The Laundromat

By Chuck Post

The self-service laundry industry offers much more than just a sound investment; it is an American dream business. Laundry owners are everyday people fulfilling their greatest dreams. Regardless of what you do now or intend to do in your life, whether you are currently a blue-collar worker, a grocery clerk, a mechanic, retired or active milita

• Language: English
• Publisher: New Life Clarity Publishing
• Release date: Dec 21, 2021
• ISBN: 9781088017081

Book preview

AN INTRODUCTION TO INVESTING IN

THE VENDED LAUNDRY BUSINESS

The self-service laundry industry offers much more than just a sound investment; it is an American dream business. Laundry owners are everyday people fulfilling their greatest dreams. Regardless of what you do now or intend to do in your life, whether you are currently a blue-collar worker, a grocery clerk, a mechanic, retired or active military, an attorney, or an owner of other businesses, the laundry industry has a place for you. The diversity of the industry offers rewards for each investor, regardless of their background. For some, the business is operated simply as a quarter factory, with the owners using a minimum of their time. But for those who grasp a better understanding and possess a hunger to maximize the benefits of laundry ownership, it is a challenging opportunity with rich rewards. Most laundries are independently owned and operated. However, there are individuals and families who own up to hundreds of them.

We will be answering the biggest questions about laundromat investing and identifying issues that only the most seasoned laundry professionals understand. We are dedicated to sharing our education and experiences so that you too will have access to the secrets of this mystifying investment.

You are about to be guided along a path intended to lead you to a successful business; a future that is greater than you now realize.

The following questions will all be answered.

1. What makes the laundromat the best example of the American Dream?

2. Can I get wealthy in the laundry business & how?

3. How do I find a laundry to purchase?

4. Is financing available?

5. Can I trust the income and other information I receive?

6. How do I conduct due diligence?

7. What resources do I need to have available?

8. How much of my time will I need to put into my laundry business?

9. Is the laundry business really that easy to operate?

10. How much money do I need to get started?

11. How much money should I expect to make in my laundry Investment?

12. How difficult is it to sell the laundry if needed?

Welcome! You will probably like the answers to the above questions but, like anything in life, there are winners and there are losers. The laundry business has long been known to offer high returns. Also, laundromats are easy to operate. It is also known to be an All-Cash-Business and a Safe Investment. All of these statements are, or rather, can be true. The Coin Laundry is in fact a "Necessity of Life Service Business." The need is there so the opportunity exists, but the reality is that each investor can and will operate their laundry business in the manner that they see fit. It is dangerously easy to get lazy when you are in the laundry business.

Laundry owners all share one common trait: all are very independent. The key for you, the investor, is to understand that the laundry business is a time-lined-business and your success will be largely determined by your understanding of this fact and how you choose to handle that one fact. Most laundry owners operate their businesses too passively, minimizing the quality of service to the customers and in so doing, they are leaving a lot of money on the table. This is the stuff of a greater opportunity.

We will be discussing the successful laundry and its operations, strategies to advance it, and the very important time lines that you should understand and consider before acquiring a laundry. This book is not intended to puff up the business or to push you toward investing your money. The purpose of this book is twofold: first, to demonstrate the fantastically diverse opportunities that are available to you and how you can succeed, and second to urge you to look deep inside yourself and test your commitment before entering this business. I need to warn you that if you aren’t aware and prepared for the hazards, laundry ownership can turn into a true misery.

Let us begin by looking at a single average price laundry and casting a realistic understanding of the returns that you should expect. A caveat, in this case, the laundry is purchased and deferred, the maintenance is absent and operations are consistent with the market. This may help simplify the base level financial picture for you.

Understanding the Return on Investment (ROI)

Throughout this book, we will refer to the ROI, with reference to a level of 20%, cash on cash as a base buy-in level. This is completely subjective and variable to the market and location, the local market, other comparable opportunities, the current cost of money, and timing. It is important to determine the acceptable multiplier and adjust the formulas and examples based on the current conditions. The 20% level is the most anticipated level of return by most laundry buyers at the base levels. However, that return must be verified and also be sustainable.

