All Forum Posts by: Keira Hamilton

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.

Hey Alex! I've been meaning to update this post. We actually closed with another buyer this past week. However, I'm always happy to chat with folks about laundromats/business acquisitions in general. I make YouTube content on the topic and also broker SBA loans. https://www.youtube.com/@Keira_Hamilton https://calendly.com/keirahamilton

Hello investors! My husband and I own a laundromat in San Francisco, CA, which we have recently decided to list for sale. We bought it a little over a year ago and have really enjoyed operating it. More than that, we have built invaluable business skills that we will be taking with us to our next acquisition.

The main reason we are selling is because we want to travel for an extended period of time and ultimately may end up settling down outside of the Bay Area. I strongly believe this business needs a local operator and that long term we will not be the best fit for this reason. We also plan to eventually pursue another larger acquisition and want to be able to focus all of our energy towards that.

Our asking price is $331k based on an SDE of approximately $77k. Businesses are valued differently than real estate, and I'm happy to walk potential buyers through the SDE calculation I've used. We are currently only accepting cash offers, but are willing to offer up to 10% seller financing for the right buyer.

This video is Part 1 in my 3 part series on how to buy a small business. If you go to the 4:00 mark, I break down why ETA (entrepreneurship through acquisition), may be a more favorable investment strategy than real estate. Personally, I can say that we are not going near real estate again anytime soon. We bought a 4 unit building in Oakland in 12/21, and comparing our experience with that to our business acquisition has opened our eyes to the many opportunities in the ETA space.

I believe the ideal buyer for this business is someone located in the Bay Area with a flexible schedule and the availability to work in and on the business 7-10 hours a week.

Here are a few reasons why I think this is a great investment:

Excellent starter business - Neither my husband nor myself have backgrounds or degrees in business. Laundromats are very straightforward, yet they also offer the opportunity to touch all aspects of business (customer service, sales, marketing, employee management, bookkeeping, etc). Owning this laundromat has really been like a real world MBA. We have gained the skills necessary to run a much larger business, and the credibility necessary to secure SBA financing.

Poised for growth - When we bought this business, it was profitable and had great online reviews, but there were a lot of holes in the operations. The majority of our effort over the last year has been on troubleshooting and improving operational efficiency. We currently are not spending any money on advertising or marketing. To be honest, this is not our area of expertise. That's actually great news because it means that someone with that knowledge (or someone interested in learning) can come in and really grow this thing. Currently, the machines are not maxed out, meaning there are hours in the day when there are open machines, leaving room to grow the wash & fold service.

Transparent & reliable sellers - There are laundromats in San Francisco currently being sold at a lower multiple, but I strongly believe we offer the most value. You will find that our data room is unlike any other out there. It includes all of the documentation relevant to the sale (which typically buyers are not given until after making an offer) and a video overview of operations. We genuinely want the next owner of this laundromat to succeed, and will provide extensive training to ensure that happens. We will also be very upfront about the problems of this business (because all businesses have them) and what you should expect as an operator.

There are less expensive laundromats out there, but they come with a lower value. With ours, you won't need to spend a year working out the operational kinks. We've already done that. You can jump in and take it to the next level.

If you are interested in learning more about our laundromat, please message me. After providing proof of funds and signing our NDA, you will have access to our data room.

Looking for some advice regarding starting the eviction process in the Bay Area. I've reached out to the City for further information, but who knows when they'll get back to me.

My husband and I bought a 4-plex a couple years ago with established tenants. We have never raised the rent. One of the units is at what I would consider to be an above market rate, but again, I didn't establish the lease. The tenant in this unit has consistently been a few days late with rent for months. We should have been more diligent about implementing late fees, but honestly it just felt a bit awkward since we live in the building as well and see this tenant around the property. In the last couple months, his checks have started to bounce and now he's more than a month behind. He is terrible at communication, so it's hard for us to even have a conversation with him to figure out how we can work with him.

I already have a lawyer in mind to use for eviction services, but I would like to avoid getting to that point if possible. I really just want him to move. The thing is, there are definitely more affordable units in this area. I want to have a candid conversation with him and explain this and see if he's willing to move, but I'm not sure if this is appropriate. Laws in the Bay Area are very protective of tenants and I'm not sure if suggesting he move without going through the formal eviction process would be considered coercing the tenant, or something along those lines. I haven't been able to find any information online about this. 

Also wondering if anyone knows--if we do decide do start the eviction process, the first step is issuing a written notice rent due within 3 days. What happens if a tenant pays the full amount but after the 3 day period? Can the eviction process still move forward?

Thoughts?

It depends on how heavy the rehab is, but if it's major I don't really see living in the property being feasible. Let's just say you were to live in it while making repairs. Once you have it rented out or sold, where would you live next if your condo was rented out? Would you have the capital to immediately pull off the next move, or would you be searching for a place to rent?

How do you plan to finance the purchase and rehab? Most financing options I'm aware of for this type of project are for non-owner occupied properties.

It's a good question! It really depends on what you're currently paying for rent, what you'd be paying for an owner-occupied SFH, and what you'd be paying/netting on an investment property. Once you have an idea on the numbers for all three options, I think you'll have a better sense for how to move forward. There are pros and cons to every decision, and what's the right deal for someone else might not be the right deal for you, it just depends on your priorities. For example, my husband and I are house hacking right now (we live in one unit and rent the other three out). Our unit is fairly small and it's in a neighborhood we don't see ourselves in for forever, but it's worth it for us as a long term investment. Other people may not want to live in 700sf, or may not like sharing a backyard with their tenants.

Given that you're looking to make an investment and are also interested in getting out of renting, house hacking could be a great move. Feel free to DM me if you want to chat further!

Hey Ashwin! Your capital is going to go further in certain markets. There are areas where you only need $30k to close on a property. Of course, it still takes time to save up that capital, but it's a relatively small amount as far as real estate investments go. I would recommend researching markets that could be compatible with the current capital you have, or with what you expect to save up in the next 6 months.

Hi John! For a non-owner occupied investment property, you're probably looking at 25-30% down plus closing costs. It sounds like you want to do some repairs? What level of rehab are you thinking? I work with lenders who will finance 100% of the rehab, not to exceed 65% of the ARV. Keep in mind that if you're doing rehab, the terms you'll be able to get depend on your level of experience and the amount of rehab being done. Investors who have done projects in the last 3 years will get better terms than those who haven't. Not to say you won't be able to get your foot in the door if this is your first one, but look for properties that need only minor to medium level work.

Hey Ian! I don't know that one option is necessarily better than the other, it just depends on which fits best with your long term plan and your current resources. With an owner occupied property you're likely going to get better loan terms and potentially have to put less down. Keep in mind that if you put down less than 20% you'll need to pay PMI, but it might end up being worth it to you if the goal is to preserve capital for your next deal. You'll also need to meet the occupancy requirement, which is usually one year.

If you're looking to make some aggressive moves, I don't think purchasing a SFH just for yourself to live in is going to get you the greatest gains. House hacking could be a great option because it would allow you to qualify for owner-occupied financing but still collect rents to help pay the mortgage.

Lenders don't typically finance a purchase at 100%, unless you have a strong pre-existing relationship as others have mentioned. You could get up to 100% of the rehab costs financed, but the purchase is likely to be at least 25% down. 

What's the purchase price of the home and how much are you expecting to put in for rehab?