15 Irresistible Reasons to Buy a Laundromat (and Not Some Other Business)
Spending late nights cleaning up after homeless people and slobs in my first laundromat, wishing I was doing anything else other than what I was doing at the moment, it was hard for me to believe that there were any irresistible reasons to buy a laundromat, let alone 15. For sure, laundromat ownership is not all roses and champagne, and I will definitely be airing some of the dirty laundry (pun intended) in future blog posts and podcasts.
But, there are 15 very specific and alluring reasons to buy a laundromat and the first three are big secrets to life and wealth that no one tells you. These three reasons alone are enough to make the laundromat industry irresistible.
Ultimately, people don’t work or own businesses for money. Here’s the first big secret that no one tells us: People don’t want to be rich. We all want what money can give us. We want to be able to do the things we want to do, when we want to do them, with whom we want to do them. What we really are striving for is freedom. As our wealth increases, our options increase. This is the main reason most people say they want to be rich.
For many of the reasons that will follow, laundromats can be a great way to achieve the freedom that you desire in your life. Whether you run your laundromat as a side business, your full time job, or you partner as an investor, laundromat ownership can give you the life that you are looking for if you set it up right. This is far and away the most compelling of all of the reasons to buy a laundromat. There are obstacles and it will require work, but what laundromat ownership can give back makes the obstacles and effort worth every second.
If it is anything that the 2008 recession taught us, it’s that cash flow is king. We watched huge amounts of equity erode away in real estate and the stock market, vanishing into thin air. We saw record numbers of home foreclosures. Job loss was rampant. It was the stuff of nightmares there for a little while. Some of you may have felt the full force of it. I know I was hit hard by it.
But, when the dust began to settle, with bodies strewn all about, particularly in the real estate field, those left standing were the ones who either 1.) had enough capital reserves to cover their expenses until things started to turn around, or 2.) had invested in cash flowing assets that were able to support themselves, even after their overall value plummeted and equity vanished.
We learned a very valuable lesson during that time. Cashflow is king. It was the safety net that protected some investors from having to foreclose or sell at a discount. That’s why investors near and far are hunting for it anywhere they can find it. As the market gets hotter, cash flow is becoming more difficult to find.
But at their core, laundromats are cash flow businesses. They are designed to spit out relatively consistent cash flow, month in and month out. This not only provides the owner with income each month, but also provides protection from big swings in the economy.
Here’s the second big secret: It is cash flow that provides you with the freedom that you truly desire in your life. It is the key. That is what makes consistent cash flow so desireable. Wise people recognize that and seek it out intentionally. When you don’t have to worry about where your money is going to come in from each month because it is rolling in relatively passively, you are truly free to pursue the life that you want.
— OnceAgainThink (@OnceAgainThink) March 21, 2017
The great thing is, it doesn’t have to take a huge sum coming in each month to provide you with the freedom you need to live the life you want. What would your life look like if $5,000 came in each month while you put in only 5-10 hours of work each week? What about $10,000? These numbers are more than achievable through laundromat ownership. Freedom is within your reach and the road to get there is cashflow.
3. Equity Build-up
Cash flow is great. It provides spending and investment income, it is a hedge against a downturn in the economy, and it can truly provide you with the freedom you desire in your life. But here’s the third big secret: While cash flow can give you freedom, it is equity that makes you wealthy and expands your freedom.
Equity in a business is determined differently than equity in your house. Equity in your house is largely determined by the comparable sales in your market. While you have some ability to build in equity by making improvements to your house, you are limited by what is happening in the rest of your market. It is mostly outside of your control.
Small businesses, however, are valued as a multiple of their net operating income (NOI). A business’s NOI is calculated with a simple math equation:
Gross Income – Gross Expenses (before debt service)= NOI
This means that you can increase the NOI of your business by increasing your gross income and by decreasing your expenses. The value of your company improves by a multiple of the increase in your NOI. For laundromats, the multiple is usually somewhere between 3 and 5.
Let’s do a quick simple example:
Let’s say you have a laundromat that brings in $12,000 per month in gross income and has expenses of $7,000. That means you have an NOI of:
$12,000 – $7,000= $5,000 NOI or $60,000/year NOI
If your market is selling laundromats in the condition yours is in at a 4x multiple, that means your laundromat is worth:
$60,000 NOI x 4= $240,000 valuation
You assess your laundromat and add a soap vending machine that adds $100 per month of income and a crane machine that brings in $50 per month. You find a leak in your water pipe that you fix and saves you $100 per month. Here’s your new NOI:
$12,150 – $6,900 = $5,250 NOI or $63,000/year NOI
These three small changes add only $250 per month of cash flow. This is hardly enough to move the excitement needle. Of course, we’ll take the extra $250, which translates into an extra $3,000 per year of profit. But in addition to the extra profit, we’ve also increased the value of the laundromat.
