#65 - Cashing In on Convenience: The Secret Economy of Vending Machines

[00:00:00] Welcome back to Passive Income Pilots everyone here with Ryan Gibson. My name is Tait Duryea on another week and Boy, I know maybe we say this every time but that was my favorite episode. I wouldn't say it's Fun so we got into vending machines and one of our

[00:00:19] values at Turban Capital is adaptability and The the value of not having your head stuck in the sand and doing something the same way just because you've always done it

[00:00:30] Real estate is an amazing asset class. I think it's you know fair to say that Ryan for you and for me That would be my favorite way to make money is through real estate But man our eyes were open today

[00:00:43] On something else that yeah, and I am a lot of hired to do this with my children Which gets me really excited about what we're about to share because it's an easy low barrier to entry It feels 4,500 bucks for one of these things and then it can generate

[00:00:57] 50% EBITDA orbiting so if you're making 1,200 bucks you can get five or six hundred dollars a month on profit Sign me up. This is a really great intro So a little bit background Mike Hoffman is coming on and he's got a unique journey

[00:01:14] Creating vending machine empire and he segments into the broader theme of kind of passive investment opportunities in general so Let's get to the show. This is my favorite one. Let's get to the show Welcome to passive income pilots where pilots upgrade their money

[00:01:30] This is the definitive source for personal finance and investment tactics for aviators We interview world-renowned experts share these lessons with the flying community So if you're ready for practical knowledge and insights Let's roll welcome back to another episode of passive income pilots

[00:01:48] We're back here Tate and we've got Mike here Mike would you go ahead and just introduce yourself real quick talk about your passive income journey and kind of Maybe highlighting a pivotal moment where it really took off. Yeah, I think so first ranta excited to be here

[00:02:03] my journey started back in and early 2000s with real estate and The classic buyer seventy thousand dollar home in the Midwest and rented out for 900 bucks and the whole 1% rule very beginner tight mentality where it kind of really took off is

[00:02:21] When I started leveraging those into 1031s into vacation rentals and things like that But I'm doing some builds on some land, but I actually got into vending and Bitcoin mining right before

[00:02:35] COVID and the reason why was I couldn't afford to keep doing another down payment on a home and So for these rentals and so if people don't really realize it

[00:02:45] But with any machines you don't have to put any money down in a lot of cases depending on the manufacturer So it's just like a classic car dealership where you go to buy a car And do you want to finance it you want to pay for it?

[00:02:55] And if the terms are good and in this case, it's cash flowing So lucratively that I just parlayed of that and so that's when I really exponentially increased right at the beginning of COVID and Now there's just such a demand for people wanting to increase occupancy

[00:03:12] To get people back in the office to get people back in airports like you guys are dealing with and to get in labor is expensive and So it's kind of this perfect storm right now of cash

[00:03:24] Interesting so I might have the reason or a lot of the reason why we wanted to talk to you about your passive income journey is this vending machine Right, so it's like demystifying vending machines Yeah

[00:03:35] And it seems like you can run the gamut on that where you've got the ones that are sort of like the little spiral Old-school candy that comes out and then and I've even seen it like

[00:03:46] Where it looks like something on a Best Buy where you can buy a computer in an airport terminal or like a Bose headset for $500 Where do you play in that space all the above okay? Yeah, yeah

[00:03:58] Yeah, so I mean you're right like you see that I think it's love and even Denver's airport You got these unattended you walk in it's connect like Amazon store

[00:04:08] Ask where it connects to your prime and your phone and then whatever you grab that there's a hundred cameras on the ceiling That'll just charge your Amazon account

[00:04:16] So you don't even check out you just you walk through you walk out type of thing and then you got the self-checkout Checkout kiosks. They're all over the Denver terminals all over the Salt Lake terminals because you just it's like literally going to a grocery store

[00:04:29] But instead of waiting in line to check out you go over to the kiosk and check out And so we got a bunch of those we got a bunch of smart coolers

[00:04:36] And then we got the old school we got a lot of places that are we just want the motors and the spirals and people want their Snickers and their Reese's and yeah, okay sounds good

[00:04:46] So I got to walk this back because now I feel like they're complete newbie I feel like that person that's I've never heard of real estate. So how did you find out about this?

[00:04:54] How did this come across your desk and how did you start looking into the opportunity? How'd you learn about it? How'd you decide to jump into it? Yeah, so I actually do a lot of my backgrounds in human performance a lot of Air Force pilot

[00:05:07] Consulting trying to keep people in the cockpit type of thing So I would go to DC a lot and I live in Oregon and so I'd have all these layovers and Phoenix Salt Lake and Denver and so I would just be like

[00:05:20] Someone's if they're selling a bottle of water for four dollars Someone is making money off of that because you can get that same smart water at Costco for 40 cents, right?

[00:05:29] And so I would I did a little research on this and then it was kind of a perfect storm Going into COVID of new builds and things where I literally walked into an apartment

[00:05:41] High-rise here in Oregon one day and was like, hey, do you guys have vending and they're like no We actually had to stop putting free snacks in the lobby because it COVID can you put an event machine?

