by Randy Dobbins   |    Blog

I clearly remember making that first phone call to the listing broker about the laundromat in our neighborhood.

I was nervous, rehearsing what I was going to say, oddly wishing that it would go to voicemail.

As I heard it ringing on the other end, and battled between letting it continue to ring and hanging up, I kept telling myself…

"You'll regret the things youdidn't do more than the things youdid do. "

So I let the phone ring and just as I'd hoped, it went to voicemail.  I left a brief message explaining who I was and that I was interested in getting more information about a local laundry that was for sale.

But I wasn't always that brave.

It was 2014, and for years, my wife and I had been restless.  Tired of the 9-to-5, tired of just moving along life's path.  We knew we were capable of more.

It felt like the right time to change things up, but we had no idea what or how.  We soon realized owning a business could be the game-changer we were looking for.

But we were worried about taking that first step; our minds were filled with anxiety and self-doubt.

We looked at various businesses from all different industries, and after some extensive research, landed on just the right thing.

We wanted to own a laundromat.

[Spoiler alert: Our first store did so well, we bought a second one! If you want to follow exactly what we did, check out our how-to guide HERE.]

Here's why we were so intrigued…

8 Reasons Why a Laundromat Was the Right Business for Us:

  1. 1.  Cash Flow – Even a small location can earn several thousand dollars profit each month.
  2. 2.  Increased Asset Value – As business income increases, so does the value of the business itself.
  3. 3.  Passivity and Minimal Cash Investment – Laundromats require a much lower cash investment than almost any other business, and they can be operated relatively passively – in just a few hours per week.
  4. 4.  Quick Equity – Business loans are typically just 5-year terms, so equity builds very rapidly.
  5. 5.  Easy Financing – Even first-time owners can obtain a purchase loan relatively easily, and many sellers are open to carrying the financing themselves.
  6. 6.  Financing is Self-Supported – The monthly payments for the purchase loan are paid by the business itself.
  7. 7.  Significant Cash Out Value – Due to the rapid building of equity in the business, in just a few years the business will be owned free and clear and can be sold for a very nice sum.
  8. 8. It's an "Essential" business – People have to do laundry, no matter what the economy is doing.  (In fact, during the COVID-19 quarantine, our laundromats remained open while other small businesses had to close.  Laundry is a necessity!)

Our Target Store

We decided up front that we were comfortable investing no more than $50,000 into a business venture.

So we started looking around at laundromats for sale.

One was too far away, another the seller seemed sketchy.

Then we found it.

And we couldn't believe the coincidence.  The unattended laundromat in our neighborhood shopping center was up for sale.  And they had just lowered the price from $150,000.  The new list price was $129,500.  (Hmmm…a motivated seller?)

But we had agreed to only invest $50,000 of our cash into a business venture.

So we knew we'd have to get the rest through financing; either an acquisition loan or perhaps even the seller would be willing to carry the financing?

We weren't sure.

So I made that fated phone call I mentioned earlier, asking the listing broker for more information.

He called me back, and we arranged to meet at the laundry the next day to go over more details. We walked into the laundry that next afternoon, and knew we had a diamond in the rough on our hands.  It needed a major cosmetic overhaul, but the customer base was solid, and the incomes were consistent.

But we had some work to do before we made our move.

What purchase price were we comfortable with?  And if the seller is as motivated as he seems, would he accept an offer below asking?

Let's Dig In to the Numbers, Shall We?

We ran some valuation figures, considered what it would take to improve the store, and decided to offer him $105,000, and let him counter if he wanted to.

Below are the initial numbers we ran.

We used a purchase price of $105,000, with a down payment of 35%.

This meant we would make a down payment of $36,750 and finance the remaining $68,250.  We had a rough idea that a lender would give us terms in the range of 8.25% for 5 years, based on information from the broker.

So our initial investment would be the down payment ($36,750) plus the estimated start-up costs of $12,400, for a total investment of $49,150.

Perfect. It would put us right around our target investment commitment of $50,000.  (But again, if the seller is willing to carry a larger loan, then your cash requirement could be much smaller. )

Once we knew the amount of money we'd be investing, it was time to estimate what the profit and return on our investment may be, based on prior history for the laundromat.

Based on some historical financials provided by the seller, we took the average annual gross revenue for the prior 3 years, subtracted the most recent annual operating costs (expenses), subtracted the annual debt payments we'd be making and determined our annual profits/cash flow.

(Note: Eventually we reviewed the seller's bank statements, tax returns and profit/loss statements. These documents allowed us to validate his stated revenue/expense/profit numbers.  We go over exactly how to analyze a laundry purchase in our official guide we mentioned earlier.  We also include calculators like the one you see above so you can know the value of a target laundromat, calculate gross/net income, perform due diligence, etc.)

Alright, let's get back to the numbers again…

After reviewing the sellers rough numbers, we knew that the average annual sales for the prior three years were about $139,846, and his expenses were $90,276.  Once we subtracted our loan payments of $16,704, then we would be left with net income of $32,866.

