Hey BiggerPockets Community!
I’m excited to share a bit about my experience purchasing and operating a laundromat. I’ve seen a few questions about laundromats as an asset class, and would love to share what I’ve learned.
A bit about me: I’m a real estate investor (my husband and I own a 4plex in Oakland, CA), and SBA loan broker. In 2023, we were looking to expand our rental portfolio, but couldn’t find anything in our area that made sense. An out of state investment didn’t feel like the right fit for us either. It was hard to find anything that cash flowed enough to make it worth it to us, and I personally prefer to have the ability to manage my properties myself.
We decided to pivot into business acquisition. There was a lot of buzz around laundromats and our interest was piqued. We found one on BizBuySell and ended up purchasing it for $190k. In 16 months we generated $285k in revenue and then sold the business for $300k.
That experience taught me a lot about what it takes to own, operate, and sell a small business like this. I’ve come to think of this period of my life as my real world MBA, and view my laundromat as a fantastic starter business. My husband and I plan to use the proceeds from our sale to purchase a larger business in a few years using an SBA loan.
For those interested in exploring entrepreneurship through acquisition, I think laundromats are a great place to start. They’re typically stable, cash flowing businesses that are straightforward and simple to understand. If you’re already a real estate investor, you can certainly understand and successfully operate a laundromat.
That being said, there is a lot of misinformation online about laundromats. They are not the passive income dream that some influencers will have you believe they are, and getting a “free” laundromat likely isn’t as good of a deal as it might seem. Like all businesses, laundromats have problems and require time, effort, and money. For those who are willing to invest these resources, they can be fantastic businesses.
I wanted to address some of the most common questions I’ve seen about laundromats:
1. Are laundromats profitable?
Short answer: Yes, laundromats can be profitable, but profitability depends on a few factors. Like any investment, there are good and bad deals.
Location is key. We purchased our laundromat in a safe, middle class neighborhood. Laundromats are open to the public, and if the local neighborhood has a high crime rate and transient population, those can be potentially expensive problems that can affect your business.
We were fortunate in that we didn’t have too many issues with crime. During our tenure, someone tried unsuccessfully once to drill out the locks on our vending machine and coin changer, but nothing too eventful aside from that. Those are repairs that we had to pay for, however, and that can cut into your cash flow if these problems occur often.
Well maintained equipment is also key. If the age of your equipment is older, or it stops functioning, those repairs can also add up.
When we purchased our laundromat, it had a strong brand and positive reviews online. It was already generating steady income, and we were able to grow its revenue further by raising prices and improving operations in the wash & fold service, which led to better customer retention.
Our SDE (Seller’s Discretionary Earnings) was about $77k annually. SDE is calculated by taking the net income and then adding back certain expenses, such as the owner’s salary and non-cash expenses like depreciation and amortization. Those non-cash expenses definitely helped us out during tax season.
2. What does it cost to buy a laundromat?
The cost to buy a laundromat can vary widely depending on the size, location, condition of the equipment, and goodwill. Small businesses are typically valued at a multiple of SDE. Most commonly, laundromats are sold at a 3-5x multiple of SDE.
SDE = Net Income + Owner’s Salary + Non-Cash Expenses + One-Time Expenses + Income Taxes + Discretionary Spending
In my case, I purchased mine at about a 4x multiple of SDE for $190k.
3. What is the time commitment of owning a laundromat?
I want to dispel the myth that laundromats are passive income. Can they be more passive than having a 9-5 job? Yes. Can they be more hands-off compared to other types of businesses? Yes. But, they still require time and effort. Even completely self-serve laundromats require daily cleaning and light maintenance.
As far as time costs, expect to spend time each week troubleshooting equipment issues, routine maintenance, cleaning, and handling customer issues. Of course, you can delegate most of these tasks to employees, but then you should also budget time for employee management, hiring, and training. If an employee calls out sick or quits unexpectedly, you will have to step in to handle the day to day of your business.