[00:05:51] I was like, oh, yeah, absolutely. I didn't even know Tate where to go Google to find a vending machine You just said you just said yeah, sure. I'll find one Absolutely, this is like plastic entrepreneurialist have a need fill the need make money like that that's amazing

[00:06:05] That's right. Wow or talk about just really walking into an opportunity What was your first step after that? Okay? I got to find a vending machine Google like how to find yeah Google

[00:06:15] Manufacturers I ended up buying my first machine off Craigslist to save a buck and then it broke six months into it being installed And all I knew was the keys to open the machine and where the dollar building was to get out the money

[00:06:28] And so then I was like, yeah, I'm not doing use machines anymore So I found a manufacturer that has a ton of YouTube self teach yourself videos So I went with their machine and then it just kind of parlayed

[00:06:39] Over time into these micro markets and what you guys are probably familiar with the future of any and where it's like just these kind of Shells with a point of sale kiosk. Were you actually going down there to pull the dollars out yourself?

[00:06:52] Absolutely before I started hiring people. Yeah, you can't delegate until you know You know, I love that like my biggest piece of advice and someone who's starting off as an entrepreneur is you've got to do

[00:07:02] The things that don't scale yourself first and then scale them as fast as you can with a sense of urgency Get those things off your desk But you kind of got to walk through it yourself first like you got to go collect that money and see where the

[00:07:15] Vulnerabilities are right and how to keep track of it and how to inventory and then yeah, that's amazing Yeah, Gary V had a podcast recently and he talked about you got to still play in the dirt It's like that whole thing. You got to know how to

[00:07:28] It's funny you say that I was actually in Dallas last week and There was a permit I had to go get and like I used to go get all my permits and I just found myself in Dallas and I knew this permit was stuck

[00:07:39] So I just went back down to City Hall and got my permit And I was like man, this feels good like being back on the streets again Like doing permits because we have people to help us with that now, but you're absolutely right

[00:07:50] I mean getting your hands dirty is part of it I think people like to be passive too, but I think getting your hands dirty and really learning something is crucial

[00:07:57] So well if you're building a business you have to understand each one of the processes so that you can manage Your people effectively right you have to know The task so that you can make sure that your yeah totally task correctly. So I have a lot of questions

[00:08:11] We're just gonna pick away at this vending machine thing for a minute if you don't mind Mike Because I this is fascinating Talk me through what it costs and then what your EBITDA is on a machine like an EBITDA is earnings before income taxes

[00:08:25] depreciation and allowances for anybody and Amortization sorry for anybody listening, but it's basically like your net profit So you put in this much money and then this is what you you earn. Yeah, so Let's just use that apartment complex example. So 150 unit complex I got a combo machine

[00:08:44] So I had half snacks half drinks I did that because I didn't know if it was a big enough complex to justify a snack only in a drink only machine That machine for me cost about 4500 dollars at the time and so I financed that over

[00:09:01] 60 months and they don't do any money down for the first 90 days that After it's installed so that clock starts the first day of install not the day of order the first day of install So I was doing 90 days of sales before my first $112 payment sorry it was 48 months

[00:09:22] $112 payment and so that machine now Does about $1,200 my cogs is 30% so it's like your classic Costco online Sam's Club online That hole you buy at cope for 40 cents and you sell it for $1.50 So we got 30% cogs. I hire an operator So my labor etc my EBITDA of that

[00:09:46] $1,200 is right around 50% if I were to do it myself like I used to that's an incredible So let me unpack what he just said for those that don't know what cogs are. It's not like a cog in a wheel

[00:09:56] It's it's an abbreviation for a financial term. So cogs is cost of goods sold so it's typical when you're running a restaurant or some kind of business that you're gonna have you're gonna have to it's all about controlling your cogs and

[00:10:09] So cost of goods sold is what he's spending on the drink costs the candy bar costs the cost of running his business that are variable And so that can fluctuate from it's not like a like property taxes or insurance where it's kind of a fixed based cost

[00:10:24] It's something that might actually change as you as Food costs go up or whatever right so he chart he gets a dollar revenue with 30% to cogs and then You have some financing costs in there. So great EBITDA though at that 50% that's a great business model

[00:10:40] And I'm guessing that because it's five years. It's a five year Well, I don't know what the IRS considers a vending machine, but I'm guessing you can bonus depreciate the entire thing, right? Yeah, that's what my captain does with the machines

[00:10:52] Yeah, so you got a huge tax deduction by writing off the the machine in year one or at least you could a couple years ago Now it'd be 60% this year with the current bonus depreciation law

[00:11:03] I mean correctly from unlike this is a this isn't none of it's a building, right? 100% Five and 15 year. What is it a five-year life? It's all five years right so right so it's a five-year depreciation schedule

[00:11:17] So it's fast. Yeah, you're getting a huge tax right off and cash slow and if we you start parlaying your route so technically I don't think we've been net positive on our taxes and the Five six years of doing it because we just keep stacking locations

[00:11:33] So every year we have new machines that go towards a depreciation of this just kind of You don't even get like the parlay effect is something that begs the question Why get on here and tell our thousands of listeners about this thing?

[00:11:47] Right that you can do and invest in I mean, is this a blue ocean market or Do you help operators get into this game? Are you looking for investors? What's the so what on not coming on the show? I mean, this is a cool opportunity

[00:11:59] I mean, hey honey, you buy five or six things right? Yeah, so I've listened to a couple of your episodes I think there's definitely a couple reasons one is they talk about college planning earlier

[00:12:09] There is no easier way to teach your kids economy 101 or economics. I'm doing it this summer Mike I'm gonna be like the best friend might be my daughter gonna go buy one like mark word Yeah, I'm gonna report

[00:12:22] I'm gonna have you back in six months and I'm gonna tell you how it went But we do have a one of one of my students or clients what we call bendingpreneurs up in Minneapolis He has 20 machines now started last January was zero

[00:12:34] He has four kids between 12 and 16 and he literally gives each kid their own machines So they say on what they put in the machine They have saying what they price it and now it's like a family competition of what did your machine sell today?

