4 Essentials to Know BEFORE You Buy a Laundromat!
So, you want to buy a laundromat. Maybe you’re like me and you’re seeking Financial Freedom Through Laundromats. One of the most frequent questions that I am asked in our FREE Consultation phone calls is what to look for when buying a laundromat.
There are obviously a lot of things to consider when contemplating an investment of this size. I will attempt to narrow it down to a detailed description of the 4 most essential things to look at before you make your investment. These 4 considerations will help you determine the health of the laundromat and help you ensure that it will remain profitable after your investment.
These are the essentials you need to know before you buy a laundromat!
Location, Location, Location
The success of your laundromat will be largely dependent on its location. Your laundromat can be remodeled, machines can be replaced, advertising can be utilized, but it is very difficult to move a laundromat. It is essential that you purchase a laundromat with a good location.
This begs the question, “What makes a good laundromat location?” This blog post explains the 3 P’s of a Stellar Laundromat Location. But, briefly here, you need three things:
People who need a laundromat living near-by
People are the lifeblood of any business. Laundromats are no exception. The only caveat is that you need to make sure there are enough people around that need your service. Typically this is residents of apartments and older homes without laundromat hook-ups. If there is a vibrant fluff-and-fold business you may not need quite as many renters in the neighborhood.
Visibility and accessibility
If people can’t find you or get to you easily, they will find another laundromat that is easier to find and get to. This is crucial to have from the beginning since you can’t easily improve this in most cases.
Plenty of parking
When people visit your laundromat, if they can’t find parking, they may not stick around. It’s sometimes easier to drive down the street to the next laundromat. If that happens too often it may become a habit. That’s not a habit you want your customers to develop.
If you have those three things, you’re on the right track.
Don’t underestimate the importance of a laundromat’s location. Accessibility and visibility are crucial to a laundromat’s success. So, take the time to ensure any laundromat you are considering investing in has a stellar location!
Condition of the Laundromat
If you’re looking to buy and existing laundromat, most that you look at will have at least a decent location. The second essential thing to look at when buying a laundromat is the condition of the laundromat. At this point, you will want to have an idea of what you’re looking for. Are you intending to purchase a turn-key laundromat that is fully renovated with relatively new machines? Or, do you want to fix up a laundromat and add value to it yourself? Neither is right or wrong, but your answer to those questions will determine what to look for in a laundromat.
Some things to consider when examining the condition of a laundromat you are thinking about purchasing are:
- The condition of the interior
- The condition of the exterior
- The condition of the machines
- The condition of the infrastructure
The condition of the interior
When looking at a laundromat to purchase, it will often times be obvious whether it needs an interior renovation or not. Examine the flooring, the bulkheads (bulkheads are the boxes behind washers or between rows of washers that conceal the pipes and electrical), the walls, the ceiling, the bathroom, and the windows to determine the condition of the exterior.
Pay special attention to water leaks/spots/swelling in the ceiling and around the bottom edges of the bulkheads. These will be indications that there may be a problem or problems to be fixed. You may want to negotiate the repairs during the escrow period or negotiate a credit to repair problems yourself.
Obviously, I highly recommend hiring a licensed inspector during the escrow period to determine the scope of any issues you have found and to locate any other potential issues. But, while you are determining whether you will make an offer or not, paying attention to the condition of the interior will give you an idea of how much time and money will need to be invested in the laundromat if you purchase it.
The condition of the exterior
The exterior of the laundromat is the first impression that people will have of your laundromat. In the initial assessment of a laundromat as a potential candidate for purchase, note the condition of the exterior.
Does the paint need touched up? Are there any visible signs of wearing? What condition is the signage in? Are sidewalks and parking lot surfaces in good condition? All of these will affect whether or not this potential laundromat will perform up to its full potential.
The laundromat business is a rental business. When you own a laundromat you are in the business of renting out washing machines and dryers to people for a fee. It is vital, then, that any laundromat that you purchase has machines that are in good condition. There are two main ways to ensure this.
First, replacing all of the machines with new machines will ensure that your laundromat has machines in good condition. The obvious downside is that washing machines and dryers are expensive. If you plan on going this route then be sure to include these expenses into your calculations from the onset.
Second, a visual inspection of the equipment and a peek into the bulkheads will give you a general idea of the condition of the equipment. Do the machines look older and well used? Are there signs of abuse? Do pipes look rusted? A simple visual inspection will give you an idea if there is potential to continue moving forward with an offer.
