Route Purchase... worth it?

[endgame027]

I have been keeping my eye out for a soda/snack route for sale. One came up for sale and I wanted to know what other people think about whether it is worth it or not. Here are the details. The route contains 3 soda machines and 1 snack machine in a busy hotel. I would take over the account right away. The seller has financed the route through Federal Finance, a company/bank out of Iowa. I have never heard of them and can't find any info about them on the web. Has anyone ever heard of them? There are about 45 payments of $330 per month ($14,850 total) remaining on the loan. There is no commission paid to the hotel. I am planning to meet with the seller over the next few weeks to talk about taking the route over. He has sales numbers he will share when we meet. He says that he needs to service the route every week. How good should the numbers be for this to be worth it? Should I ask him to pay down some of the loan to make it worth my money? 45 payments at $330 seems like an awful lot unless the machines bring in huge money. Any recommendations would be very helpful. Thanks!

[Erosenlieb]

I dont know nothing about Full line but what i do know is you should look for one year in sales for ROI. So if the numbers add up they do. With out knowing how much money the machines make there is no way of knowing its a good deal.

[ANDERSONVENDING]

I have been keeping my eye out for a soda/snack route for sale. One came up for sale and I wanted to know what other people think about whether it is worth it or not. Here are the details. The route contains 3 soda machines and 1 snack machine in a busy hotel. I would take over the account right away. The seller has financed the route through Federal Finance, a company/bank out of Iowa. I have never heard of them and can't find any info about them on the web. Has anyone ever heard of them? There are about 45 payments of $330 per month ($14,850 total) remaining on the loan. There is no commission paid to the hotel. I am planning to meet with the seller over the next few weeks to talk about taking the route over. He has sales numbers he will share when we meet. He says that he needs to service the route every week. How good should the numbers be for this to be worth it? Should I ask him to pay down some of the loan to make it worth my money? 45 payments at $330 seems like an awful lot unless the machines bring in huge money. Any recommendations would be very helpful. Thanks!

They're the finance side of Wittern group. Financing with them is 48 month contracts so if there is 45 payments left then he has only had the machines for 6 months, not even long enough to have a track record.John

[AZVendor]

I hope he isn't asking more that he owes on the note. You would be better off if you can cash him out for whatever price you agree on, but if the agreed price is less than the note balance, he would have to pay the difference on the note before you pay it off. Your payment should go directly to Federal, not to him. You would have no control what he did with the money. You would also have to qualify for the loan if you were to take over the payments. Federal would probably write a new loan at 48 months again if you qualified.

One thing to remember with Witterns/Federal's financing is that they probably don't use simple interest. They probably use the "Rule of 78" which ensures that the majority of the interest is paid in the first couple of years of the note. This mean an early payoff would cost you more because more of your early payments go to interest and less goes to principal. Google Rule of 78 for an explanation.

[endgame027]

Thanks everyone for the tips those were very helpful. If he has only had the route for a few months, I would not want to take over that huge loan. I would feel more comfortable offering him cash for the route and he would use that to pay off the loan. I wish the loan wasn't so huge so we could just pay the whole thing off between the 2 of us. If he is trying to sell after only a few months, it looks like he is jumping off of a sinking ship. I might go take a look at the route just for the experience and talk more numbers with him then.

[AZVendor]

Just remember if he doesn't actually pay off the note, Federal Finance still owns the machines and has a lien on them. That's the tricky part of a cash up front transaction.

[endgame027]

Yeah thanks. That reason right there is why I am leaning towards not going forward. It sounds like he is in pretty deep and I don't want to dig him out to be in debt for 2 or 3 years.