The amount of work required from you as the owner will depend largely on what services your mat offers. We had a wash & fold service with pickup & delivery, which added complexity to the operation. But even if you have a completely self-serve laundromat, problems will still occur. Even new machines can experience issues, and when those issues mean that water is leaking all over your laundromat, you’re going to want to respond to that quickly.
It may not be that your laundromat requires that many hours in a week of actual work, but the times your laundromat will demand your attention can often happen unexpectedly.
In a typical week, we would work 7-10 hours on our laundromat, either being there physically or working remotely. However, we went through periods when the laundromat required more of our time, particularly in the beginning as we were getting to know the business.
4. What should I look for when buying a laundromat?
When buying a laundromat, it’s crucial to evaluate the financials carefully. Make sure you have a solid understanding of the revenue and expenses and that you are able to verify everything. Many laundromats take card payments these days, which is very helpful in verifying revenue.
Look at the lease terms – long-term leases with reasonable rent increases are important for keeping costs predictable, and can also be important for securing financing.
Also, check out the equipment and figure out what repairs or upgrades might be needed in the near future. I would advise anyone seriously considering buying a laundromat to bring in a technician to do due diligence with you. If the machines are 15+ years old, I recommend getting a quote to replace them. Many distributors also offer financing and can give you an idea of what monthly loan payment you’d be looking at. While it’s possible the machines could keep on chugging for years to come, I always like to take the conservative approach. Consider, if the machines did start failing in the next couple years, how would a loan payment affect your cash flow?
You also want to think–and this is perhaps the most important piece–how will this particular laundromat fit into your life? How do you plan to operate it? We never hired a manager because it simply would have taken too much out of our profits. I think it’s hard to have enough cash flow to hire a full time, quality manager who actually allows you to be completely hands off when you only own one laundromat. If you scale and buy a couple more mats, this becomes more realistic.
Laundromat vs. Real Estate
Here’s a quick compare and contrast of my experience buying a laundromat vs. real estate investing.
Obviously, your experience with real estate can really vary, particularly depending on the market you’re in. Our property is in the Bay Area, which is known for having more tenant-friendly laws. These are my personal takeaways:
Real estate has been more passive for me. Once a tenant is in and they sign a year lease, there’s not too much to worry about aside from the occasional fix here and there. However, we did have a tenant who stopped paying, and because of how impacted the eviction courts were, it took 6 months for him to get evicted. It’s actually not too bad of a timeline for the Bay, but was still incredibly frustrating for us.
He also was living in filth and really trashed the place. We had to pay a biohazard company over $9k for a thorough clean up. Because of the smell from his unit and general hygiene, we also lost a tenant who didn’t want to live next to him anymore. When it was all said and done, our bad tenant cost us over $30k.
The financial hit was certainly tough, but there was also the feeling that we had no control over the situation. At a certain point, there was nothing further we could do but wait for the courts.
You can think of a rental property as a small business, with your tenants as customers. With a 4-unit building, that’s a very high customer concentration. If one tenant stops paying, there goes 25% of your revenue. Depending on where your property is located, it may take quite a bit of time to evict that tenant. If someone refused to pay for a wash & fold at my laundromat, I might be out $100, but I simply wouldn’t do their laundry again. And with over 50 monthly wash & fold customers, losing one wouldn’t make much of a difference.
Overall, my real estate investment has been more passive, but I felt a lot more control over my laundromat. I could raise prices and make operational changes whenever I wanted. I was able to drive the value through my effort and sell for a profit. There’s not much I can do to control the Bay Area real estate market, and our property has gone down in value since we purchased it. Of course, the story isn’t done being written and it’s always possible the value could go back up.
It was also less expensive to buy and sell our laundromat, particularly because we brokered the sale ourselves, saving us 10% of the sale price. Unlike our real estate investment, there weren’t hefty transfer fees involved in either the purchase or sale. Our only notable closing cost on the sale was an attorney fee of about $5k.
Long story short, if you’re a real estate investor interested in another asset class, perhaps consider acquiring a small business like a laundromat.