[00:12:48] When you wake up in the morning and look at the app and oh my gosh my Whatever my chips that I picked from the store are selling better than yours and it's all college fund stuff for him

[00:12:58] So there's that side of it that I just think the second thing is This market right now reminds me a lot of like self storage in 2018-2019 where it was this kind of hot big blue ocean right now. There's so many new builds coming out of

[00:13:14] COVID there's so much paranoia of Commercial real estate trying to get people back in the office where they're trying to offer any amenity that they can't like a Micro market with salads and subs and then oh yeah, we'll give Tate

[00:13:28] $50 a month to the market and now you got a B2B play of guaranteed revenue from the business whether Tate uses it at the market or not You're invoicing them for it. So that's the I think right now. It's a land grab

[00:13:41] So that's one way to think of it and then yeah, we were a lead gen agency at heart so I have a team of cold callers and email specialists where we're literally dialing off market to all businesses 100 employees or more or

[00:13:55] Well apartment so Mike's is 100. Oh go ahead. Is that kind of answered my next question was How do you decide you want to buy a vending machine and how do you go and place it? So your company Will help with those leads?

[00:14:10] Yeah, so first step that Ryan said earlier about going to get a machine Don't get a machine until you have a location ready to go. That is the first mistake everyone makes it But you'd be surprised I have multiple people they're like, oh, yeah

[00:14:32] I got three vending machines the first question I ask is what's the revenue per month of that machine like oh, it's sitting in my garage Oh

[00:14:39] How do you okay, so I know where to put one of my neighborhood. I'm reluctant to say where but I but on the show Okay, so my kids go to soccer right on Saturdays at arena sports and like All they talk about is bringing the the darn quarters

[00:14:57] So they can go get the candy in the candy machines when the never mind the soccer They don't like whatever but they just they want to go to these candy machines And it is a free-for-all After soccer practice all the kids are in all these machines

[00:15:12] And it's like the really old nasty candy like those old Those yellow bananas and the little balls and it is gross, right? And for 50 cents you can play this bouncy ball game that you pretty much get nothing

[00:15:24] In it just it's such a racket. I'm like man. I want to be part of this Not like on the other side of it. Well, I don't like because the kids have fun or whatever

[00:15:31] But I get some out of bed. Hey, here's a couple quarters and give it to your friends And I mean but it's like a dollar every practice and there's probably 100 kids that do the same thing What would

[00:15:40] Prevent I mean, why wouldn't arena sports just put their own thing in there, right? Why wouldn't they why would they have me come in and what kind of rent am I going to pay?

[00:15:48] Yeah, so the first question about why wouldn't they do it themselves is they don't even know where to start They're like, where do we find a vending machine? They don't have the entrepreneurial mindset that Ryan has when he comes and

[00:15:59] acts like he knows what he's doing. So there's that side of it. The other side of it is They don't they're putting out fires of having enough staff to probably coach that soccer practice yet alone stock that vending machine

[00:16:11] And so we're actually talking with marionne corporate right now about a national rollout with courtyards because As you guys know traveling all the time They have these markets right next to the check-in desk Well, there's two friction points there who stocks that market

[00:16:26] And then if you want to do a room charge, guess what ryan's got to do He's got to go wait in line at the check-in desk while tates trying to check in So there's this friction point of people waiting in line

[00:16:38] To get their room keys while other people are trying to do a room chart Well, if you have a point of sale kiosk and you're the ones stocking the market You just remove two friction points that every single marionne hats or any hotel with a market

[00:16:51] And so there's a huge piece to that labor that people don't factor in and I just think it's Hearing you talk about the coin saying the best margin vending machines are the arcade games like I literally my my Child casinos

[00:17:06] Oh, it's crazy every time we go to the grocery store on Saturday is my daughter Let me tell you about the family fund center in south carolina that I went to when I was in hilton head We walk into this place it is a casino it for kit

[00:17:20] Right because I'm not dead serious. They give you the little card It's 80 bucks. It's all do you want ten dollars? You get this much more you get this in so finally like, you know what? $20 for you $20 for you $20 hundred dollars or whatever

[00:17:32] And it's like to go to the games and then the hook is not the game It's the tickets that come out and the prizes you can win

[00:17:40] Right and that's the that's like the whole scam right like you've got to spend a hundred dollars to get like a two dollar plastic BS toy, right? But they're so excited about it

[00:17:50] They want to win the gumball machine a gumball machine is going to require 200 dollars or the video games And oh my god, is it addicting actually in the in fact, I know that in the state of washington

[00:17:59] They actually call that gambling and you need like a gambling license Because it is maybe I'm wrong on that but like I've heard some states have actually said hey

[00:18:07] That's you need a special license for that because you literally are like addicting kids to our addicting people to like Basically be like addicted to stuff, right? That's why I think the funniest thing I've ever heard you heard chuckie cheese be called as a trial brat casino

[00:18:20] But Mike walk us through the like the entire process, right? So you decide you want to buy a vending shit you Obviously need to find the location So you cold call a business and say hey

[00:18:32] I want to put a vending machine there and it who pays who do they pay you do you pay them for to sort of lease the space? Yeah, so we have over 20 Machines or markets out there in the field and we only have three that have asked for

[00:18:47] A revenue share and it's 2% So of that 50 to 60 percent margins 2% And then it's actually 2% of profits So it's even less but I think the first step is you look at locations and at the simplest level

[00:19:03] Think of places with busy parking lots like I bet that soccer facility on saturdays that parking lot is bumping I think of my daughter's gymnastics. We go on thursday nights and parents are just sitting there

[00:19:16] And the parking lot is busier than but you think of medical offices where you go into the first four You got worth the pedics the second floor is physical therapy third floor is Billing that parking lot is just full apartment complexes airports obviously

[00:19:30] But it really anywhere your gym you go to the gym. Those are all opportunities go have a conversation just act like you Hey, the the greatest Kind of trigger for people to make a decision as if their current customer

[00:19:43] Wants it so if you go to a gym, I have a buddy He doesn't even know how to spell the word vending and he literally went to the general manager The jimmy goes to and he's hey, I'm a gym member. Why don't we have vending?