Of course, if an offer is made and accepted, I highly recommend hiring a qualified mechanic to inspect the machines to give you a more detailed report of the condition of the machines, expected life expectancy, and any repairs that need to be done or will need to be done soon.
Also be sure to inspect the condition of the change machines and any card payment system that the laundromat might have. After all, if your customers can’t pay you, you don’t have much of a business.
Condition of the Infrastructure
If the laundromat has the newest and best machines available and yet the plumbing, electrical, or boiler are deteriorating, the laundromat is in danger of being worthless. Without good pipes, solid electrical, and an intact boiler, your laundromat will not function.
The infrastructure is just as essential to a laundromat business as the washing machines and dryers. The only difference is that the infrastructure is not visible to the customer. Therefore, any upgrade or overhaul of the infrastructure is unlikely to bring in any more business like replacing washers and dryers likely would.
This makes it even more critical that your infrastructure is in good shape, or that you are already factoring the costs of upgrading it in your calculations. A simple visual inspection of the plumbing and electrical in the bulkheads, the electrical panel, and the boiler will give you clues to the condition of the infrastructure.
Look for rust on pipes and wonky patches and workarounds that indicate a DIY job on the plumbing. Look for open wires, black char marks, and excessive electrical tape that may cause dangerous electrical situations. Check that the boiler is functioning and that the boiler tank is holding water.
Again, we highly recommend having each system checked during the escrow period should you proceed to make an offer that is accepted. Finding these problems before you take ownership will save you a lot of money, even if you end up walking away from a deal.
All of the other things listed in this post are secondary to this one. When you buy a laundromat, you are paying for the performance of that laundromat. If the laundromat is in a great location, is in pristine condition, and runs smoothly but doesn’t make a profit, the laundromat isn’t worth anything.
We go into business to make a profit, and the performance of the laundromat will tell you if you should buy the laundromat or not. There are 5 main key performance indicators (KPIs) you should pay attention to when you’re deciding whether to purchase a laundromat or not.
- Opportunities for Improvement
- Outside competition.
Income is the amount of money that your laundromat brings in. One of the great things about laundromats is that there are many ways the business can bring in money. Often, you can add sources of income to increase the cash coming in each month.
Income sources to consider are, of course, the revenue from your washer and dryer machines. This will likely be your greatest source of income. In addition, consider some of the following sources of income (by no means exhaustive) that a laundromat may benefit from:
- Vending machines
- Bubble gum/toy/sticker machines
- Massage chair
- Video games
- Coffee sales
- Purified water sales
Include income from each of these sources and any others that a laundromat may benefit from. This number will vary dramatically depending on the size of the store and will probably range from around $5,000-$30,000+ per month. Obviously, the higher the income, the greater the potential to make more profit for your laundromat!
See our FREE Value Add Checklist for even more ways to increase your income at a laundromat!
Expenses is the amount of money that your laundromat spends to maintain business. In the laundromat business, your fixed expenses are typically pretty high, but your variable expenses are usually pretty low. This means that once you cover your fixed expenses, any income you produce above and beyond that will have a very high rate of return (even up to around 70%!).
Fixed expenses include costs like rent and employee salaries, usually your highest expenses. Utilities are variable expenses but should only take up about 20-30% of your income. Newer, more efficient machines will help reduce the percentage of income that your utilities comprise.
Of course, income is only half of the picture. The financial health of a laundromat is determined by the income of the laundromat minus the expenses. This number is known as the Net Operating Income (NOI). Expenses will also include any debt payments you may have from the purchase of the store and/or new equipment. Those debt payments aren’t included in the Net Operating Income, however.
Many new laundromat owners determine a laundromat’s income and expenses, find the NOI to their liking, and leave it at that. But not us. We’re educated laundromat owners and hopefuls. We know that the story is a bit more complicated than that. There are a few more things that we need to know before we can issue a laundromat a clean bill of health. Let’s check out the next one.
If you determine the income and expenses, find their difference, and are happy with that NOI that is a great first step. Time to take the next step. You need to see if there are any negative trends in the business over time. Perhaps one of the easiest ways to do that is to take a look at the bills. Slightly more accurate is to look at the usage on the bills. Was the usage higher before? Over the last 3 months, 6 months, or a year has it been trending down? Lower bills is obviously great, but lower bills typically indicate one of two things:
- New, more efficient machines.
- A decline in business.