With that in mind, the minimum-return at base levels that one should expect to earn in the investment of a laundromat should be something like this example,

• Acquisition price = $400,000.00

• Down payment = $150,000.00,

• Finance $250,000.00 over 7 years with an estimated Monthly Loan Service Payment of $4,200.00

• Total Discretionary Monthly Cash Flow = $6,900.00 = Annual $82,800.00 = 20.7% return of total investment

• Cash on Cash return = $2,700.00 = $32,400.00 = 21.6% of cash investment.

• Asset Value at end of term is the variable, but it is likely 20% or more above your original down payment.

This is the promise and this is also the fact, but don’t forget the caveat. These equations are quite typical and consistent, regardless of the purchase price. There are exceptions, of course, and various market areas and regions may differ and therefore be working on a far different valuation style. In these situations, laundries with certain circumstances will require additional discovery and valuations. All this said, a greater opportunity waits for an investment.

In our example, we are using the base level investment scenario. A clean laundry, with good working equipment, free of serious deferred maintenance, with a model level lease. The primary elements of value are within preferred guidelines; which will become clear to you as we continue.

There is an additional value that comes from your own efforts. There are elements that if you modify and improve them, you will increase revenues and better enjoy your business. If you were operating the business with only the minimum efforts, keeping the laundry clean, the equipment operating, having the laundry well-lighted and safe for your customers, then the business should continually improve. You must also maintain the lease. Given all of that, then this above example represents the minimum return that you should expect.

Your first challenge is in understanding the caveat and having a plan to correct any issues related to it.

Is the investment safe? Yes, since it is likely, looking at the above example, that the business would still be valued at or above the $150,000.00 that you originally put down; there is only minimal concern. Only the loss of the lease, which is largely within your control, or an atypical market change would hurt you. So, the fact is, that even in a situation where the owner has been neglectful of the business, the 20% cash on cash return is still likely. Quite frankly, if the full experience were less than this level, the buyer would have to have made serious errors from the beginning, possibly failing to do good Laundry Diligence and/or have failed in discovery and been unaware of many things, including how the business works. Or, possibly had been taken advantage of during the transaction. Yes, this all happens. Clarity and awareness are critical elements of the acquisition.

The laundry industry is well solidified and part of American life. It is a very stable industry. As new investors enter the business, many will do well and others will do poorly. Only some investors will see the larger opportunity that this business has to offer. For those that do, the opportunity is huge.

Fortunes are made regularly. It is very realistic to enter this business with a minimal investment, similar to that in the example, even less or more. Within two, five, or maybe ten years, you could be owning and operating three or more laundries with a tremendous cash flow, without digging into your own pockets for cash and still only using a minimal amount of your personal time.

This business stands alone in its general availability to any investor because of a continuous turnover of the laundry for sale inventory. This keeps the opportunity very healthy. There are specific laundry investment time lines that must be understood. Many influences will need continuing consideration; the costs moving forward can also be very high, so the need for forward planning is essential. You are not buying the history. You are investing in your own future. The history just sets the limits of the current value. Don’t purchase a laundry without an understanding of the path moving forward throughout the next ten years. Limiting your discovery to the business’s history can be self-defeating.

For this reason, planning and projections of the Forward-Model system, should be done prior to closing of an acquisition of a laundry business and should be very realistic. The laundry business is very predictable once you understand it. There are also many physical elements to consider during the transaction.

A little ground work. A laundry is built into a location with planning and a tremendous amount of expensive groundwork; electrical and other equipment is placed, the gas meter must accommodate the volume, sewer lines placed in the ground throughout the washer area and lots of water needs to be delivered. The equipment has a useful life of about twelve years., However, the laundry itself is intended to last fifty, seventy-five, or a hundred years; literally until the walls crumble around it. Yes, I’ve seen it happen. You need to develop good projections to anticipate and justify the forward position of your business and the necessary associated costs of any upcoming redevelopment.

