Ever since the classic book, Rich Dad, Poor Dad came out, it enlightened the perspective of many investors and would-be investors. One of the main takeaways of that book was that cash flow is king. Robert Kiyosaki, the book’s author, prescribed the investment strategy of buying cash-flowing assets that pay for your lifestyle, instead of using a job, where you trade your time for money, to fund your lifestyle. This concept has been revolutionary. But it begs the question, what is the best cash-flowing investment to acquire.
Laundromats make the best cash-flowing investments. With an average, unleveraged return of 20-30%, the average laundromat investment is far superior to the average real estate investment, which will cash flow between 7-10%. The average dividend yield for the financial sector is just 4.7%. The cash flow return from laundromats outperforms just about every other investment average.
I made a video explaining how laundromats can make you wealthy. Laundromats have more going for them than just high cash flow. They can help you build serious wealth if they are run correctly. You can check out that video below.
But let’s dig into why laundromats have high cash flow.
The way laundromats are valued dictates how much cash flow you can expect from your investment. Laundromat values are a function of how much net income they produce. The value is determined by applying a multiple to the net income. The average multiple applied to the net income is 3.5-5. This means, on the high end, if the multiple used on the net income is 5 times, your return on a cash investment would be 20%.
Let’s do an easy example. Say a laundromat produces $100,000 of net income each year and it’s in pretty good shape. It is basically turn-key. It has newer machines, a long lease, and it’s a clean store. That means it will probably be valued at a 5x multiple.
$100,000 x 5 = $500,000
So, the value would be $500,000. To put it another way, an investment of $500,000 that produces a cash flow of $100,000 yields a 20% return on investment.
$100,000 / $500,000 = .2, or 20%
The way laundromats are valued, then, results in a high cash flow.
One of the great things about laundromats is that they can be improved. By adding new equipment, raising prices, implementing better marketing, and managing the business better, laundromats can increase their cash flow output to the wise investor. One of the biggest reasons that laundromats fail is they are mismanaged, or worse, neglected. By implementing a laundromat management software like Cents, you can stabilize a failing business, increase cash flow, or even scale your business much bigger. Cents gives you the tools you need to free your time from your income with your laundromat business.
Laundromats are powerful cash-flowing assets, but that power is compounded through the use of leverage. You can leverage your money by taking out loans for the acquisition of your laundromat or the purchase of new equipment. By utilizing leverage, you can dramatically increase your cash-on-cash return on your investment. That 20% return on your all-cash investment can quickly turn into a 40%, 50%, or much more return on your cash invested when you properly utilize leverage for your business.
Similar to other uses of leverage to acquire assets, your laundromat customers are the ones paying down your loan, so not only are you getting a higher cash-on-cash return, but you’re also building equity in your assets as the loan is paid down.
Laundromats provide investors with high cash-on-cash returns when acquired unleveraged with cash, but the ability to increase that cash flow through proper business management with Cents and through the power of leverage makes laundromats far-and-away the best cash-flowing asset available to most investors. To see more about how to buy your first laundromat, check out these free guides. They will walk you through everything you need to know. Also, be sure to sign up for one of our free weekly webinars to learn how to buy, optimize, and scale your laundromat business!
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