Coin Laundry Business - Is it passive income?

Question

I have recently sought interest in another possible income stream, the Coin Laudry business. I have found a couple in my area and am starting to analyze to determine if this would actually be a profitable and passive income business (after start up).

The current business I am looking at is one that is currently operating at about a 25K net profit. The owner is moving out of town. From what I have read, the best way to determine an offer price is the following formula net profit x 50/60 = offer price. (50 or 60 would be selected as the multiplier depending on the current state of the business and repairs needed.

The owner curtly has 2 PT emp. There is a folding service and also some nearby commercial accounts. There is definitely a value add component, such as vending machines, play are for kids and converting the coin machine to an electronic system as well as just some cosmetic updating to make the business more appealing. It is in a great neighborhood, well established area.

So, using this formula the offer price expected would be about 100K, which is the listing price. Although, after calculating the expenses, to included the loan amount, the profit would be 0, until the load is paid due. However, after that, one could expect about 2500/3000k /month profit.

Does anyone have a experience in this industry? Thoughts/comments/concerns??

Sincerely,

Kera Covani

Ken Barrett · Answer

A Laundromat without a lease is a truck load of used equipment. Overall this sounds like a bad deal to me.

How old are the machines? How much is spent on repairs? Does the owner do their own repairs? How much time can you put towards doing repairs? Paying a Service Tech $100+ to come out an un-jam a quarter will wipe you out.

I own 5 Laundromats and although it's flexible I still spend time each week working on repairs and upgrades.

There is an option for this store that I'm not going to post publicly but at the end of the day it will not be as passive as rental properties. More like a motel then an apartment building.

John Corey · Answer

Kera,

Do remember that the income (net of expenses) from this 'side venture' is not going to be included in the value of a property. Like owning a 2nd business, it will add nothing to the value of the portfolio.

Second, if it takes time and distracts you from the primary business, be very careful. Filling in free time is one thing. Taking your eyes off the ball to chase the pennies is a bad idea.

Synergy vs dissipating your energy. Eyes on target.

Andre Debs · Answer

Laundromats are not all passive as they seem to outsiders. I studied the industry quite a bit out of interest in buying a ‘mat.

The valuation of a laundromat is not as you mentioned. It is a multiplier, usually 1-6 depending on the condition of the equipment, terms and length of lease, machine count, etc, multiplied by EBITA and NOT the profit.

Owners typically don’t pay themselves which inflates profits which is one reason not to use the numbers.

You’ll also have to verify the income. There are several different methods to doing this, none of which are foolproof.

Consider that when switching to electronic payment systems,  you’ll have to pay the 3% merchant fee for card processing AND you might lose customers who prefer coin operated.

Considering the landlord wants to increase your rent tells us the lease is almost up or is already up. This will severely lower the multiplier used to make your offering price.

Kera Covani · Answer

@Ken Barrett thank you.

Kera Covani · Answer

@Mark Gibbs thank you for the detailed and informative response!

Mark Gibbs · Answer

I didn't see @Ken Barrett s post above. Listen to him, he knows what he is talking about. He also has a pod cast that might be of interest and you might learn a few things from that .

Mark Gibbs · Answer

Kera-

I have been evaluating this business for a few years and have been looking for the right opportunity. There are a few things that I have learned that might help you in your decision making process.

1) It isn't passive in the way that real estate can be. With a rental, once it is up and running you can expect your monthly check without much ongoing effort and maybe a yearly turn over. With the coin laundry you need to expect to be at the store a minimum of 2 days per week picking up money. More often if the store is busy.

2) You will need an employee to clean and handle WDF unless you intend to do it yourself, if so plan on being their daily.

3) You are on the right track with pricing. Another way I have see them priced is 1x gross or 3-5 x net. In either case you need to verify income; meaning tax records, monthly receipts, utility bills etc. Because it is a cash based business some owners will say I made "X" but only reported "Y".

4) Make sure you have a long term remaining on the lease. You not only need to have enough time to make back the money on your investment but if the landlord decides not to lease to you any longer there is virtually no value in the business. You can take the equipment but where are you going to put it and how much is it going to cost you to move it? These are huge issues to consider.

5) Demographics are important and you need to run your business better than everyone else in the area to grab business from every other laundry you are competing with.

6) Lastly, and I haven't dealt with this but I have seen the numbers. This is a capital intensive business. If the machines are old you may need to upgrade them. Think $4000 per washer for the smaller units and closer to $14K per unit for the larger units. Dryers run $3500-7800 for single vs. double stacks. Financing is available for equipment but as with any investment make sure your numbers work.

Distributors are good people to talk to but remember their business is to sell you equipment so they see things through the rose colored glasses.

Good luck

Kera Covani · Answer

@Michael Glaspie. Thank you for your response.

Is it a good business move to assume a business knowing it is unlikely to turn a profit for the first few years?

With rentals, I am more educated and well versed on evaluation of a “good rental” cash flo, NOI, returns. I am unsure of the equivalent when it comes to a coin laundry.

Seller is willing to offer financing at 75k down loan for 25 12 month payoff at 6%. So walking into 0 profit. In addition the landlord was to raise rent 500/ mo. This would also tie up all my cash.

Any thoughts?

Kera Covani

Michael Glaspie · Answer

Value add opportunities:

Snack Vending Machine

Laundry detergent/dryer sheets Vending

ATM Machine

Conversion to electronic systems would be a larger CAPEX expense but would cut down on manual labor of collecting coins and converting the coins.

All in all, I would recommend evaluating what your business plan is to add value. What profit is to be expected for each addition. Your exact breakeven point. See if the seller is willing to owner finance.

It sounds like you have done a lot of homework and you are ready to move forward. Best of luck and please keep us informed on your progress.

Coin Laundry Business - Is it passive income?

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