$63,000 NOI x 4 = $252,000 valuation
So in addition to the cash flow gains we increased the equity in our company by $12,000. Not bad for a couple of tweaks to an already decent business.
Once you’re experienced in the industry you can use this simple principle to extract huge equity gains from underperforming laundromats by cutting out wasted expenses and increasing revenue. There are many ways to do both to increase your NOI.
Behind the freedom you can gain through laundromat ownership and the cash flow that can help provide that freedom, the potential to build wealth through building equity into your business makes equity growth one of the most alluring reasons to buy a laundromat.
Coin laundries are a relatively simple business, especially once it is established. Compared to many other businesses, there are few responsibilities of the owner apart from managing any employees and/or contractors, some simple accounting, some marketing, and perhaps some maintenance and repairs if you choose. There is little or no overhead to have to purchase ahead of time, as well. But don’t confuse “simple” with “easy.” It is a relatively simple business, but it is not necessarily easy. However, it is possible to run a laundromat part time on your own schedule for the most part.
5. Slow Moving
Not only is a laundromat a relatively simple business, it is also a pretty slow moving industry. You won’t see wild swings in revenue on a daily, weekly, or even monthly basis. Most laundromats generally see a steady increase in income, a steady decrease in income, or a relatively flat income. In terms of an investment-like business, slow and boring is a good thing. I’ll take a boring 20% return on my investment (ROI) any day over the bucking bull of the stock market (pun intended). There are times when sharp increases or decreases in revenue can occur, but, for the most part, business is pretty stable and slow moving. This is one of the most compelling reasons to buy a laundromat. You will have time to correct mistakes, reverse trends, and course correct when you need to.
6. Cash Business
Along the same lines of the business being relatively simple, it is generally speaking a cash business. I always wondered why that would be touted as a plus because, to be honest, the only thing I could think of that made that attractive was the opportunity to run dishonest books.
To be clear and upfront, I will always advocate for running your business on the up-and-up, making accurate collections and keeping clean, honest books. Sure, you may be able to squeeze a few extra bucks into your pocket by running a shady business, but my goal is to help you build a sustainable, scalable business that will allow you the freedom to live the life you’ve always wanted, including having a free and clear conscious.
So what are some of the legitimate perks of having a cash business? Well, first off,
- Cash is cash. No “I owe you’s” or checks that are going to bounce. Once a customer pays to do their laundry, you have the money.
- You don’t have to invoice anyone and you don’t have to remember to follow up on collections. It’s a simple cash for service exchange upfront.
- There are no fees for card payments which help keep prices lower and profit margins up.
- Depending on the location of your business, many of your customers may not have bank accounts and/or credit cards.
There are downsides to the cash aspect of the laundromat industry, but we’ll explore those in another article.
7. Few Employees
Keeping on the “simple” theme, laundromats are generally operated with few, if any, employees. Labor costs can be a large expense and managing employees can take a lot of time and effort. Having few employees or even part time contractors minimizes costs, management skill needed, and ultimately time and effort needed to run the business. We’ll talk about hiring in a later post, but hiring the right employees will make running your business much easier and more profitable. Hiring good people and training them well will make it more of a hands-off business for you. Bear in mind though, it is a business, not an investment, and won’t ever be completely hands-off if you want it to run well.
8. Recession Resistant
Another perk of the business is that it is relatively steady. Every business is affected by the economy and has its ups and downs, but, for the most part, coin laundries stay fairly even. We have largely the same people coming in regularly to clean their clothes, whether the economy is kicking or in the dumps. People may wash less or wait longer between washes in a down economy, but they still need clean clothes. Having steady and consistent clientele and consistent collections provides a relatively predictable cash flow which makes laundromats an attractive business investment. While other industries might experience drastic dips in income during a recession, laundromats might only see a slight dip, if anything.
9. Tax advantages
There are also tax advantages to owning a coin laundry. Not the shady advantages that may have been commonplace in the past, but legitimate, government endorsed tax advantage. It’s best that you speak with a CPA or tax preparer for a fuller, accurate picture. This is not tax advice, just my experience.
Just to prime the pump, the government allows you to depreciate the value of your equipment. You are also able to make certain business purchases with pre-tax dollars. We’ll do a more thorough post on taxes in the future, but know that there are some pretty terrific tax incentives to owning your own laundromat business. It is even possible to legally show your business as losing money for tax purposes while making a positive income. It is government endorsed and above board. Considering the fact that taxes can easily eat up half of your income from a regular 9-5 job, the tax advantages of owning a business are a pretty great reason to buy a laundromat, if you ask me.