[endgame027]

Hi all. I have an update on this route. I ended up meeting with him and he showed me the machines. The route looked decent and the hotel was right off the highway in a pretty big intersection so there should be a good amount of traffic going through it. I asked him a few questions about the route as he was showing it to me. He does not pay the hotel anything (commission, electric...). He moved the machines in there himself with some friends in october. The soda machines are refurbished Wittern brand, I think they were the EB700 model. He was selling cans of soda, bottles of water and gatorade. The hotel was unhappy with the last vendor which is how he got in there. He says the profits definitely pay for the $330 loan payments. He said he had an excel spreadsheet with the sales that the machines have made and that he would send it to me via email. He gave me the contact info for the local guy from Federal Finance/Wittern who I could call and he would take care of transferring the loan. As we were finishing up, I asked him if he would be willing to give me cash to offset the difference of the loan and what we thought the machines were worth. I made it clear that we could talk about it and come to an agreement on an assessment of the machines. He said he would but he seemed surprised, like he wasn't expecting that question. He said he would but i think that was just an automatic answer. Later in the evening, I get an email from him saying that he was expecting that I would be offering him cash on top of taking over the loan ($13,000 - $14,000 balance) because I was buying his business. I said if the machines were free and clear I would be putting together a large cash offer for him, but there are loans on them so me taking over the loans is just like me paying him. He did not agree with this, and the worst part is he did not even come back with a counter offer and I never saw the excel sheet with the sales. So, I don't know if he already had someone lined up for it and was waiting for a better offer from me? I asked him if anybody else had shown interest, he said one person inquired but it didn't sound serious. I did not push it anymore and left it as I would be willing to take over the loan if he changed his mind. I am now off to look for some more routes for sale.

[moondog]

Hi all. I have an update on this route. I ended up meeting with him and he showed me the machines. The route looked decent and the hotel was right off the highway in a pretty big intersection so there should be a good amount of traffic going through it. I asked him a few questions about the route as he was showing it to me. He does not pay the hotel anything (commission, electric...). He moved the machines in there himself with some friends in october. The soda machines are refurbished Wittern brand, I think they were the EB700 model. He was selling cans of soda, bottles of water and gatorade. The hotel was unhappy with the last vendor which is how he got in there. He says the profits definitely pay for the $330 loan payments. He said he had an excel spreadsheet with the sales that the machines have made and that he would send it to me via email. He gave me the contact info for the local guy from Federal Finance/Wittern who I could call and he would take care of transferring the loan. As we were finishing up, I asked him if he would be willing to give me cash to offset the difference of the loan and what we thought the machines were worth. I made it clear that we could talk about it and come to an agreement on an assessment of the machines. He said he would but he seemed surprised, like he wasn't expecting that question. He said he would but i think that was just an automatic answer. Later in the evening, I get an email from him saying that he was expecting that I would be offering him cash on top of taking over the loan ($13,000 - $14,000 balance) because I was buying his business. I said if the machines were free and clear I would be putting together a large cash offer for him, but there are loans on them so me taking over the loans is just like me paying him. He did not agree with this, and the worst part is he did not even come back with a counter offer and I never saw the excel sheet with the sales. So, I don't know if he already had someone lined up for it and was waiting for a better offer from me? I asked him if anybody else had shown interest, he said one person inquired but it didn't sound serious. I did not push it anymore and left it as I would be willing to take over the loan if he changed his mind. I am now off to look for some more routes for sale.

You'd be wise to move on - this one seems to be all liability with no assets. The location is not his and the machines are not his - all he's got to sell is "pie in the sky".

[mission vending]

I hope he isn't asking more that he owes on the note. You would be better off if you can cash him out for whatever price you agree on, but if the agreed price is less than the note balance, he would have to pay the difference on the note before you pay it off. Your payment should go directly to Federal, not to him. You would have no control what he did with the money. You would also have to qualify for the loan if you were to take over the payments. Federal would probably write a new loan at 48 months again if you qualified. One thing to remember with Witterns/Federal's financing is that they probably don't use simple interest. They probably use the "Rule of 78" which ensures that the majority of the interest is paid in the first couple of years of the note. This mean an early payoff would cost you more because more of your early payments go to interest and less goes to principal. Google Rule of 78 for an explanation.

Federal Finance also uses "add-on interest" in their contract language. It looks like a great deal when you see 9 or 10% on the contract and people don't think twice about signing up. However when converted over to APR interest rates, which is what most people understand, it works out to about 20% APR. That kind of behavior ought to be illegal.

