Laundromat Resource Forums Laundromats Valuation for buying an unprofitable laundromat

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    • #5050
      CKH
      Participant

      Has anyone here ever negotiated and bought a failing laundromat? I’m looking for a low barrier to entry (i.e. very cheap) laundromat, so I sent out a letter to a few candidates and got a response from one of them. After a nice conversation with them, I have some P&Ls here that show what we talked about in our conversation: the owners have been winding down the business in recent years (disinvesting) in anticipation of closing it this year when the lease is up. I know that any offer to purchase would have to be contingent on negotiating a good new lease, but I honestly have no idea what to offer if the NOI is in the red? I started to try to compile a valuation based on what the machines might be worth, but I don’t have enough information on the machines to do that, and just thinking of doing it that way made me nervous, because it’s unconventional.

      I do understand that this is a risky acquisition. I’m still interested in doing this because I see a lot of potential upside to this laundromat: high traffic location on a street that is not too high of a speed limit, nearby shopping, decent sized and growing population of low to medium income families, a lot of recent immigrants, a decent percentage of multi-family units, plenty of onsite parking, and lots of opportunities to add value by fixing machines, adding vending, and upgrading the cosmetics of the interior. If the current management had chosen to keep machines in good repair instead of consistently choosing to just let them sit broken, then I think this store could be making a decent profit.

    • #5051
      CKH
      Participant

      Reading back over this post, I should have made clear, this laundromat is currently losing money every month.

    • #5122
      Ryan Foster
      Participant

      Sounds like it’s worth $0.
      To be clear they have said to you they have no intention of renewing the lease? If so you don’t need to really have a conversation with them. By the sounds of it the location needs a retool. You can do that with new equipment or “newer” used equipment. I would get the demographics for the location and concentrate on 1 mile radius. 90% of your biz will come from that 1 mile. You want at least 40% renters and anything over 50% is great. You also want a good density of population. Also what’s the competition like? Are there 3-4 store in that mile radius? Or zero? Laundromats are capital intensive businesses but you can get creative to make it work. Another thought is The current owners most likely will have to return the space to it previous condition at move out..which will be a large expense for them. You could also just offer to take over the lease for them contingent on the landlord giving you a new favorable lease in exchange for you rehabbing space and getting it back to 100%. My gut says they want to walk and are trying to get a last second money grab from you..don’t be that person..

    • #5143
      CKH
      Participant

      Ok so to answer a few of your questions:

      Yes, the owner is planning to just sell the machines and close it when his lease is up.
      But, I don’t think he’s trying to scam me. He’s been very honest and up front about what mistakes he has made and how those mistakes have caused the laundromat to be where it is today in terms of lack of profits. And I reached out to him in the first place. Not the other way around.
      The demographics are so-so. In 2018, there were 18,000 people living within 1 mile. But the percentage of renters is lower: 35% if I recall correctly.
      But, competition is also low. There are no other laundromats within at least one mile, might be more like 2. They are much nicer, but they are also on the other side of two freeways. This one is smack in the middle of a blank zone in terms of competition in a sort of central part of the city. The rest of the laundromats in town are clustered around freeways.

      I think I’m going to have a distributor take a look at the store and let me know if they think it can be made profitable. That is, if either one of the two I reached out to will get back to me!

      • This reply was modified 1 week, 2 days ago by CKH.
    • #5290
      CKH
      Participant

      I’ve been getting quotes for retools from distributors and asking them for their thoughts on what a laundromat like this is worth. I thought I’d come here to update the thread with their answers for others who may be in this situation. One person said that in this case you’re really paying for the infrastructure of the place, because in our area it’s very hard to get the city to approve a new laundromat. He recommended a purchase price of $25k-$28k. Another one said that in these cases, people often take a 1x multiple of the gross revenue, which in this case works out to much higher than what the other distributor suggested. I really can’t see offering that much, since it’s going to be so pricey to retool the place.

    • #5292
      Emerson
      Participant

      CKH,

      I am glad you came back with this information, as I was tempted to previously weigh in but not sure my comment would help.

      I had one old salty industry veteran tell me in these scenarios he would only be willing to pay for the infrastructure. Now I did fail to ask him how he values the infrastructure on an existing mat in such a scenario.

      On new builds he mentioned around 60k for infrastructure.

    • #5295
      CKH
      Participant

      Wow, that just seems so high to me. I mean, I know it’s not because that’s likely what it cost to put in, but when you contrast that with some of the stories from the podcast, like the man who bought a laundromat for $2,500, it seems extreme, like maybe we’re being duped into thinking infrastructure is worth more than it is. I really got into this looking for a bargain that I could add value to through sweat equity, but the cost keeps ballooning.

    • #5302
      Chris Stark
      Participant

      The impact fees of adding washers varies from county to county. The fee in my little town is $1500 per washer so it does add up quickly depending the quantity in your store. The infrastructure is worth something to the person willing to pay.

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