10. Simple additional revenue streams
In addition to revenue from people using your washing machines and dryers to do their laundry, there are many other simple revenue streams that can supplement your primary income. These additional streams of revenue will not only increase your monthly cash flow, but they will also increase the value of your business.
Here are some common ways that people add additional revenue streams to their self service laundry income:
- Fluff and Fold- Use your attendants to wash people’s clothes for them at a premium.
- Vending machines- Sell beverages, snacks, detergent, and more in vending machines you own, rent, or split profit on.
- Water store/vending machine- Charge by the gallon for purified drinking water.
- Video games- Even though we have them on our phones, people still love the old fashioned video game machines.
It was almost exactly 35 years ago today that I encountered my first-ever video game – a Pac-Man machine – in a laundromat in my hometown
— P Scott Patterson (@OriginalPSP) September 8, 2016
- Crane machines- Give customers the chance to win stuffed animals, candy, electronics, or something else fun while they wait for their clothes to dry and earn a little money on the side.
- Candy, toy and sticker vending- Make the chore of laundry easier on parents by keeping the kids entertained and you’ll have customers for life.
- Indoor advertising- Partner with an advertising company to allow them to place ads in your laundromat for a fee.
- Outdoor advertising- If you own the building your laundromat is in, allow a billboard advertising company to lease some wall space from you.
- Bathroom- Placing a quarter charge on using the restroom helps offset the cost of keeping it stocked and clean, helps deter vagrants, and earns you a little spending money.
- ATM- Those ATM fees add up quick.
There are plenty of other ways to supplement your main revenue streams, but these are some of the highlights.
Business owners, in general, have the ability to make their own schedule. It’s why many people decide to strike out on their own and forge their own path. But, as a laundromat owner, you have the ability to spend as little as 5-10 hours per week at your laundromat if you have the right help after you get your laundromat up and running. With the rest of your time you can spend it on your career, with family, on the golf course, buying more laundromats, or whatever. This is one of the major perks of laundromat ownership.
12. Can be a side business
Piggy-backing on the flexibility perk, laundromats can be run as a side business alongside a career, other investments, or even other businesses. This could be a great way to catapult available investment capital through cash flow and equity growth. Owning a laundromat can also be a great way to supplement your retirement. It can bring in steady monthly cash flow with minimal hours of work and the flexibility to enjoy the perks of retirement.
13. Hands-on business school
It can be intimidating starting and running your own business if you don’t have any business experience. You are often risking a lot in order to help your business get off the ground. And there are no guarantees. When you don’t have any formal business education, it can be even more intimidating. But, laundromats can be the perfect business to teach you the business of business. You will get to learn how to operate a business with hands-on experience.
Learn by doing. You will get to learn in a slow moving, relatively steady business environment. And you will make mistakes. But mistakes are how you learn. And the more mistakes you make, the more you will learn. The more you learn, the more responsibility you will be able to handle. The more responsibility you can handle, the larger the business you will be able to run. The larger the business you can run, the more money you will be able to make. The more money you can make, the more options you will have in life.
Learn how to run a business by owning a laundromat and you can graduate to owning more laundromats and/or other business ventures, as well.
14. Gateway to more sophisticated investing
Owning and running a laundromat can be like training wheels on a bike. You can learn the necessary skills and mindset that you could leverage into more sophisticated investing. For example, there are a lot of parallels with real estate investing. Principles of one translate readily to the other. Often, the tenant base of rentals and the customer base of laundromats is similar. There is similar math analysis involved, as well.
I have found that owning laundromats has given me entry into the club when I attend investor meetings. Other investors are intrigued by laundromats and the returns that they hear laundromats can provide. It has helped me build relationships with people who have taught me a lot about investing and growing wealth. And through some of the relationships I have made with some of these investors I have been invited to invest in other opportunities that I would not have otherwise known about.
15. Opportunity to improve a community
Making money from your laundromat is great and all, but the real joy comes from being able to make a difference in a community. Granted, not everyone who owns a laundromat is keeping it nice for the community. But, a nice, clean place to do laundry makes a generally unpleasant chore more bearable. Laundromats can also serve as a gathering point for people in the community.
When it comes down to it, laundromats are a people business. Many owners try to run their laundromats as if they are merely a cash cow to milk for money every week, but they are missing out on one of the most rewarding reasons to own a laundromat. And they will also end up profiting less, as well.
There are many more reasons to buy a laundromat, but these 15 reasons to buy a laundromat make it an irresistible business to explore further. We have plenty of information on the industry for you to quench your curiosity about owning laundromats. The most crucial information falls into one of the five essential steps to owning a successful laundromat:
If you want a quick overview of everything you need to know to find, buy and run a successful laundromat, sign up for our Free Laundromat Basics course to join the waiting list.