It will be critical to determine which is the case for the laundromat you’re inspecting. If business is declining, you MUST get to the root cause(s) of the decline. Once you pinpoint the root cause(s), you need to determine if you think you can stop the bleeding, or, better yet, turn things around.
A downward trend in the laundromat’s business also means that you are inheriting more risk if you buy the laundromat. Your offer price and/or terms should reflect this increase in risk. It doesn’t do you any good to buy a laundromat that has a great NOI now but will be cash flow negative in 6 months because business is trending down. Determine that BEFORE you purchase the laundromat.
Opportunities for Improvement
We hinted at this already when we talked about the laundromat’s income, but you should be scanning for opportunities to improve the laundromat from the beginning. As mentioned before, download our FREE, no email required, Value Add Checklist to help you look for opportunities to increase income, which will increase your cash flow AND the equity in your laundromat.
It is particularly good if you can identify income sources that are easy to incorporate immediately to improve business. Purchasing an under-performing laundromat and increasing the cash flow and equity in the business through proper management is a great way to build wealth quickly!
Before purchasing a laundromat, you MUST have a good idea of what your competition looks like. Are their new, larger stores in the area that are threatening to siphon off customers and cause your business to trend down? Are the surrounding laundromats run down, dingy, dark, with broken down machines? If so, is there an opportunity to invest in your laundromat to draw more customers and improve your business as well as the community?
You will definitely want to spend a little bit of time in each of the competing laundromats. Find out what they do well and what they don’t do well. It will give you the opportunity to improve your laundromat and find ways to fill the holes your competition has. So, go do a load of laundry in each of your competitors’ laundromats and take some notes of their prices, the condition of their stores, the amount of traffic they have, what revenue streams they have, and anything else you find insightful or valuable.
Even more important than understanding the surrounding competition is knowing if a new laundromat is being built in your area. Nothing will hurt business more than a nice, new, large laundromat that is built near yours. Many of your customers will flock to the new laundromat. While you may recover some of them eventually, your bottom line will definitely take a big hit.
Don’t let that happen to you. Find out about any new laundromat construction in your area before you buy. You can do this by driving up and down all of the streets a mile in every direction. You can also go to the city planning division of your city and see if any permits have been pulled for new laundromat construction. It is worth the extra effort, trust me.
Health of the Laundromat
It is only after you have answered the questions of the 5 Key Performance Indicators above can you issue a laundromat a clean bill of health. It takes all 5 factors to make that determination. Don’t stop with the pro forma data that gives you the income and expenses. Dig a little deeper to get a more accurate picture of the health of the laundromat.
If you examine all 5 Key Performance Indicators and find out that the laundromat isn’t as healthy as advertised, that doesn’t necessarily mean you need to kill the deal. It may mean you need to do a little more homework on the business. It probably means you need to alter your offer and either offer less money and/or change the terms of the offer. After all, you definitely want to make sure you’re getting a return on the investment that you make in the business. That’s the primary reason to buy a laundromat.
Systems are important for every business, even simple businesses like laundromats. Your systems will vary depending on how you intend to run your business. If, like me, one of your goals is to make your laundromat investment as passive as possible, you will need to rely on good systems.
The laundromat you are considering purchasing may have great systems in place already, or, more likely, it may not have great systems in place. Either way, you’re going to want to know what systems are utilized and how effective and efficient they are.
I’ll mention a few categories of systems to consider, but this will need an entire mega post on its own to really make this detailed and practical. Look forward to that in the near future. In the meantime, here are some categories that you’ll want to establish and work toward optimizing.
When it comes to laundromats, if you’re not planning on doing the work of the upkeep of your laundromat yourself, you’ll probably either have a part time attendant who keeps your laundromat clean, or employees who are there during open hours to keep the laundromat clean, help customers, and take care of any minor issues.
It is very important that you have good attendants. You’ll want to have good systems for finding, hiring, and training your employees. Personally, I handle the hiring and big picture/culture training of new employees and utilize a current employee to train new hires on the details of their job.
In terms of the big picture/culture training, I tend to emphasize the three main roles of each of my employees.
- Keep the laundromat clean! No one wants to come to a dirty laundromat to wash their clothes. It is counter to their objective. I’ve even heard customers who switched to my laundromat because they ended up bringing roaches home in their clothes from another dirty laundromat. Yuck! No one wants that.