[00:19:53] Can I put one in here and the guy said yes on the spot and he reached out to me as any of the contract template you can send me And it's just a it's a mutually beneficial agreement. Nobody pays anybody. It's just yeah, sure put it there

[00:20:03] It helps our clients you make money on it and that that's set an end of story Yeah, and then there's for me. I don't shy away from revenue share It's kind of like real estate broker fees and all of that

[00:20:15] So if there's someone i'm talking to and I know they're the they're Known in town and they have multiple properties or they have multiple soccer complexes across Wherever all lead with revenue share. I don't even say it's economies to scale

[00:20:28] So the more properties the higher the rate where you started 2% understood That's a little low. I usually start with 5% I was up in Seattle yesterday with 1100 unit two twin towers connected by a fitness center in the lobby

[00:20:42] And we're gonna do a huge basically unattended 711 and we're gonna start with 5% and accelerate A gross or even revenue up to 15% And that's going to be on profit. Oh, that one's on gross. Yeah, that one's gonna be on grid just to keep it clean after taxes Yeah understood

[00:20:59] Okay, but that one will do probably 10 grand a month. So I was like, yeah, no writer. Yeah, amazing So sorry, I'm just like walking through every step of the process here So you get the agreement in place and then you call Then the machines calm

[00:21:14] And you select your machine. How do you choose what type of machine to buy? Yeah, so that's the kind of the big thing is going to be based on the volume of the location

[00:21:23] So if it's the easiest way to think to head your bets and just get in the door as a combo machine That's got snacks and drinks So rather than getting two machines and you're not sure if it's going to make money with one snack and one

[00:21:34] Drink you do the combo machine But you're right, you're gonna call that the name of Michelle at google search One of that pops up and they're gonna ask you hey, take do you want to finance this? Do you want to pay for it up front?

[00:21:45] I've done bulls depending on kind of the rates and stuff And then I mean it's you order the machine. It's going to get shipped to that location So you don't even need a truck or anything like that There you can pay for white glove service

[00:21:58] So like for my first machine when I didn't know what I was doing I made them unwrap it them unpackage it for me And it's super intuitive. It's like setting up your microwave

[00:22:06] You get a quick start guide that set your prices at the time all that stuff and then Next thing is you just map out what you want to put in those motors of the machine and Usually 3x whatever you bought it for from the store

[00:22:19] Where do you buy the product from ideally you have the big distributors with syscos the vistas like that But for people getting started I use costco.com And it's free shipping to shipping above 35 bucks

[00:22:32] Does it go to the location or does it go to your house and then you drive it yourself and stock it yourself? Typically it goes to your house or your office or whatever

[00:22:40] So yeah for me I had a little landscaping shed next to my house when I first got started I get a box from costco go throw it in there and then I'm all about making things passive

[00:22:49] So I actually hired an operator at 20 bucks an hour who would come by on mondays to get stuff out of that shed And go stock the machines. So sometimes on Bottles it says not for resale. What does that mean? to you

[00:23:02] Not for individual sale like sometimes I get like candy bars and it says not for individual sale is that uh Yeah, that means they don't have a u p c code

[00:23:12] So you'll see the other the flip side of that too. You'll go to costco's freezer and it'll be like 36 hamburgers individually wrapped well when it's individually wrapped they all have their own barcode

[00:23:23] So you can resell that and scan the barcode, but sometimes you might just get that big box of candy with no Okay, I always thought that was like a barcode a legal disclaimer that like you can't resell this for a profit But I guess I was

[00:23:37] Okay, did you take right? You know what I'm saying? That kind of part way that makes sense Yeah, actually it's funny. I I had that same intuition, but I guess that makes sense

[00:23:45] It just is telling the store like there's no barcode on the interesting and scan it. Wow. It's amazing. What Wrong perception is gonna have about something an expert like Mike on the show. Yeah Okay, so you start with costco.com

[00:23:58] You get some boxes in your house you start stocking your machines Maybe you start paying somebody at what point do you reach out to syscoed and do you have to create a Some sort of corporate account with them. Do you need a business entity to do that?

