How to Buy a Laundromat
Maybe you were convinced by the 15 Irresistible Reasons to Buy a Laundromat, or by the Laundromat Resource Podcast episode outlining why Laundromats Might Be the BEST Investment You Can Make, but you think you’re ready to buy a laundromat. Congratulations! You’re stepping into the world of business ownership.
This can be a scary step, and at times it will probably feel overwhelming, but you can do it, and we will be here to help you. This is the article that will set you on the right path to purchasing and owning your very first (or next) laundromat. I’ll take you through the things you need to know before you get started. But, let me emphasize, the most important thing is that you GET STARTED.
Many of you will read this article, absorb the information, and your lives will look the same as they do now a year from now. That’s because in order to get the life you want, you have to take action! Massive action, as is so popular in motivational circles right now, is best, but any action is better than no action. By the end of this article you’ll know what you need to do to actually purchase a laundromat. But, more importantly, you’ll have a step that you can take today! Right now! I encourage you to take it and see where it leads you.
So, let’s talk about what needs to happen and in what order for you to buy a laundromat.
You’re on the Laundromat Resource blog so you’re off to a great start. Before getting into a new endeavor, it’s incredibly important that you educate yourself on the industry, the business, and even yourself. At LaundromatResource.com we’re committed to providing high quality educational material to help you find, analyze, purchase, and run your laundromats (yes, that’s plural). But we’re not the only game in town. I encourage you to scour around to find varied sources of information. The more information you have from experienced, knowledgeable sources, the better off you will be when it’s time to pull the trigger.
But let me offer you a word of caution. It can be tempting to get stuck in the knowledge accumulation phase and never do anything with that knowledge. Remember, the most important thing is that you GET STARTED.
- Reading blogs and articles
- Subscribe to magazines- Planet Laundry, Coin Laundry
- Listen to podcasts
- Network with owners and brokers- this one is critical. Go to association meetings or laundromat owner meetups.
Set Your Minimum Deal Standards
The first thing to do is to define why you want to buy a laundromat. What are you trying to accomplish? What goal is this going to help you achieve? Are you looking for a cash flow investment? Are you trying to generate equity? Are you looking for freedom from your 9-5?
By defining the “why?” of laundromat purchase it will help you set what I like to call your “minimum deal standards”. Setting your minimum deal standards will help you quickly identify whether a laundromat is a candidate for further inspection or not.
Your minimum deal standards are what you will require from your laundromat. It will include location, size, and returns of your laundromat. Here is an example of a minimum deal standard:
I want a 2,000-4,000 square foot laundromat located on a high visibility corner in a neighborhood that has at least 50,000 people within a mile of the store. The laundromat needs to produce at least a 25% cash on cash return on my investment.
By defining your minimum deal standards you will be able to quickly and easily weed out potential laundromats to analyse. This will save you time and money as you commence your search. Use our FREE Minimum Deal Standards Worksheet to help you determine what you want out of a laundromat!
We have a FREE budget calculator to help you figure out how much laundromat you can afford. But the free calculator is limited. There are a few considerations you need to make when deciding how much you should spend on a laundromat. Here are some things to think about:
- How much money do you have access to? That includes your money that you want to invest as well as any money from partners and/or money you will raise (if you do).
- Are you going to finance any part of your laundromat purchase?
- Are you buying a turnkey laundromat (already fixed up and in good shape) or are you buying a fixer-upper?
- What condition are the machines in? Will you need to be replacing them? If so, will you finance them? If so, how much will they require for a down payment?
- Be sure to hold back at least 10% in reserve. Don’t invest all your money up front. If something happens early on that requires capital and you haven’t set any aside for reserves, it could jeopardize your investment.
Here’s a quick summary of how to calculate how much laundromat you can afford if you don’t want to use the free budget calculator.
- Determine how much capital you have access to. Calculate 90% of that amount.
- Determine if you want to buy a fixer upper or a turnkey laundromat.
