Investing into the Laundromat Business

20 Replies

There has been a lot of buzz lately regarding the investment into an interesting asset class - laundromats.

I would love to offer some expertise as I have been in the industry for a while and have learned a lot of the ins and outs of the business from operations to financing the project. 

Feel free to ask any questions!

@Paul M. DeAngelis interesting post. I have toyed with this idea several times, and even put an offer in on a laundromat locally here in Forest Park. I ultimately decided that I didn't like the business model enough. I feel like a lot of the areas where I invest are moving towards in unit laundry, and the machines at laundromats are absurdly expensive. 

What kind of ROI are you seeing ? Is it comparable to buy and hold rentals

@Paul M. DeAngelis

Does this only works C and D class neighborhoods?

As the neighborhoods getting gentrified or upgraded ,people move towards in-house laundry?

Are there any franchises in this business?

There is money to be made in those business.  However, they are not true real estate more of a brick and mortar business.  For a laundry mat to be succesful it needs to be in a location with a lot of traffic.  There is one here that is next to a pizza shop.  Do your laundry and get a snack.  It is in a strip mall and it is unlikely any of the tennants own the building.  

Self storage and parking are similiar, love the idea, but I am not a fan of retail business.    

@Paul M. DeAngelis i

Have you invested remotely before? I don't see a lot of laundromats for sale in my local area.

@John Warren Yes, machines can be very expensive, the largest barrier to entry is definitely the high upfront investment. I've seen new large stores in good locations costs up to $200,000 to ramp up + having investment capital on hand, but there are opportunities to get into existing locations with the construction already completed, as always, have to search hard for the good deals!

@Dennis M. The ROI, if done correctly, is much higher than rentals, but also a higher up front investment and more hours to commit to the investment. You have to pay for equipment, construction, cosmetics, etc. On a good store, I see CoCROI between 20%-30% at the minimum.

@Bhaskar Pusuluri There are specific areas of the country that are perfect for the business, depending on the right demographics. I would look for high rental unit areas, low median incomes, etc. I think the C and D neighborhoods exemplify these ideal demos. Also, I think a lot of people get scared of apartment complexes with in-house laundry, but many people actually prefer going to a laundromat if nearby.

There are franchises, but they take a large fee. I would recommend working with an equipment manufacturer instead, they can supply the insight and training without the large rake or upfront fees of the franchise. Also, the franchisors look for high net worth individuals, which is another large barrier for people looking to just get started.

@Lesley Resnick Great insight, the best locations I've seen DO have the laundry-plus mentality (Do my laundry AND go shopping, laundry AND go to the gym, laundry AND grab food). 

@Jeff Bousquet Jeff, I work in the industry, and default rates do tend to rise for remote investments. Unless you are very knowledgable in the industry, its difficult to own/operate remotely. Laundromat is definitely more of a business than a passive investment. They CAN become a passive investment, but only if you really get the processes/procedures down.

@Paul M. DeAngelis

So How many “ units “ or machines do you own ? How long have you been doing it ? How did you come to do this line of work ? Anybody related to you do this business model ?

My family and I were closely considering buying a laundromat business a few months ago. Met with the owner, inspected the machines etc.

Eventually  we decided not to go with it due to the large time investment (I work full time). The owner was making about $10,000/mo profit. But he was also hanging out there for 8-10 hours folding clothes, watching TV, etc. The overhead with hiring an attendant may not make it worth it, we thought. 

We were thinking that the missing link was making the laundromat fully self-serve/automated. That way an attendant need only be there a few hours a day to clean up, refill stuff, etc. 

What do you think about that @Paul M. DeAngelis ?
Thanks!

Every laundromat I’ve been to is unstaffed, 24/7 service. The owner stops by occasionally to clean up and collect coins and that seems to be about it. I don’t know how frequently machines need maintenance or repairs, but there’s usually no more than one or two that are out of service.

The owners seem like they're doing the bare minimum and aren't trying to maximize ROI or seek out new opportunities. This very complacent attitude might make for good deals in the industry for somebody that knows more about it than I do.

Vandalism seems like the biggest concern. They have security cameras and cops frequently hang around the areas. There tends to be a lot of shady people around there late at night. Also concerns about the homeless. Things are definitely set up with this in mind.

@Paul M. DeAngelis thanks for starting the thread! I too have often considered the laundromat biz. I appreciate your offer to share your insight in to the niche.

Any thoughts on coins vs. cards?

Collecting coins seems to be the largest barrier to increasing the passive nature of the biz. Alternatively it seems the cards present another barrier, since lower income folks also need to purchase the cards (and likely lose them frequently).

Do you recommend purchasing an existing operation? Or find a vacant location (or underperforming) and leasing the space?

I’m interested in your thoughts on evaluating existing locations to accurately determine P&L. Any tips on structuring a lease? Long term, low price/sq ft, specific tenant improvements, etc.

So many more questions, but don’t want to totally hijack the thread!

Thanks for your feedback.

-Andrew

Has anyone looked into the unattended carwash?  There are a lot of them around and they seem to make money.  It is a great way to land bank.  They seem to require very little maintence.  It is largely outside and the machines do not have a lot moving parts and some even take credit cards, fixing the coin management problem.  

@Paul M. DeAngelis what is the average net profit margin of your laundromats?

@Paul M. DeAngelis

Hi Paul

I have a building that I could put one in. Are they worth it? What does it cost to get a place up and running

@Omar Abdelbadie In my experience, the investors I work with that have automated or unattended stores have more than one location, seems to be an economies of scale type thing.If you do go with fully self-serve you'll need to invest into security and put time into teaching the attendants. I have seen owners with full time jobs operate the business through a security system that allows him/her to view the store at any time and also to answer questions through some form of hot line - might be something to explore as well.

@Andrew K. Andrew thanks for the post!

I have underwritten a lot of deals in the San Antonio area, I would say a majority of them are coin stores mostly due to the demographics. Both have their pros and cons, and card systems are expensive (40-60k), if the market doesn't call for the card system I would probably try to start without one.

In terms of purchasing an existing store, the numbers have to make sense. If you can look at some P&L's, look for inefficiencies, for laundry, the biggest one is utilities. New equipment can really drive down these costs and create a fresh allure for customers, bringing in new business from competition. A new location will require high investment costs, construction, TI, and new equipment, but ROI may be higher after the first year.

For leases, I always recommend 10 yr with at least 1 5yr option, this is because equipment debt will typically be a 10 year note for a full retool. (Feel free to message for any further info on detailed financing structures, rates, and costs)

If you have any potential locations in mind let me know, I can definitely offer more detailed insight!

@Steven Taylor

Hi Steven, the cost will definitely depend on the sq ft and location of the building. There is a large upfront investment that goes into rigging up a building for laundry (troughs, bulkheads, piping, water lines, etc). Just a quick example, I worked on a 5000sq ft store recently and the cost of construction and build out will be around $250,000. Along with cost of equipment, you could be looking at a high up front investment but some companies will finance the construction and ti as well as the equipment.  I can look into the specific building location if you'd like - thanks!

@Paul M. DeAngelis  what is the average net profit margin of your laundromats?

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