[00:24:10] Yeah, and that's kind of what I've been doing with the people that joined my program Is I've been really trying to go after these national contracts So like whether that's national contracts on the cost of good side to lower the product

[00:24:22] Costs because then we're buying in bulk like I have a call on tuesday with liquid death They're big water can company. Yeah, we had that people two people love them giant pallets of that at burning man in our camp No way. Yeah, my marketing

[00:24:36] Every day. I don't think I've ever seen without one. Yeah, okay I'm not sure. Yeah genius marketing Yeah, so you got that side and then the national contracts side like I just talked to a group out of Dallas

[00:24:48] They have 141 apartment complexes from Miami all the way to Dallas and everywhere in the Sunbelt Like that side. I just give people locations in the community based on where they live So interesting. Okay So at what point I want to understand the transition from

[00:25:05] Being in your local market. Let's say your local market Is kind of saturated doesn't really make sense and and you want to do it somewhere else Or you're in your local market You you start sort of graduating from having stuff in your garage and having someone you hired

[00:25:20] Go and stock the machines and pick up money. You kind of want to institutionalize this How do you make that step and where now? Where does the stock get shipped and and like how do companies that have

[00:25:32] Hundreds of vending machines like where does where do they keep all their extra candy bars and drinks? In that situation if you have a hundred plus machines, you're going to have a warehouse because you're going to probably have extra machines That for parts or for whatever

[00:25:44] But to your point about the institutionalizing it's kind of like buying a route. Okay I'm take I'm in the kansas city market But I want to buy a route and st. Louis or even farther away indianapolis

[00:25:57] And so how do I manage that route remotely as an operator? And so that's where We just went through this in in philadelphia. I live in oregon I had a lead outside of philadelphia. No one in my community lived near there. I took it on myself

[00:26:13] We actually hired someone from task rabbit to build our micro market and then that guy Was a guy we ended up hiring to stock our machines. So we ordered the product We had a climate controlled storage facility near the warehouse

[00:26:28] We ship it to there and then the guy from task rabbit will go in empty the box We've made an agreement with the storage facility. Hey, just put our boxes in our room And then he'll go over grab all the inventory

[00:26:41] Go stock the the market when it's low Yeah, rinse and repeat Ryan I have a question for you if I call free up storage and I say hey, I'm gonna have a bunch of stuff shipped there

[00:26:51] Can you put it in my climate controlled storage unit? Yeah? I mean I we've heard this So maybe yeah, I mean especially for a vendor. I mean we make exceptions. So just as an aside little

[00:27:01] Chromo for storage, right? So like people think oh self storage is because people have too much stuff 30 of our customers are mic There are businesses, right? And so right we always our gate hours might be from 6 to 9 p.m. At night But there might be a moving company

[00:27:17] That makes a deal with us and set not a deal but just says hey like i'm a moving company or i'm a landscaping company I hit the road at 5 a.m Can we have extended gate hours and we make that possible?

[00:27:27] So absolutely to answer your question like we're flexible at that kind of stuff. It's just on a case by case basis Makes total sense. Okay, so I had to ask that because this is perfect. We got a self storage guy right here

[00:27:39] We can now how does this work? Yeah, so like in propane, right? I have a friend Oh, maybe that's a good person to bring on another show but I have a friend who owns a propane distribution company And those like those propane tanks that sit in the ground

[00:27:53] And their goal is sell as much propane as possible And they have all the bob trucks that go around and they fill up the tanks And those tanks have monitoring on them to send a signal to The propane company to say hey this tank is getting empty

[00:28:07] Come fill it so it's not like they're waiting for someone to call or somebody runs out of propane in the middle of a cold night How do your vending machine sort of let you know that like the snicker bars are whatever, right?

[00:28:18] Yeah, it's the same concept. You have an app and so I can track sales cash And then also inventory. So if I you talk about those motors if there's 14 motors that hold snickers

[00:28:31] And 12 of them have sold it's still showing full to you because you still see the two like it still looks full But I know that there's only two left in that motor. So it's the same kind of we can stock it before The the old school

[00:28:47] The half the machine is completely empty. Wtm that's amazing and and how interesting so that 1100 unit apartment building I think there's like rows of things to sell How often are you gonna?

[00:29:01] Clear out that row of candy bars. How often are you gonna be coming by and restocking the snickers? I say snickers is my favorite one but Yeah, so i'm not doing it. I hired someone to do it but I have projected six hours a week

[00:29:15] So six times 20 bucks an hour times Why I've factored in let's just say 25 bucks an hour because i'm gonna give them a 5% of profits since I had to keep it stocked But I would probably say we'll do it end of the weekend

[00:29:29] So on monday and also twice a week friday going into the weekend interesting. Hopefully that's interesting Our normal vending machines would be once this is 1100 units. I mean you're talking 10 grand

[00:29:41] product a month it's gotta do so normally about once a week typically about a half hour once a week Like your soccer example that'd be once a week. You gotta be ready. Yeah, I mean this thing's gonna it's literally a 7-11 candy bar complex

[00:29:56] Races really okay, let's say tell us you top three. I wouldn't guess that Have you guys heard of rap snacks? No I haven't either but I'll bet your kids know about them

[00:30:08] It's RAP snacks and what they are their different flavors of snacks with a wrapper on front an actual Singer and so there's like snoop dog barbecue cheddar And they just go crazy in it on the drink side. It's all the healthy

[00:30:24] Yerba monta is liquid liquid death Celsius aligning interesting Okay, so how can I ask the? rude invasive question of like how much money can I make with this so I'm an airline captain thinking this sounds great, but is it worth my time like

[00:30:45] Average run of the mill market You get one machine How much am I making depend on the location like that? Seattle markets an outlier But if we use Ryan's example of a gem or a soccer facility or a little kid saying probably 1200 bucks a month and

[00:31:02] He's one machine. Yeah Yeah, okay profit in 600 bucks. Okay was one machine and so that'd be more like child's college fund or Allowance or daycare type of thing But I think the other side of this to take is I'm getting ready to buy a route remotely in Chicago

[00:31:20] I live in Oregon for locations in the loop that are doing two grand a location and revenue. So it's an $8,000 $8,000 a month revenue 4k in profit And I'm gonna hire someone to six hours a week to to go around to those four locations

[00:31:37] And when you say so I'll be making good. Yeah, no, that's amazing When you say buy a route though who what are you buying and who from So a big thing that could be worth up someone in your community's time is I'm gonna go buy an established route

[00:31:51] There's a ton of baby boomers that are getting out of vending right now because they're not using the Mobile technology to track inventory. The only way they can tell the machine's empty is by going by the machine

[00:32:02] So you're getting a lot of great deals on routes out there right now So you're paying someone that already has vending machines and saying hey, I want these locations Can I ask how much you're paying for that for those locations?