- If you’re buying a fixer upper, you’ll have to estimate the construction costs and subtract that figure from your available capital.
- Multiply your final accessible capital (minus 10% for reserves and renovation costs) by 4.5.
- Determine if you are using financing. If you don’t know the financing terms you’ll qualify for, you can assume you’ll qualify for a 60% loan. So, you’ll use your available capital as a 40% down payment. (There are MANY ways to finance a laundromat and you can definitely get better leverage than that, but this is a safe, conservative figure)
- Calculate how much laundromat you can afford using the following formula:
Available capital x .9= Investment Capital (IC)
IC-renovation estimate= Down Payment (DP)
DP/(DP % of loan)= Maximum price of laundromat
Here’s an example calculation assuming you have $100,000 and a loan at 60% of the value of the business. The laundromat you are buying needs about $10,000 of work to renovate it:
$100,000 x .9= $90,000
$80,000/.4 (40% down payment)= $200,000
Find a Deal
Once you have a basic level of knowledge about the industry, are clear on your minimum deal standards, and know how much money you can invest in a business, you’re ready to start looking for a deal. You can, and should, be browsing deals before this point to help familiarize yourself with what is on the market, but this is where your search begins in earnest.
You can find laundromats for sale in a variety of different locations. One of the best locations to see a high volume of laundromats for sale in a short amount of time is by clicking through some of the online sites that list laundromats for sale. A Google search for “laundromats for sale near (your location)” should direct you to a few websites that list laundromats for sale.
Laundromats on these sites, however, probably won’t be the best deals. The best deals will probably come from brokers/agents who specialize in laundromats if you are in a larger market. These brokers know laundromat owners, know owners who are interested in selling or who need to sell, and often those laundromats never make it onto the websites. The brokers/agents often have a list of investors that they offer laundromats to before they list them online. The best deals get swooped up before you ever even see them.
One of the best things you can do, then, to find a good laundromat deal to purchase, is to reach out to some brokers/agents and let them know what you’re looking for (your minimum deal standards). This will help them focus on what you need and will hopefully bring you to mind when they run across something that hits your standards.
This is an ongoing relationship that will take time and effort. Brokers and agents are much more likely to send deals your way if you make the effort to build a relationship with them. So, follow up with them regularly. Take them to coffee. Refer resources to them. Find ways to make their life easier and they will find ways to make your life easier.
Another great way to find laundromats for sale is by walking into stores and speaking with an owner. I had an unlikely situation happen where I was out to dinner for Taco Tuesday at a small Mexican Food restaurant with a couple of buddies when we heard a fire truck getting closer and louder. It turned out that the laundromat next door had a dryer that caught on fire! I joked with my buddies that the laundromat would probably be up for sale pretty cheap soon. We finished dinner and headed home.
A couple of days later I was driving by and decided to pop in to see if the owner was there and to ask him if he was interested in selling the laundromat. It turned out that he was there. He was hesitant to reveal that he was the owner, as is pretty common in this industry, claiming that he was the manager. But, eventually I was able to put his mind at ease.
I explained that I was next door the day of the dryer fire and asked if he was interested in selling the laundromat. He perked up and said that he wasn’t quite ready to sell it yet but that he owned another smaller one across town that he wanted to sell! About a week later I met him at that second laundromat to do some due diligence on it.
It turned out not to be a good fit for what I was looking for, but it just goes to show that if you ask, you never know who might be interested in selling. Asking existing owners if they are interested in selling or if they know anyone who is, could be a great way to pick up a deal!
The key here is that you start looking for your first (or next) deal. Beginning online is easiest but it is vital that you begin developing relationships with brokers and agents who specialize in buying and selling laundromats. If you don’t know where to start, often the websites that list laundromats for sale will provide contact information for the agents listing them. You can contact those agents to start developing a relationship with them.