The laundry investment lives and dies by a time line. The life of the laundry and its model are designed to undergo continuous change and improvement. A laundry starts out fresh and grows to its best, it stabilizes and operates for seven to ten years with very little reinvestment of time or capital. At that point, without intervention and some amount of new investment and effort, the laundry will start showing signs of deterioration, which left unattended to, will eventually result in a loss of customers, increased expenses, and a growing reduction in profits. Failure to deal with aging equipment and infrastructure, could result in the business’s total failure unless there is that intervention.

Laundries that are purchased mainly for the cash flow are seldom rewarding investments. Eventually, deferred maintenance and the related issues will make this business burdensome. Many sell their laundry at this point; before suffering any loss of the original investment. It is largely for this reason, that the bigger opportunities in the laundry business are so available. There are many good laundry investments available because so many people buy laundromats without a sufficient understanding of the business.

The industry has always been good to those that understand it, but laundries today are now riper for advancement than at any time in its history. The pay systems are changing, after seventy years, we can take credit cards, use a phone pay app, and still take the coin. This may seem like a simple thing, but it is huge. The term Coin Laundry no longer generally applies. These businesses are most rightfully known as Laundromats, which disregards identification associated with the pay system. This single advancement is also a very good place to start explaining this business to you.

The current transformation of our business model has been underway for over thirty years; from coin to card or any simpler pay alternatives. The appliance Industry, on which the laundry Industry depends responds well in some areas but has been very slow in the marketing advances that are specifically needed for commercial vended washers and dryers and they have left innovation to those who specialize in this field. Fortunately, today many of the manufacturers are responding.

The laundromat industry with current projections ranging from 30,000 to 40,000 or so laundries, had not offered the volume of sales to the manufacturers, compared to the consumer market, which is enormous. The volume was just too small for them to do the research and development. In fact, until recently, it has been looked at as a two-edged sword for the manufacturers. More laundromat user’s equal fewer washer and dryer sales to consumers. Consider that in a laundry, you will have anywhere from a low of about ten to as many as sixty weekly users of a single machine. Compare that to the enormity of the residential market with more than a hundred and twenty million households. It is like comparing the car to a bus. However, the advances made by those that have taken this business seriously have caused much interest and competition amongst the manufacturers. Washers today are bigger, more sophisticated, and dually applicable with the larger commercial market including the hotel and medical facility applications. The average cost of a washer in a laundromat today ranges between $5,000.00 and $6,000.00, varying by the individual laundry’s chosen par capacity. So, the industry is now taking us much more seriously and results are being felt.

Over the years, the most noticeable advances have come from the increasing percentages of front-load commercial washers versus the traditional top load. These machines are generally better built, do a more thorough cleaning and offer more wash options, with a much lower amount of water consumption. Over the last thirty-five years, these machines have gotten bigger, more efficient, and are now more prevalent. The advances have set the laundromat apart from the home and apartment laundry rooms. The laundromat can now boast a better-quality wash. It also offers convenience and opens up the possibility of multi-tasking to the customer. We do not have a sense that the laundromat will become dominant over the household washer. It is typical for the laundry customer to use both the home or the apartment house washer and supplement with using the laundromat. This is the new thought being realized, as laundries improve. We have an opportunity now to expand our market.

Laundry stories. Only in the mid-twentieth Century did we first see the introduction of the mechanical pay system. This was a huge endeavor. This ability to pay at the equipment allowed for the self-service laundry to become unattended. Washing machines at the time, a relatively new advancement themselves, were not designed to accommodate a pay system, and the laundry industry manufacturers were not convinced that the volume would justify the expense of the development. They were too busy building domestic use washers, which had become a rapidly growing market. So, independent entrepreneurs motivated by what they saw happening, the growth of the multi-tenant housing market, went to work and figured out how to install a meter on the washer and dryer requiring payment before washing. Once this was finally figured out, the vended washer was immediately placed in locations; one after another at an amazing rate.