[00:32:14] Yeah, so this one I'm getting a really good deal on typically it's 1.5 to 2x multiple I'm getting I'm paying 85k for this route in Chicago and I'm doing seller financing So I'm going to do 55k up front

[00:32:31] The rest of it over either 24 or 36 months so that he can help me All four locations have sister properties. And so we're gonna expand right away. So so okay Let's go slow here. So if you buy a self storage facility multifamily single family rental Whatever

[00:32:52] Right, when you we value commercial real estate on no i divided by cap rate everybody knows that you can go research that Okay, but if you actually took what we're paying for real estate And you factored it on a multiple of ebita

[00:33:08] So a multiple so you're taking the net profit right and then what we're paying for that profit We're paying anywhere from a 22 to about 30 times multiple on ebita for real estate Ungodly expensive now the nice thing is it's easy to leverage. It's easy to manage

[00:33:24] You can scale it a lot better. There's a lot of pros and cons, right? And I'm not going to get into that But mike is saying he's buying a business that's cash flowing for a 1 to 2 times ebita

[00:33:35] Right, that is like cash flow city like right away. So I just want to make sure that everybody Yeah, you do have to factor in the fact that at the end of I don't know five 10 years the machine breaks

[00:33:49] It's worthless. Whereas the real estate continues to appreciate their pros and cons getting your back But you know, so you can't just look at the cash flow metrics because the 20 times earnings on real estate It's yeah, that's only considering the cash flow

[00:34:03] But that's like how does this compare to atm machines? Do you do that at all? Great question I don't do it personally, but it's the same kind of lead. We're going after high traffic locations Very comparable except for

[00:34:17] Atms you're gonna have to pay right right out of the gates To get the location and you just get comfortable with that 20 to 30 percent to the location to put your ATM machine there The other thing for me Is my operator for my vending row

[00:34:31] He used to do atms And he had to carry a weapon when he was running around with the bag of cash and because he's coming by my house I didn't want people like following him around where the bag of cash is go

[00:34:41] So we're just we have enough to meet on the bottom of the bank most your machines are going to be credit card, right? So who's doing your merchant services? Who's actually like managing that? Is that like a separate company you pay 2% on that or something

[00:34:54] 5% of credit card transaction fees. Yeah, that's part of the way to lower cards negotiate a A good merchant services provider merchant services for people listening is like When somebody uses a credit card to transact in your business that someone's behind

[00:35:09] The collection of that and they're going to charge you like 2% usually 2% is pretty low If you got high volume and then 5% I think even square charges like up to

[00:35:18] 6 or 7 when they when the taxi guy gets out the little thing and plugs it into his phone and swipes that Yeah, that's why he's pissed because you just cost him 5 or 6 for that whole thing, right? so Let's get into the downsides

[00:35:32] Right. I mean, I'm sure these things break I'm sure it's hard to get people to work on them. I don't know. I'm just thinking of things that you know Or there's left or people steal What are some of the downsides to it?

[00:35:43] Yeah, so I would have thought machines breaking was a downside But these machines are these things are built to last like a normal vending machine should last you 20 to 30 years Wow

[00:35:54] I mean the ones you see in airports have been around for I mean you look at them and they look archaic and big bulky from the 90s type of thing But the downsides definitely theft. I think the other downside is these things need to be

[00:36:09] stocked every week or every Fourth day if it's doing a ton of sales, which to me is a really good problem to have You got to know how to delegate and you need to have it's you need to have your 18

[00:36:19] For me, I have an operator Eric, but I also have a plan B when Eric's on vacation Yeah, it's happening. Yeah, I might be plan C Yeah, but the nice thing is Ryan is when you're on vacation and the thing runs empty

[00:36:32] They're just gonna if Snickers is out they're gonna buy a truck. It's not like my rentals where if the Tenants complaining we got to get some over there within 12 hours. Let's talk about zoning code

[00:36:43] I'm sure the city municipalities don't like the big pepsi thing along their main thoroughfare and a community whatever Plant, right? Like I'm just I'm thinking in my neighborhood and I'm like, where can I put it? I'm like driving my street my mind this whole episode like

[00:36:57] working this go And I'm thinking oh in front of that cafe, but I'm like, nah I think the neighbors would freak out if there was like some Ryan has a Sectomy office right down the street from his house. It's called dr Snickers

[00:37:12] Dr. Steph so I'm a little ditty on that you can I could walk there, but I just can't walk home And that's what I did. I walked down and anyway that I'm way off topic

[00:37:20] I mean, can I and what can I quote? I mean, can I sell aspirin? I mean or Tylenol to somebody that's going into dr There you go, absolutely really you can I mean

[00:37:35] Very interesting. I'm sorry I have a question related to something we were just talking about was with maintenance It's easy to find somebody Pay 20 bucks an hour take this stuff go stock the machine, but when it comes to maintenance

[00:37:47] How do you find somebody to actually work on it? My kind of philosophy now is always to get new machines that have a five-year warranty And so whenever something like issue breaks typically