If you are located in California, we at Laundromat Resource help pair owners selling laundromats with buyers looking to purchase laundromats. Feel free to contact us to help you find you first (or next) laundromat to purchase! Jordan is a Commercial Real Estate Agent and can help you find and purchase the perfect laundromat, with or without the real estate, to fit your needs.
If you live outside of California, we at Laundromat Resource might be a good place to get a referral to an agent that can help you find a laundromat to invest in. We have great relationships with agents all over. And, if we don’t directly know of an agent in your area, we will help you find one for free. We know what to look for in a good agent and how to weed out the bad agents. We’re committed to helping you find financial freedom with laundromats and that starts with a good relationship with an agent you can trust!
If you haven’t listened to The Laundromat Resource Podcast episode 4 parts 1 and 2 to find out how powerful it can be to purchase the real estate your laundromat sits on, check them out and consider signing up for a FREE coaching call with Jordan to find you the perfect real estate and laundromat combination to build your cash flow, equity, and tax advantages!
In summary, here are some places to start looking for your next laundromat investment:
- Websites that list laundromats for sale
- Laundromat brokers
- Stop in at laundromats and ask to speak with the owner
- Meetups and masterminds
Once you find a laundromat that seems to meet your minimum deal standards, it’s time to dig a little deeper. This is the time to put the laundromat under contract and then go through the process of verifying the numbers that the seller gave you. A saying I like to use when purchasing a laundromat or real estate is:
Due diligence or don’t profit!
If you don’t verify the performance of the laundromat you’re setting yourself up for a big disappointment. A good agent will be able to help you walk through the due diligence phase, but here is a hard-earned word of warning for you: Despite an agent’s fiduciary duty to put your best interest before their own, not all agents will operate that way, unfortunately. Agents are motivated to sell a laundromat and are also motivated to sell it for as much as they can. We are only paid when we sell and are paid based on a percentage of the sales price. Unfortunately, some agents take advantage of that, especially if you’re new.
The agent that helped me purchase my first laundromat withheld some key information that has made that laundromat very difficult to deal with. It was a hard earned lesson for us. The agent that helped us purchase our second laundromat also withheld some key information that resulted in the income of the laundromat dropping dramatically essentially from day 1! The lesson is age old, but crucial: Trust but verify.
We have an article that thoroughly explains how to do your own due diligence on a laundromat that you have put under contract. We won’t go into details here, but here are some of the highlights:
- Confirm the collection amounts through a 5-7 week coin count with water usage. We have a FREE Verification of Income Worksheet on our Resources page.
- Ballpark the income using the water analysis method. We have FREE worksheet to help you do this on our Resources page.
- Verify the age and condition of the machines. Use our FREE Store Details Worksheet on our Resources page.
- Verify the lease terms and length (if applicable).
- Verify the income through the seller’s tax returns (2 years) and/or bank statements (2 years).
And don’t forget, NEVER pay for potential, only pay for performance. Sellers will often try to sell you on the potential. You’ll hear things like, “The prices are low right now, so if you raise them up to market price you’ll bring in $x.” They they will try to value their laundromat based on $x, not on how much they are actually bringing in. But, if it were that simple, why didn’t they just raise their prices? And even if it is that simple, that’s work you do and the risk you’re taking, so don’t pay them to do that work and take that risk. Pay them based on the current performance of the laundromat.
You’ve done your due diligence and have adjusted your numbers accordingly. Maybe the collections weren’t quite as healthy as advertised, the machines were a bit more used than their shiny facades concealed, the utility bills were higher than the pro forma touted, or whatever. This is the phase of the deal where you rerun all of your numbers with the new information you have and, based on your minimum deal standards, renegotiate what you’re willing to pay the laundromat.
This is another phase of the process where having good representation or a knowledgeable third party can really help you get the deal that you need to make your numbers work. Negotiations can be tough, but the key is to keep it numbers based. Try to check emotions at the door.
