The common narrative in laundromat industry circles is that laundromats are a great source of passive income. The story goes, all an owner needs to do is collect quarters once a week and the business will basically be an ATM machine spitting out cash. The question is, is that still true? Was it ever true? And, most importantly, is laundromat ownership a passive investment that you should consider?
While not entirely passive, laundromats do provide a high rate of return, usually 20-25%+, for a minimal amount of time investment. Any business that deals with people and equipment will need some managing, but there are ways to set up your laundromat business to make it relatively passive. Three of the best ways to make owning laundromats more passive are to utilize technology effectively, utilize a management company, and utilize a fund.
I made a video discussing how passive laundromats are. You can check it out below. Since the time that I recorded that video, some new tools and options have presented themselves that have allowed laundromats to be more passive. We’ll discuss some of those tools and options in this blog post.
The first way to make your laundromat business more passive is to properly utilize technology and systems to ensure you’re providing high-quality service consistently. The laundromat industry has been relatively slow to adopt new technology, but it is happening now at an accelerated pace.
Companies like Cents are creating platforms and integrations that are giving mom and pop laundromat owners big business capabilities without big business budgets. The Cents platform is a type of business-in-a-box that can meet laundromat owners where they are at. And I’m not just saying that because they are sponsoring this post.
Consulting clients of mine have used the Cents platform to start a laundry drop-off service or pick-up and delivery service, and they have also used it to scale their already robust businesses even further. It’s a platform that meets owners where they’re at in their business but can also grow with you as you scale larger or into different offerings.
Platforms like Cents help you manage your business and your employees to ensure that you can provide quality, consistent service to your customers every time they engage with you. A platform like this coupled with some simple (or complex) systems helps you minimize your time investment in your company without sacrificing quality.
If managing employees and establishing and overseeing systems isn’t what you’re going for, there are other options that can make owning laundromats even more passive. One of those options is to utilize a management company to oversee your business for you. This is similar to owning real estate and hiring a property management company to oversee your property for you.
Management companies, if they exist in your area, are few and far between. A more likely option is that you find a broker who knows the laundromat business well who is willing to manage your business for you. However, I will note here that I have partnered with a couple of laundromat rock-stars, Ross Dodds and Michael Ambrose, to establish a laundromat management company. Feel free to inquire about our current capacity to take on new clients if you’re interested in that service by sending me an email at [email protected]
A management company should handle the basic tasks of laundromat management for you, including hiring, training, and firing employees, money collection and deposits (optional), machine maintenance and repairs, and perhaps even marketing and advertising. They should also provide you with monthly reports that communicate the income and expenses for the month, any work done on the laundromat, and what will need to be done in the coming month.
For these services, a management company is compensated most commonly in one of two ways. The first is a flat rate. Some management companies, or more often brokers who agree to manage, will charge a flat rate. The more common compensation structure is payment based on a percentage of the monthly gross income. It’s usually 5-10% of the gross income.
I highly recommend compensating a management company based on the latter payment structure based on a percentage of gross income. My main reason for saying this is that it aligns your interests as the owner with the interests of the company managing your business. Paying a flat fee doesn’t incentivize the company to maximize your revenue while paying based on a percentage of gross income incentivizes the management company to increase revenue as much as possible. In the latter case, both the owner and the company make more money. Smiles all around!
The responsibilities of the laundromat owner who utilizes a management company are reduced to managing that manager. This includes reviewing the reports, verifying the job is being done well and the business is being taken care of, and verifying the correct amount of money is being deposited and paid out every month. Management companies keep track of laundromat performance and create data reports using platforms such as Cents. That makes this a pretty passive route to laundromat ownership.
The third, and most passive, way to invest in laundromats is to invest in a fund. I’ll be honest right up front, I don’t know of any other funds other than the one I co-founded with the above-mentioned Ross Dodds and Michael Ambrose. But I also have to say that you’re probably not going to find a better team to work with even if there are others out there.
With that out of the way, let’s talk about what it means to invest in a fund. When you invest in a fund, you’re essentially pooling your money with other investors to invest in deals larger than you can invest in on your own and/or invest more passively than you can on your own.
A fund basically works like this. There is a target amount of money that a fund raises from investors. The fund managers then use that pooled money to buy investments that they see potential in. Particular funds may target stable cash flowing investments, value-add investments, or some combination of the two. Before investors commit their capital to the funds, the investment vehicle is specified, terms of the fund are communicated, and timelines and exit strategy are explained. As the fund’s investment(s) begin paying out on the agreed-upon schedule, investors can expect monthly or quarterly reports to be informed on the status of the investment and fund.
If you’re interested in learning more about investing in laundromats through an investment fund, you can check out Diligence Capital Investments. Sign up on the form to be put on our email list to be notified of opportunities to invest with us.
In the traditional sense, no, laundromats are not passive investments. They are, however, a business that dissociates your time from income and requires relatively little time to manage. There are also ways to make the business more passive for an owner/operator by utilizing technology and systems well. There are also ways to make the business a more passive investment by utilizing a management company or by investing through a fund, such as Diligence Capital Investments.
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