Today, new coinless pay systems are a tremendous benefit to the laundry owners and their operations. Together with the modern washer’s programmability options, a laundry owner can offer multi-level pricing, varying prices by times of the day or on certain days of the week, control the water use, the actual wash times and even monitor and correct individual machine performance. Laundry owners can now remotely change vend rates, do diagnostics and even make certain corrections from their phones.

What makes the laundry business an American Dream? Many fortunes are made in the laundry business and about anyone can make it happen for themselves. This is a very unique industry and a broad-based opportunity for success and financial independence. The Laundromat is the best of the American Dream because it offers an opportunity to anyone who can come up with a modest start-up investment. The opportunity to own and operate a business, while not needing to resign from a job or inconvenience yourself is a dream come true. Fortunes are being made every day in this business, with many people owning, three, five, twenty, and even hundreds of laundries, in some cases. Many people I talk to are surprised to find that if done well, in five to seven years you could realistically own two or three high cash flowing laundries, with an initial cash investment of under $200,000.0. You are about to learn how to do that, right now.

What should you expect as a laundry owner? The owner of a laundry business will enjoy the benefits of free time. The laundry requires only an average of about four to six hours of your time per week at the location and in some cases less. The returns on your cash invested should start in the 17 - 22% range. This is reflective of the cost of resolving the deferred maintenance. A good operator should be able to substantially improve on this level. First, you must understand the investment model. You will need to have sufficient resources, buy wisely and then follow a good operating model. You will need to be continually diligent in the operations. If you do this and remember the most important thing, which is that you are operating a Community Service Business, your level of success will likely grow greatly, determined by how well you choose to deal with that one important thing -- the community.

The laundry business is grossly misunderstood by more laundry owners than those who do understand it. Many operate a good clean laundry but fail to make the profits they deserve. Why? Through my thirty-five years of experienced observation, I can state that, of the hundreds of laundry investors that I have known and worked with, those who did not exceed the 17-22% level, failed due to a lack of understanding of the laundry model and what needed to be done to advance and go forward successfully or failed in doing a Laundry specific diligence. Some even knew what was needed, but then failed to act. It can be true when stating if you build it, they will come, but many more will come if you build it better.

The objective of this book is to share the secrets and the realities of buying, owning, and operating a successful laundry. The single most important thing to remember is that, as a laundry owner, the Laundromat is first and foremost a,

Necessity of Life, Community Service business

Your success will also depend on how well you understand the investment and its operating strategies. Through the laundry model you can learn how to manipulate the market and act on and benefit from this knowledge. First, you must make certain to buy the business with an understanding of the value and the forward opportunity. We will be looking at examples of laundries that, in some cases succeeded and, in some cases, failed.

Following is a list of our discussions.

Laundry Investing,

a. The Opportunity

b. The Investor Profile

c. General discussion issues

d. Understanding the Elements of Value

e. The Location

f. The Lease

g. Infrastructure & Equipment

h. The Laundry Search

i. The Laundry Model

j. Discovery & Doing Diligence

k. Laundry Financing & Other Resources

l. Return of Investment

1. How to Invest in a Laundry – Part 2

a. Operations & Management

b. The Management of the Investment Model

c. The Formula for Multiple Laundry Ownership & Expansion

2. The Exit Strategy

Laundry Investing

Stop! for first time buyers of laundromats, it is strongly suggested that you do a deep study of this industry before beginning to conduct your search. Many new buyers begin their search by looking at one of the several online sources for business opportunities. They will see something with a price tag that looks viable and then contact the seller or broker. These meetings typically result in misconceptions regarding both the particular business of interest and the laundry investment model itself. Furthering this, sometimes relationships are established with brokers, who will begin sending you to various laundries. At this point, after looking at a few laundries, things begin to seem a little confusing. This can, and often does, result in an acquisition that one may later regret. It is also a fact that many likely investors end up not investing and moving on due to these reasons.

