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Your Insider's Look: The Laundry RFP

Greetings Gentle Readers!

Typically when a property owner or manager needs a laundry proposal for their multifamily asset they contact a laundry company and ask for a “proposal” without giving the operator specific, if any,  guidelines in which they are interested.  

And, usually when asked by the laundry vendor what the property wants to see in a proposal, the response is all too often a vague and less than strategic response:

“Just give me your best deal”.   

That response, unfortunately, is a nonstarter for a laundry vendor and leaves way too many options for the laundry vendor who sadly doesn’t have any idea what the property’s “best deal” looks like.   Too often neither does the property and it can result in multiple proposals, revisions, lost time and energy and missed opportunities for both counter parties.

Let me give you an analogy that might help make the point.  

1.      If I were to go looking for a roofing contractor, I would know at least 3 things, conceivably more, that are critical to my decision process.  In no particular order those might be: reputation, timeline for job and price.  I might also know that I prefer composite to tile and that I want 8 nails not just 6...all those are preferences that begin to outline my request. And it provides the contractors bidding the job a solid understanding of what I want.  

2.      What I’m saying is the property owner/manager who knows at least three things, hopefully more, is in a better position to get a proposal that meets their requirements, saves energy and time as well as providing peace of mind post decision making.    

 

Getting the “best deal” on a laundry contract requires the property owner/manager to submit a specific request with which both counter parties can work to negotiate the final product.  

Keep in mind we’ve not entered into or even seen the lease document yet. We are just starting the proposal request process at this point. 

Here are some important considerations when requesting a proposal.  This is a starting point: 

 

1.      Lease Term: Industry standard lease terms are typically either 5, 7 or 10 years. A short lease (5 years) yields less revenue to the property but provides the property greater flexibility.   A longer lease (10 years) will usually yield higher revenue to the property. 

Pick a number with which you’re comfortable and ask for the specific term to be 5, 7 or 10 years.

Pro Tip: Avoid asking for all three options as you will appear as someone who is not focused on what they want and it will make your decision process more difficult when comparing proposals.  The goal is to have multiple proposals all being of the same requirements.  

Insider Tip: The difference in moving from a 7 to a 10 year lease is a 42% improvement in time for the laundry vendor.  The property, however, will not see a 42% increase in the revenue share; in other words a 50% commission will not increase to a 71% commission.

 

2.      “Bonus” Money:  More accurately, “Upfront rent” is a second consideration. If the goal is increased cash flow, consider not taking any upfront rent as they are mutually exclusive.  A higher commission will result in lower or no upfront payment; likewise a lower commission can result in a higher upfront payment if that is the property’s needs.  If the property truly needs laundry room improvements like  lights, paint, patch & plaster, etc. etc.  Get a proposal from your contractor and ask for that amount upfront. Be specific

Pro Tip: Bonus money or upfront money never adds to the property’s terminal value.  It’s a one-time extraordinary income item which will throw off your budget the following year if not carefully noted in income statement. 

Insider Tip: There is no such thing as “bonus” money.   Any money paid up front is simply rent that would otherwise be paid to the property but it’s captured over the term of the lease and discounted to a net present value.  Example: $10,000 paid up front on a 10 year lease would be $20,000 in cash flow over the term of the lease to the property otherwise.   It is expensive money…you can borrow that amount from your bank at a much reduced interest rate.

 

3.      Machines: All brand new machines increase the capital investment and will correspond to a lower commission. But brand new machines require less service and provide higher resident satisfaction.  Front load washers require a bit less water but present a higher capital investment for the laundry vendor – corresponds to a haircut in the commission.   Top load washers use slightly more but cost less so commission will increase relative to front load washers. Keep in mind ratios of equipment to apartment units.  If you have a 100 unit property with one or two laundry rooms your property can generally support 6 pairs of machines.  Asking for 10 pairs will result in lower usage per machine, lower gross per machine and presents a real obstacle to the laundry vendor paying a competitive revenue share.

Pro Tip: Re-manufactured or used machines present a good opportunity to capture higher revenue from the vendor as these machines have no capital costs to them. Caution: only certain properties should accept used machines and those would include high risk for vandalism, low occupancy/ low usage or properties fully equipped with in unit connections and/or those that provide a percentage of units with washers and dryers in the units. 

Insider Tip: To maximize revenue and reduce service calls request new washers and used dryers.  Dryers routinely last longer than washers and generally have fewer service calls.   Additionally, when accepting all used equipment, never sign more than a 3 year lease. 

 

4.      Coin or Card: Question: What appliance do you want to operate with quarters in the next 3-5 years?  None, I presume.  Still, coin machines represent the lion’s share of revenue generated by residents in C and D properties. But that has changed dramatically over the past 10 years.   Card systems are a capital cost and will result in a lower commission than a coin system.  However, card systems are not for all properties but can be fitting for specific A & B properties and leveraged to attract and retain residents, especially the first time renter who prefers to communicate digitally with any and all appliances.

Pro Tip: Laundry vendors today can install coin operated machines that also take Apple Pay/Samsung Pay for very little capital investment. Your property can benefit from a higher revenue generated from coin and still satisfy those digitally inclined residents.

Insider Tip:  Here’s a quick litmus test to see if your property could accommodate a card system: What percentage of your residents pay rent online, with a credit card or with a check?  If the percentage is 75-80% then your resident’s most likely will respond favorably to a card system.  If the greater percentage still pay with money orders and/or you don’t take credit cards or online payments, chances are coin machines are still a better bet.

 

5.      Vend prices:  You should be aware of the market in your area regarding single load vend prices.   Your leasing agents are calling weekly to find out market information, why not add question on laundry prices?  All machines today have the ability to be programmed a number of different ways.  Are you charging more for hot water?  You should, in order to pay for the energy costs.  Usually, if a washer is priced at $1.50 a load, then a hot water wash could be $1.75. 

Pro Tip: With that in mind, machines can be programmed to help smooth out demand as well.  Many complaints from residents echo some familiar strain of “We don’t have enough machines”…what they mean is “We don’t have enough machines when I want to do laundry”…typically on the weekend. So you can price the machines at $1.75 a load on the weekend and $1.50 on Mon-Tue-Wed-Thu…thus allowing those residents with a flexible schedule to save some money and building some good will potentially.

Insider Tip: Laundry budgets don’t have much elasticity.  If your resident has a budget of $28.00 a month for laundry at current pricing, when you raise prices their budget doesn’t necessarily expand to meet that increase.  Unlike other commodities there is not much “substitution” going on in the laundry room. Residents can substitute less expensive food, look for cheaper gas, clothes, buy in bulk, etc. etc. when dealing with other consumables.  Raising prices could provoke them to go off property to a public laundromat thus reducing gross revenue resulting in a lower payment to your property.

The point of this was to help property owners/managers start the proposal process with a solid idea of what they want, ensuring the laundry vendor can then give them a proposal that makes sense.   There are other considerations to include and those will be coming in the future blogs. 

So compare these two statements and consider which puts you in a better position?

“I’m looking for a laundry proposal that is 7 years with new top load washers, rebuilt dryers, priced at $1.75 to wash and $1.50 to dry and with zero upfront money and the highest commission I can get.”

To this: “I’m looking for the best deal I can get.”

 

 

Thanks for reading!  Your comments and feedback are appreciated! 

 

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