them to do this, they offer to give you some share of the revenue. Sometimes they even kick in a few grand as a bonus. Sounds good right?

Here are the problems:

  1. The contracts are usually very long and very, very hard to cancel. You need to send them a cancelation notice written in lamb’s blood on third full moon after Easter seven years from now. If you forget, the contract renews for another 10 years. Etc., etc.
  2. There are usually monthly minimums below which you get nothing. The contract might say something like, we (the laundry company) get the first $100 of revenue and the rest is split 50-50 with you. If this number is set too high, you may never see a penny from the machines.
  3. Auditing the revenue is almost impossible. You’ll get a a statement every month or quarter showing how much the machines brought in and how much you’re entitled to, along with a check (hopefully). But you’ll get very, very suspicious that you’re not getting your fair share. And there’s no way to audit the numbers, because it’s all cash coming in to them.
  4. You usually can’t put any other laundry machines in the building. If you later want to raise your rents by adding washer / dryers to the units, too bad. The lease usually stipulates that you can’t put any competing machines (coin operated or free) in the property.

I’ve got two good ones about laundry leases:

  1. On our first building, the contract was short, so we were able to buy it out for around $3k and replace the company’s machines with our own. Cool, right? Well, it turned out that the company had been shorting us by roughly $150 / month, a fact which we discovered once our new machines were installed and we started collecting the money ourselves. Turned out to be a very good deal.
  2. In order to get another laundry company out of one of our buildings so that we could put washer / dryers into the units, we had to pay (I’m not making this up) $16,000 in order to get them to cancel the agreement. Do you know how much they had been paying us per month up to that point? Around $50. Bastards.

My advice: Don’t ever, ever sign one of these things without reading it carefully. Insist on a short period without automatic renewals. Insist on a low monthly minimum. And pay attention to the reporting. A 16-unit building ought to produce $200 / month or so in laundry income, maybe more. If your company’s reporting much less to you, they’re probably stealing.


Written by mjkagan

06/15/2012 at 7:17 am

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