It is highly recommended that you learn as much as possible about the business and industry before conducting any serious search.

How to buy a laundry? Step 1-A. You need to know what laundromat investing means to you. The laundry as an investment is very much misunderstood, even amongst many laundry owners. This is especially true for those first-timers entering the business. So, before going further with the step-by-step approach in buying a laundromat and before I give you all the scary stuff (we will save that for later), let me give you a guided tour through the rewarding experience of laundry investing.

I recommend that you visit as many laundries as possible during the time that you are studying the industry. Keep track of the laundries you visit and make notes. Keep this period exploratory. Gather data, get to know how to determine the age of the equipment and the income information and asking price as a point of reference until you feel more prepared. It can be too easy to get excited about some of the opportunities. Many people jump in before knowing what they are in for and soon become very unhappy. Take time to get to know the laundry brokers, the distributors and owners. Once you know what you are looking at and looking for, you can get as aggressive in your search as you like. Begin by giving yourself an education. Look at a half dozen laundries or more, while studying this book and make notes. Making an offer before knowing what you are looking at can cause you to miss opportunities. Yu may pass on the best opportunity for all the wrong reasons. Worse, you may buy one and realize later that you made a serious error.

In your search, remember this. A laundry doesn’t need to be listed for sale to be available for acquisition.

THE OPPORTUNITY

What should you expect from your Coin Laundry Investment?

The laundry business offers many things to its investors. The most favored advantages include the free time that owning a laundry business affords. The cash-flow is also very good, potentially extremely good, especially considering the minimal amount of time and capital that its owners are required to invest into the operations. These businesses are very easy to operate so long as you understand that the laundry you purchase is more likely to be headed in the wrong direction than the right. It is very likely coming off of its best days and is now facing the issues associated with aging equipment and a tired operating model. To enjoy the well-touted benefits of laundry ownership, you must investigate and discover the deteriorating elements, and know how to correct them and what it will cost. Then you must commit to doing the work. This is how you create the laundry that will carry you into your future.

The reality of the cash returned by a laundry investment is generally anticipated to be about 20% Cash-on-Cash ($100,000.00 invested returns = $20,000.00 annually). This is true in most larger markets. This level of return is quite realistic. In fact, this should only be a beginning. It is only the starting point of the available earnings. If you are buying correctly and perform a good laundry diligence, plan well, and implement a solid and sustainable operating model that backs up your investment, you should be looking forward to much higher returns.

If you follow some simple guidelines, you will experience a far greater return on your investment than you might now imagine possible. You will probably discover that you, like other investors that come into this business and really do get it, will never leave it. Fortunes are made, families are given security, and the discretionary cash is generous. The amount of free time afforded to a laundry owner is enviable. In times of economic disaster and other difficulties, the laundry investor will have greater stability than more vulnerable industries, a continuing cash flow, and even an increase in growth. This was true during both the Covid-19 pandemic in 2020 and the financial crash in 2009. Laundry owners that took care of their customers continue to flourish. After all, the laundromat is a necessity of life business.

Many laundry owners buy and sell several laundries throughout their career and others will stick with the same ones, making timed updates for generations. A laundry is built to last the life of the building that houses it. The washers last about twelve years and dryers up to 16. The larger variety of opportunities that become available offer each owner new chances to rebrand, expand, leverage, and grow. With up to forty-thousand laundries in the country, the possibilities are truly endless.

Does this business sound too good to be true? Before determining the answer to that question, read on and discover why people succeed and, more importantly, why many others fail to achieve even the minimum returns. Some laundries do fail. Oddly, both success and failure may occur in the same laundry, in the same market area, with the same challenges but under different ownership; one owner with a predesigned model forward and the other, with their sights only on what to do with the cash flow. The potential is almost always there. The key to your success will be in your ability to recognize the opportunities and to act on them.

Before we get too deeply into the nuts and bolts, you must have an understanding of the industry itself and your place in it. And by the way, welcome!

