Next in our Value-Add series is a way to bring in steady income and boost the NOI of your property. Here, we are talking about adding vending to a property, not vending machines as a business model. These are placed on a property you already own, but location is still important – isn’t everything in real estate?
Vending Machine Location
You are going to want a well-trafficked and well-lit space. Vandalism and theft is a real problem, partly due to the vending machine model: there is no attendant. You can make it more secure with features such as a vending machine cage or security camera, but if you need these, the area probably doesn’t get enough customers anyway and you should reconsider the location.
Other considerations are that these machines should be sheltered and out of direct sunlight. The buttons can start to decay and the sun can bleach the colors on the machines. While vending machines are built pretty robustly, the more rain, snow, and temperature change that hits them, the more costly repairs you’ll need.
A good place to put them is in a common area inside your building. You’ll also need space on a wall and electrical. Ideally, you’ll want a dedicated 15-amp circuit for snack machines and 20-amp for refrigerated machines. Dedicated circuits help avoid tripped breakers and lost income.
Vending Machine Cost
There are multiple types of machines: older push button ones and newer touch screen ones. Coin op and credit card. There’s also the mechanics inside. Some drop the item and some have lift systems. These will be more expensive. Expect to pay $2,000 to $6,000 for a machine purchase.
Renting Space
You are a landlord after all. Instead of the headache of managing your own vending machines, you can rent the location.The problem with this is that the larger companies will pay very little and often nothing at all to put their vending machines in the location. Their gimmick is for business owners who want to provide snacks to their employees or locations where snacks are expected but the owner doesn’t want to invest money in it. While this seems crazy, it might be something worth doing – read on.
Machine Maintenance
This part is more about stocking and removing coins than keeping the equipment running. Stocking the machine needs to be done regularly, depending on the amount of traffic. People hate to come to the machine with a purchase in mind, only to find that the machine is out of their favorite snack. Worse, if they see through the glass to a machine that is not well-stocked, they are less likely to make a purchase.
Coins can be a problem. After all, how many coins do you keep on you at any time? You need to have a credit card vending option and then decide whether to add coin-op to it. Coins are nice for some age groups and locations, but credit is now the standard. Not being able to accept the buyer’s type of currency decreases sales. It’s also a pain to empty a bunch of coins and take them to the bank frequently.
Another pain is stocking the machine. Vending machines typically have a wide variety of items stocked, which means having a wide variety of items on hand. You’ll need a large storage area and a worker to stock the machine. It is a time-consuming process.
Expenses
Expenses include electricity, paying to have the unit stocked, buying the stock, credit card transaction fees, and repairs. Putting all of these together means a large chunk of the profit is taken out of the enterprise. These machines require a great location to work, and this is probably why a lot of multifamily projects have no vending.
The Last Value-Add – Convenience
The convenience factor is also part of the situation and may make you want to put in vending even if it is cost-neutral. Having vending there for the tenants is a perk and might entice some of them to rent. It probably doesn’t move the needle much but it is one more thing that can be added to entice tenants to rent. If you buy that, then the free rental companies I talked about above might be right for you. They do everything for you except provide the electricity. The value is in the customer convenience, though it is hard to put a dollar amount on it. Vending machines can add value, but only under the right circumstances. Do you diligence first.