And since our initial investment was $49,150, we would earn an ROI somewhere in the neighborhood of 66.9%.

But this scenario all hinged on the seller actually accepting our offer of $105,000.

The Adventure Began

So the offer for $105,000 went off to the seller.

And we waited.  What seemed like an eternity.

Then after a bit of back and forth, the seller accepted.

And with that, our escrow period began!

We then spent a solid week researching how to perform due diligence; this meant confirming the financials the seller provided, having equipment inspections completed, etc.  We reviewed tax returns and profit/loss statements, ran an income verification using water bills, attended collections for 30 days, etc.

It all checked out.

We also convinced the seller to carry the financing, which was a bonus.  Then came some negotiations with the landlord on the lease.  (We documented the purchase process in much more detail in our earlier blog posts.)

And on February 28th, 2015, escrow closed and our dream of owning a passive business became a reality.

That morning, at 5am, the seller did a walkthrough with us and handed us the keys.

And at 6am on the dot, the automated door locks disengaged, and our first customer walked through the door, laundry in tow.  The whole time completely unaware that behind the scenes we were celebrating his arrival, as our official first customer.

My wife and I celebrated by spending a leisurely afternoon together; we had lunch and went to a movie.

And the whole time we marveled at the idea that we were making money without even being there.

****   …AND NOW, AN UPDATE!  ****

We bought a second laundry a year later for $28,000 so we have ownedtwo coin laundries for several years now. They're still humming along, making us money each month.

For the first location, we did some cosmetic updating (paint, wall paneling, floor epoxy), and had a few washers and dryers replaced. Gross income went from $125,364 (former owner in 2014) to $155,200 just one year later.  This resulted in a net income of $49,864, far passing our estimate of $32,866.

Our second year we purchased the other laundry.   The second location is smaller, but making money!

As of the end of 2020,  for both stores combined, gross income was up to $238,662.  Net income at $81,664.  And that was during  a pandemic!  That's one great thing about the laundromat industry…laundry is a necessity.  Business dropped just a little bit when the pandemic first hit, but within a few weeks it was business as usual.  Still so thankful that we owned a business that was labeled 'essential' during that chaotic time.

For any business, that income is pretty decent, but for a part-time semi-passive business, it's still mind-boggling, even to us.

Buying coin laundries was one of the best decisions we've ever made, and for all the reasons we had hoped…

  1. 1.  Cash Flow – Our two stores combined net about $6k+ per month profit
  2. 2.  Increased Asset Value – We bought our two laundries for $105k and $28k respectively, and they are now worth $320k+ combined, in just a few years.
  3. 3.  Passivity and Minimal Cash Investment – We operate our two laundries for a combined total of about 8 hours a week, and have invested only the initial $49k and $28k (paid cash for second laundry).
  4. 4.  Quick Equity – We financed our first store over a 5-year period, and now we own it free and clear.  The second store we paid $28k cash, and value is now ~ $75k.
  5. 5.  Easy Financing – We were first-time owners and were able to get the seller to carry the financing with very little paperwork.  (We also were approved for conventional financing, but ultimately declined the offer as the seller agreed to finance directly.)
  6. 6.  Financing is Self-Supported – The monthly payments for the purchase loan are being paid by the business itself.  Thank you customers!
  7. 7.  Significant Cash Out Value – When we're ready to hang up our keys, we can sell them, walking away with about $320k+ cash in our pocket.
  8. 8. It's an "Essential" business – No matter the economy, business has always been solid and consistent, even during recessions and pandemic quarantines.

And as you already know, we're also proud of the work we put into our "Laundromats101 Complete Guide to Purchasing a Laundromat".

It includes all kinds of bonuses – a download of the spreadsheets, calculators and formulas we used to find, analyze, purchase and operate our own stores, and a ton of other good stuff.  So if you're ready to pursue that for yourself, click HERE to check it out .

****************

Ok, so you've read about our ownership journey, but let's pause for a second.

For some of you, this may be your first stop after googling information about laundromats and you're still trying to figure out if a laundromat is the right business for you, or if you even want to own a business at all.

We get it.

Or maybe you know you want to own a laundromat, but are struggling with where to begin.

If either of these sound like you, then you need to download a copy of our Laundromat Business Planner.  It's free!

Just enter your name and email below, and it'll be on its way to your inbox in a matter of seconds.

We created it for anyone who is interested in pursuing laundromat ownership, and we feel it's so critical to getting the right start, that we give it away.  And we don't stop there.  We'll send you a couple more freebies to keep up your momentum.

We're here to help.

What do you have to lose?

And lastly, if you're the curious type, and want to see some before/after pictures of our first laundry,  and some gnarly before photos of our second laundry, check out THIS post.  Or, just start digging around the site, there's plenty more to see!

Until next time…