My first negotiation with my broker (yes, I had to negotiate with my own broker… I can’t emphasize enough how important it is to find someone you can trust to help you acquire a laundromat, or any investment, really) was an emotional experience. The reason it got emotional for me was because I didn’t have any minimum deal standards. I didn’t know exactly what I wanted, or needed, from my investment. And while I did get concessions from the sellers during our renegotiations, they proved to be inadequate. I’m still paying for that mistake.
Having a third party negotiate for you, whether that’s with the seller about price and terms or with the landlord regarding the lease, can take the emotional factor out of the equation. Emotions are a wild card. Minimum deal standards are predictable. Communicate them clearly to your agent and allow them to do their job on your behalf.
Of course, you can negotiate yourself. If you are an experienced and skilled negotiator, and you understand the business and process well enough, feel free to negotiate on your own behalf. You are, after all, the one who knows what you want the best.
If you do decide to go that route, may I suggest to you my favorite negotiating book, “Never Split the Difference: Negotiating As If Your Life Depended on It” by Chris Voss. I learned a TON from reading this book (6 times!) and I bet you will, too. In fact, I recommend it even if you don’t plan on doing negotiations yourself. You can bet you will find yourself in negotiations with someone at some point in your business and investing career.
Close the Deal
Ok. Deep breath. You’ve gone through all the steps and have done your due diligence. Everything seems to check out. It’s time to close the deal. This generally consists of signing some paperwork and a transfer of money. You’ve done most of the hard work already. So why include this as a separate step?
If this is your first transaction, this step is potentially the most terrifying. You’re about to make a big commitment that will have ripple effects in your life. And, not all of the ripple effects will be good. Laundromats can be great investments, but they aren’t perfect.
I’ve had MANY problems arise over the years with my laundromats. In fact, I’ve had times that were so trying to me that I would have handed you the keys and walked away from my laundromat and all the quarters in my machines if you were standing in front of me and were willing to take them from me. You might experience something similar at some point, although I didn’t have resources like this one to remind me why I was in this business.
This is why, when we sat down to establish our minimum deal standards we began with a discussion of “why?” This is the phase of the process where you need to pull up that Google Doc or Evernote note where you wrote down why you decided to pursue investing in a laundromat. Do this to calm any nerves you might be feeling, but also to pump yourself up! You’re taking a BIG step toward your financial freedom! Even if this is a small laundromat deal that only brings in a few hundred dollars a month for you, it’s a first (or next) step in the right direction. And, that first step is the hardest one!
You’re doing it. Not only are you working toward your financial goals, you’re going to grow a ton through the process. And the more you grow, the more you’re able to handle. And the more you’re able to handle, the more success you’ll find. So be excited! You’re on your way to becoming a new and improved person!
The Real Work Starts
This process of buying a laundromat may prove to be smooth as butter for you, but, more likely, it was a stressful process and emotionally draining. If this was your first one, then just the fact that you don’t really know what to expect can suck the life out of you. Anticipation is the worst! But I need you to brace yourself because the real work is just beginning.
Ride that high of the excitement of owning a business! Embrace the newness! Anticipate the cash flow! Put your own touches on it! Try some novel ideas if you have them! It’s YOUR business! That’s the good news!
The bad news is that it’s YOUR business. If you’re not going to have it professionally managed then it’s up to you to optimize the business. It’s up to you to get and keep customers. It’s up to you to make sure that the machines are working. It’s up to you to make sure the coin changers are filled. It’s up to you to figure how to handle homeless people that want to take advantage of your space. It’s up to you whether your investment pays off or fails.
This is the real work of owning laundromats. It can be a lot, especially until you get the hang of it, but it can be so worth it. My point here is that once the deal is done you can’t let off the gas.
I have a customer that gave me a large (fake) coin a couple of years ago that I still carry around in my pocket to this day. Dated 1791 (lies!) it has a buffalo on one side and an Indian chief’s head on the other. Above the Indian’s head it says “Mind Your Business.” I keep it in my pocket to remind me to do just that. Find a way to remind yourself that, as well. Take care of your business and it will take care of you.