[00:37:57] We just face time the manufacturer and then they just walk through a troubleshoot because they got the circuit board It's probably like your your cockpit where it's like you start with this button and then decision tree off of it

[00:38:08] So they just kind of walk you through it and they're like, oh, we're going to send you this part or oh the motor's out Let's send you a new motor and then we just they just walk us through how to put in the new motor

[00:38:17] Very easy and then what happens after that five years the warranty's up You just at that point. I guess you've kind of got it figured out and you get a network Yeah, yeah, absolutely

[00:38:27] And at the end of the day my goal with like financing my machines is to have them paid off in year one Right, like there's enough profit margin to Really be aggressive on that 48 or 60 month term. Yeah, how do you so if you have

[00:38:40] Let's just have them to buy one or two You don't put them in an LLC I mean, I know you're not giving tax legal financial or investment advice

[00:38:47] But how do you do it as a friendly conversation? Am I going to put this in an LLC or am I just going to just put this In my own name. I mean that seems kind of silly to I would absolutely put it in your business and

[00:38:58] We got a Costco every Saturday So my accountants like all the mileage to Costco We literally we put our family groceries in the main shopping cart and all the big drink boxes on the very bottom

[00:39:09] Of the cart. So he's like all your mileage. We just bought a suburban For the vetting company even though it's well, you can I do my daughter loves kind of Costco

[00:39:19] And she just all the big TVs and sure that's so much stuff to look at so it's more of a Oh, yeah, I love that stuff Perfect good for you

[00:39:28] The only problem is they got the arcade right when you walk in and I'm like this guy is making AI How are you using AI to to revolutionize this business? Oh, man

[00:39:39] I think the interesting thing you were talking about earlier and it kind of comes back to storage of work zoning Is right now there's some AI companies and the big national vetting conference I've been a lot so i'm excited to go down and see what the latest is

[00:39:51] But there's a company out there that has a modern storage container And you walk in You have to put your credit card on the reader to grab whatever to unlock you walk in and the around the

[00:40:04] Grab whatever you want you and they're putting these containers and parking lots in LA For these businesses that don't have space inside or on the whatever ass fold or whatever And i'm just like that is crazy. Um, that made me think of something

[00:40:17] What business am I going to walk into and say hey, I want to put a vending machine here Or what what business is going to tell me to no way get out of here? I'm good

[00:40:26] Gas stations for sure and then I think if you go into a luxury apartment with a traditional vending machine That's why I never lead with the v word. I always say amenities because

[00:40:36] When you say vending, I think the big bulky machine at the airport where if you talk about Micro markets or smart coolers are like Interesting. Okay. You're just my brain is just going crazy. What about like Selling the ad space

[00:40:50] On the front of the machine. Are you getting into that yet? No, but that's the next frontier Absolutely. There's some machines that you can sell

[00:40:58] Digital ads on for sure and then you can well because I mean that really the the demographics of the building that you're putting that machine into So I would imagine that Someone's going to pay big dollars to put their ad on your machine

[00:41:11] Yeah, well and think of the Think of those New gas stations you go into where the front of the cooler has all the ads on it So you don't even know what's in the cooler until you open up the door

[00:41:22] They have those yeah, so all of that with micro markets you could totally do Yeah, I have a friend that's in distributing and That's what they do on their trucks They sell they know what route what way this is going. So they have all the data

[00:41:36] Of where the trucks are going so they can sell the space on the trucks and it's incredible. So Super fun. Well, Mike, we're gonna be I'm probably gonna call you after this I think I might too

[00:41:47] Yeah, so Mike how do how do people if somebody's listening to this myself included and thinking Now This doesn't seem too hard. How do I learn a little bit more about it? So maybe take the next step

[00:42:00] Yeah, there's a couple things you can go to our websites vendingpunors.com But I think the easiest way if you really want to learn about i'm Tweeting all the time so mr. Passive underscores my handle on x and

[00:42:13] I'm taking pictures of the Celsius we buy my daughter and I had so Costco on saturdays, and then I'm also showing pictures of our sales of that Celsius over the month. So we're very Knowledge is value. So we're big on sharing whenever we're learning to the masses

[00:42:30] So that's kind of probably the easiest place to get a free education of it That's great. And you have a coaching program as well that you've started we do yep

[00:42:38] So that's more of a do it with you offer with the cold coaling and the the lead scraping of kind of the what we would consider High revenue bending target wonder if there's also I mean the thing that's really boomed car washes lately, right?

[00:42:51] Is everybody's into car washes now. It's all you hear about in our space But you know It really drives that is the fact that they started selling these monthly subscriptions Right, and you sort of get this unlimited

[00:43:02] Thing and and and now the private equity sees the multiple on that and they're sort of like building these really nice Car washes and rolling them up to private equity. I wonder if that's going to be a thing in vending. I mean because I mean, I know you

[00:43:14] Yeah, like I think it will That's my vending and I think the whole private equity with Car washes and laundry mats. I think that would be vending in the next two to three because

[00:43:24] Of all my investments from my long-term rentals my short-term rentals my my even my stocks vending is the most Predictive of what i'm going to do month to month. It's just so stable It's like within 200 dollars. I know

[00:43:40] Of my whole route what we're going to do. Yeah, we might change out a product here or there But I can tell you that soccer facility once we have three months of revenue on that thing I know what that's yeah, and all those kids

[00:43:52] That don't get quarters because there are no quarters anymore I mean the parents all have a credit card And I just think that there's just it's a blue ocean I mean even something like that

[00:44:02] It's if you just put a credit card on these things these kids would be they'd pay a dollar instead of 25 cents or 50 cents, right? It's all about the convenience. Then who cares what it costs, right?