- Be pleasant and helpful to customers. Would you rather go to a store with friendly, helpful employees, or one that has an employee with an attitude that won’t help you? Yeah, your customers feel the same way. You can gain a lot of customers just by having friendly, helpful attendants.
- Take care of minor issues promptly; report major issues promptly. This is pretty self explanatory. Broken machines, leaks, power outages, and other issues cost you money and frustrate customers. Be prompt in taking care of issues.
When it comes to employees, you’ll also need systems to keep them accountable, systems to pay them, and systems to provide a substitute for them when they miss work.
Another category to systematize is your coin collections. You’ll need a system for when you collect, how you collect, and what you do with your money when you collect.
For example, when I collect coins, I use a scale to weigh the quarter and the scale tells me how many quarters I have. I collect one type/size of machine at a time and record each type/size separately. For example, I’ll collect and record all of the top load washers, then the 20lb machines, then the 30lbers, etc. This gives me an idea of which machines my customers are using, how often they are using them (turns per day), and which machines aren’t being used as much.
I record all of my collections in a spreadsheet that I created. It is available for free on the Resources page. This spreadsheet allows me to keep track of how much I collect from each type of machine, how much I collect total per collection, and how many turns per day each type of machine does.
These are the types of systems you’ll want to put in place for your collections if they are not already present.
When you own a laundromat you’ll become real familiar with bills. I thought I had a lot of bills personally before owning a laundromat. After I bought my first laundromat I almost drowned in the bills. From rent to utilities, permits to taxes, there are plenty of bills to go around. You can easily lose track of them. Or, at least I can easily lose track of them. Admittedly, this is not my strong suit.
In my opinion, the best option is for someone else to worry about paying the bills each month. But, that may not be possible. The second best option, in my opinion, is to make auto payments whenever possible. The downside to this is that it is easy to lose track of the bills and not verify their accuracy. Also, if your laundromat isn’t making a large profit or you don’t have a reserve, you may be close on your bills and you run the risk of having insufficient funds.
If you’re paying the bills yourself and you can’t, or don’t want to automate the bills, you’ll need a system to ensure your bills get paid so your business doesn’t get shut down. Find what works for you and stick to the system.
Another, often overlooked, category is income management. How are you going to utilize the money that your laundromat is making? This will be highly personal, and you should probably consult your tax professional when deciding how to best deploy your money.
There are a few things to consider. How large of a salary will you take? Will you take a dividend? Are you going to live off of the laundromat income? Will you reinvest a portion into your business? Will you invest a portion into other assets, like more laundromats, real estate, another business, or stocks? How much will you hold in reserve?
It helps to think through what you are going to do with your income before you buy your laundromat so you can plan your growth strategy. Many of us on here are shooting for financial independence and using laundromats to help us get there. Take the time to plan out how to wisely use your laundromat income to accelerate your journey to financial freedom!
Go Buy a Laundromat!
Ok, now that you’ve considered these 4 essentials, you’re ready to get out there and buy a laundromat! Go find financial freedom through laundromat ownership with the rest of us!
If you need more information or assistance, let me point you in a few different directions that will help you even more!
Join our community at Laundromat Resource and receive a FREE e-book entitled, The Keys to Buying Your First Laundromat. You’ll learn even more about how to actually buy your first laundromat and take your next steps down the path toward your financial freedom!
Our blog has tons of free information on everything to what makes a laundromat a good investment, to how to buy a laundromat, to how much it costs to buy a laundromat. It’s a great resource and is growing every week with new information and resources! Be sure to subscribe to the blog or create an account on Laundromat Resource to get notified when new posts, videos, and resources are released!
We have the best offer you’ll find anywhere! We offer a free coaching call to anyone who has any questions about laundromat ownership or the process involved!
Not only that, but we’re committed to walking you through the process of finding a laundromat all the way up until you get your laundromat into contract, absolutely free! No strings attached. As long as you’re actively looking for a laundromat to invest in, we’ll stick with you to help you get it done. It’s called our, Your First Laundromat coaching program! You won’t find another offer like it anywhere!
The Laundromat Resource Forums are a great place to ask your questions, get help from experienced owners, and offer input to others! This is what we want to be all about. Laundromat and real estate investors and prospective investors helping one another out.
We’re glad to offer our experience and wisdom, but we also recognize that it is limited. There is so much collective wisdom out there to help all of us achieve our goals and find financial freedom!
Take advantage of our offerings, information, and resources and take a big stride down your path to financial freedom!