Hi all. I have an update on this route. I ended up meeting with him and he showed me the machines. The route looked decent and the hotel was right off the highway in a pretty big intersection so there should be a good amount of traffic going through it. I asked him a few questions about the route as he was showing it to me. He does not pay the hotel anything (commission, electric...). He moved the machines in there himself with some friends in october. The soda machines are refurbished Wittern brand, I think they were the EB700 model. He was selling cans of soda, bottles of water and gatorade. The hotel was unhappy with the last vendor which is how he got in there. He says the profits definitely pay for the $330 loan payments. He said he had an excel spreadsheet with the sales that the machines have made and that he would send it to me via email. He gave me the contact info for the local guy from Federal Finance/Wittern who I could call and he would take care of transferring the loan. As we were finishing up, I asked him if he would be willing to give me cash to offset the difference of the loan and what we thought the machines were worth. I made it clear that we could talk about it and come to an agreement on an assessment of the machines. He said he would but he seemed surprised, like he wasn't expecting that question. He said he would but i think that was just an automatic answer. Later in the evening, I get an email from him saying that he was expecting that I would be offering him cash on top of taking over the loan ($13,000 - $14,000 balance) because I was buying his business. I said if the machines were free and clear I would be putting together a large cash offer for him, but there are loans on them so me taking over the loans is just like me paying him. He did not agree with this, and the worst part is he did not even come back with a counter offer and I never saw the excel sheet with the sales. So, I don't know if he already had someone lined up for it and was waiting for a better offer from me? I asked him if anybody else had shown interest, he said one person inquired but it didn't sound serious. I did not push it anymore and left it as I would be willing to take over the loan if he changed his mind. I am now off to look for some more routes for sale.

Releasing him from the loan is the same as paying him, you are right to not offer payment in addition to paying or assuming the loan. Be patient, only a very inexperienced vendor that doesn't know better would do this deal. Send him a e-mail every 30 days and let him know that you are still interested, I'll bet you can make a pretty decent deal in a few months.

[endgame027]

Thanks again for the responses and the support guys. I was kind of frustrated that he didn't even come back with an offer. I was pumped to go see what it is like to service an account like that and it was worth the visit for that experience. But as soon as I started talking numbers he cracked and then when I tried to go back to his original offer he said he wasn't interested. I will keep following up to see if he comes back down to earth, but I think I am happy that it didn't work out.

[AZVendor]

Not all USI dealers are as I'm going to describe, but many are:

This is very typical of a USI deal. The last clue of "his local USI guy would transfer the contract over" is the dead giveaway that this location was probably obtained by the local USI distributor/affiliate by cold calling locations or from a location response to a mailing that Wittern sends out periodically.

The typical way a USI distributor works is to obtain a location themselves either by cold calling or a mailing. They then go out to the location and offer new equipment with promises to meet all the needs of the location, quite often leading to over-equipping the account. No matter, as they are going to roll this into a Wittern-financed deal they can unload on a unsuspecting new vendor. This is usually done before they even have a buyer for the account - in other words this is all on speculation. The USI guy then needs to have an existing vendor run the account for him while he advertises the location on Craigslist as a "route" earning a usually-unsubstantiated sum of profit or gross sales.

Once he finds a buyer, they agree on a likely inflated value of the account and arrange for Wittern financing. The buyer usually puts a little money down and then has 3 - 4 years of payments on the equipment; payments that might be real hard to make out of the profits and still leave some money in the vendor's pocket. Sometimes the account is put through the Wittern vending management company, National Vending, who takes a cut of the commission before it's handed over to the account. Sometimes the USI guy will have his own quasi-management company and takes a cut for himself. (I know you have mentioned there is no commission with this account, but I find that hard to believe in a hotel).

In any event, the USI guy quite often has some kind of guarantee to Wittern that the payments will be made, and if they aren't, the USI guy repos the machines. Regardless, if the payments aren't made, the machines will be repo'd. This is how the Fawn division of Wittern made all their money a couple of decades ago, so Wittern is real good at this aspect of financing.

Your seller is trying to accomplish one of two things: get back his down payment while assuming the machines are still worth what he paid for them (they aren't and never were) or is trying to make a quick buck on the deal from a newbie buyer, like the USI guy did to him. This is no different than someone trying to sell a car that they owe more on than it's worth.

[mission vending]

Exactly, that's how I got started and in way over my head. I've posted about it before. I also used to be one of the repo guys, covered most of Texas doing it,