[00:44:11] We have college students at one of our apartments next to university of north, texas That did 90 transaction last night at two in the morning Some drunk kid with mom's credit card just got the munchies and rated the whole 90 dollars one person 90 dollars 70 margin

[00:44:28] Wrapping this up, but but I do have an origin which is like do you get with data? Do you get demographic data on any of that? Does the all the time? Yeah all the time we have who's buying any bar crazy even

[00:44:40] So I have a follow-on question to that So some of the atm investments that we've looked at sell the demographic data So it's there's a camera on the atm and it doesn't actually record video But it does record time of day

[00:44:52] It might record gender and they sell that foot traffic data. Is that something you guys do as well? We haven't got into that. I'm actually writing this down next to the digital ads That's great. Yeah merchant services digital ads and demographic Like the ad growths on growth

[00:45:10] You know for that but no we want to be we want to help you and we want to see you be successful And we appreciate you sharing your insights and your knowledge on this

[00:45:17] What's one thing in the last six months that you've learned about vending that blew your mind that you've never shared with anybody else I think the big thing that's really interested me in the last six months is there is a huge need for

[00:45:32] Ancillary income for these big portfolios And so that's where I've signed two national contracts in the last two weeks with a 300 property group and 141 property group and their whole thing is they're freaking out about occupancy and interest rates

[00:45:50] And so I just led right away with 5% of revenue because you look at the margin. Why wouldn't you and now I'm going to bake in a 3% broker fee and I'm going to give all those 300 properties to my community

[00:46:01] And that's where the real passive income with the storage stuff you talk about the need and it's just like these Big groups are freaking out about how do we fill our spaces? Whether that's residents or whether that's office space and so they need amenities to

[00:46:16] That's how the value of this quick follow-on question. They've got these illy Coffee machines now in a lot of airports. Have you ever messed with those? Yeah, yeah, they got they they're right there in the Denver terminal and I think that's yeah They got them in Sacramento

[00:46:31] It was even in the Munich airport last month when I was over there So what have you bought any of them? How do they perform coffee is a little different because people are so particular about what they want Oh, I want a latte

[00:46:42] But I want a shot of vanilla and a shot of cinnamon and whatever It's just a very and if you think about a combo machine like the one we would put in and Ryan's soccer complex

[00:46:51] We could put a cold brew or we could put a latte a cold latte version of there's 39 different options We can put in there. We're with the coffee machine. There's only one way to make an americano

[00:47:03] So it's just kind of the margins are good on coffee, but it's very it's way Unless you're a pilot then you just learn real quickly that you just take black coffee, right? Yep, exactly. Yeah, but don't I don't disagree with that. Well, you hate for that black coffee

[00:47:17] Yeah, I felt so inherently cheap. So we like not to pay for anything But man, we'll take whatever cup of coffee you can end us so And you learn real fast as a pilot the flight attendants are opening the door

[00:47:26] There's turbulence like they don't have time to dress up your coffee Give me the black stuff and shut the door and let's go That's it Yeah, you're spot on but like when we get these hotels are like we put in a coffee machine

[00:47:39] I'm like I'm not putting on a coffee machine when you have free lobby coffee Right, right. Why would they pay for my nice latte if they can get free black? Yeah, so Okay, one more question. I promise that like the best buy kind of machines

[00:47:52] Do you do kind of stuff like this? I'll headsets and more expensive iPads and things like that Not so we do sell those items Not a machine specific to technology, but many machines in the airports I got the air pods and everything's just technology

[00:48:06] We don't do specific to that because it is kind of niche But we do in our smart machines You can put anything in there like we do a ton of incidentals phone chargers laptop chargers

[00:48:17] All the over-the-counter hangover cures like all the kind of things when people are traveling they forget And how much do those like really fancy machines cost versus a $5,000 spiral? smart cooler costs $7,500 and They'll literally do depending on if you catch them on a good day

[00:48:36] They'll do zero or 10 down and they won't even interest What's the I said one more question. That's where the date what data resource or website is Helping you sort of pure cure locations

[00:48:51] Or traffic like to use esri business data. Do you use some kind of a login system? Is there a yeah, I pay a Pretty good penny for a costar subscription and that's what we kind of use for our data for costar

[00:49:04] I didn't know costar. What are you pulling on a cost anything related to vending? We just so we know Back to demographics We want any business with a hundred employees or more and we want any Apartment or condo with a hundred units or easy and that'll pretty much

[00:49:20] We can break that out into hospitality industrial And so that just generates a list I've got businesses to call Yeah, so if we find a property, let's say it's a high rises being built It'll have the land who the owner the property manager even the architect

[00:49:38] And so we'll hit all three just to get us to Amazing person to talk to Mike. Thank you so much for coming onto the show My mind is blown and by this Yeah, completely eye opening I'm gonna be looking at every lobby that I'm walking to now differently

[00:49:52] I gave me something to do all weekend. So thank you for that My daughter will my son too. I appreciate that Thanks for coming on the show and for all your listeners out there I just wanted to say if you have a question

[00:50:04] You can go to passiveincomepilots.com forward slash question and you can record your question right on our show We'll feature you in the beginning and we'll get your questions answered no matter how difficult it is It could be for Mike on a vending machine question

[00:50:16] You can always also email us at ask at passiveincomepilots.com or as always you can join us on facebook So mike, thanks for coming and to the next show