Let’s start by taking a look at some key elements that lead to success and prosperity in laundry investing. Let’s also discuss why and what was done to produce these successes. We will also do the same to demonstrate why there are failures. You will discover that the most common cause of failure in the laundry business is simply a failure to act.

About the Coin Laundry; it is specifically a "Necessity of Life, Community Service Business."

1. Almost all vended laundries are independently owned and operated. Franchises have not been very successful.

2. The physical time requirement of the owner is minimal, assuming that you address what negative issues and deferred maintenance that exists.

3. The return on investment is good to excellent and can lead to wealth.

4. The possibilities and the plan to grow and expand or multiply is readily available and frequently taken advantage of.

5. Industry financing and other necessary resources are well established and are readily available.

6. Tax Benefits are exceptionally good.

7. Laundries are a community service business. Pride in ownership is highly rewarded.

8. There is a never-ending rotation of laundries coming to market; cause? Some investors just didn’t know what they were doing. It is for this reason that laundries turn over so quickly.

Why do some laundries fail? "A Failure to Act."

1. Lack of discovery, preparation, and knowledge.

2. Lack of commitment and neglect of the facility.

3. Buyers put too much emphasis on the current numbers in their valuation at the time of acquisition.

4. Buyers fail to follow the three modeling steps during the acquisition process.

5. The buyer misses or makes late discoveries and then fails to act.

6. Under-capitalization and lack of resources.

7. Old equipment and the buyers expect to carry on by just doing maintenance.

8. The lease has issues that the investor failed to correct before completing the acquisition.

9. Too much reliance on highly incentivized third parties and a lack of experienced guidance.

There are no Smoke and Mirror discussions to have here. This is a straightforward look at a straightforward Investment, the laundry business. The intention is to inspire you with the greatness of opportunity, but also to warn you of the dangers and through this process, demonstrate how to answer the important questions, correct deficiencies, and capitalize on them. There is a science to the laundry business that, when understood, will lead you toward maximizing the return of your investment.

Let’s have a general discussion

Independence. Several closely-held private companies own multiple laundries, some even own hundreds of them. Yet, there are no successful national franchises. Those who have tried to franchise in the laundry business have mostly failed. Two examples are: Duds & Suds, a company that incorporated pool tables and beer into their model, and, Oasis Laundry, which offered Sun-tanning and a juice and snack bar, with counter-seating in their laundries. All great ideas. I was involved regionally in developing laundries with both of these companies. They had great ideas. However, your personal branding can reach your clientele as easily, and more affordably when done independently.

Franchising is just difficult to accomplish in the laundry industry. The margins are too low and competing with independent operators makes it difficult. To add franchise fees creates a competitive disadvantage. It can be done, it probably will be done, but not yet. Not that I have seen. Through a franchiser, the development costs of a new build-out is also likely higher. They will be higher if you must also pay the added development costs, in order to adhere to the franchise requirements and add other additional costs incurred in a franchise build-out, like an expediter, a project manager, a contractor, as well as the specialty tradesmen; all who you really should prefer to be dealing with directly. These costs will now likely be higher and then will also include an extra cost to cover the franchisor. The profits to a franchiser are quite high in each new development. There is a sales person that will be highly paid, the general expenses and the profits are also high and include forward fees. The franchisers costs can be disabling, especially in a competitive market.

It is not uncommon to find a very good location for sale that has gone through the original owner and one or more subsequent owners before the price of the laundry is brought down to a level where it can be profitable.

The cost of any laundry’s infrastructure is quite high, plumbing, electrical, materials and other services and fees are expensive, both to bring services to the site and also to distribute them throughout the laundry. The engineering and development to build a laundry is, at the time of this writing, up to and even over $150.00 per foot. Engineering costs alone can be discouraging. Then, you add the cost of equipment, marketing, branding and so on. You will add these costs up to see that a 3,000 Sq. Ft. laundry could easily cost in the area of a million dollars to open. Following that are