6 Figure Cashflow with Coins and Clothes
How to buy, and run, a laundromat for passive income
Welcome to another edition of a Cashflow playbook! This time we're covering the basics of using laundromats as a passive income source. This is one of our favorite asset classes and we've talked with tons of experts in this space. After all:
Summary
Intro:
There’s nothing sexy about a pile of dirty underwear. But you know what is sexy?
A passive income stream that gets you closer to that dream of being financially free and rolling in cash flow.
With a 20-35% ROI and nearly a 94.8% success rate, buying a laundromat may be a one-way ticket to that dream.
This recession-resistant business has low start-up costs and high cash flow. Best of all, it can be hands-off if that’s how you want to roll (passive with a capital P).
Cha-ching. That's what we look for when scoping out a small boring biz to invest in.
In fact, I’ve done it already, which is why I wanted to create this playbook for you. You can learn more about my experience in this video.
TLDR:
1 - Why laundry? They're simple. Low labor, upfront cash, and recession resistant.
2 - My first laundry deal? $0 out of pocket. $100k in seller financing, the rest with equipment loans, and cashflow of $67k/year. Learn more below.
Watch video
Need more convincing?
Meet Mark, the CEO of The Folde. We invested $100k into his laundromat with an idea he and his team had of starting a revolution in the future of laundromats and laundry delivery services.
It turns out we made the right investment ’cause they are takin’ over the laundry game with a vertical add-on... wash and fold. By the end of the year, The Folde will hit $3M in annual revenue.
Yeah, you heard that one right. Quite a considerable chunk of change for folding and delivering clean shirts. We sat down with him to chat about how he expanded the business to be full service, building out SOPs for consistency, ways to cut costs (and avoiding 600% markups…), and how he’s built the business to generate over 7 figures annually.
Here’s our chat with Mark. We recommend watching already to go behind the scenes before diving more into this playbook.
Watch video
Playbook
Now let's get into the nitty-gritty. Here’s our step-by-step guide on how to find, navigate, and finalize a laundromat acquisition deal.
Step 1 - Find the Right Deal
It’s a no-brainer that the first step to investing in a laundromat is seeking out the right deal to acquire.
You gotta put in the work to get your hands on all the information you need to make an educated decision on what laundromat to purchase.
1. Start off by getting in touch with your circle of influence or someone you know who may have contacts who are looking to sell a laundromat. If that’s a no-go, you’ll want to leverage your relationship with brokers that specialize in laundry deals.
They are most likely the first to know about new businesses that come on the market. Of course, online listings are also one of the easiest places to shop for laundromats (which could mean high competition and higher prices).
Some of our favorites are BuyBizSell, BusinessesForSale, Vested Business Brokers, Transworld Business Advisors, and Local Dexter Distributor, plus this list we created with 100+ others you can use TODAY to source your next deal.
Pro-tip… If you’re looking for an off-market and cheaper deal, be on the lookout for a vacant laundromat. Then contact the landlord (who currently owns the property and the equipment) and inquire if they are willing to sell just the equipment.
Most of them have no desire whatsoever to run a laundromat, so they’ll be happy to have you take it off their hands while payin’ their rent.
2. Get out there and hit the pavement. Map out each location in your target area and visit them as if you were a current customer.
You’ll also want to scope out the demographics around the location.
Here are a few questions to ask your potential sellers about their customers:
- What is their average income level?
- What’s the population density?
- What’s the traffic like around this location?
- Are there a lot of apartment buildings in the area?
- How many competitors are around me?
- Do the residences have in-unit washers and dryers in this area?
If a location piques your interest, contact the owner to build a relationship and get them on your radar. Be cool and don’t come off too strong. These owners most likely have a ton of people contacting them about selling (brokers, real estate agents, prospective buyers), so you want to focus on creating a real connection. Here's a script for contacting owners for potential off-market deals that you can start with and make your own.
This is also a great way to check out your competition and see what you’ll be up against when you put skin in the game.
3. You can also find a laundromat to buy using websites like IdealSpot.com or BizBuySell.com. If you’re looking more for demographics and other info for your area, I’d also recommend checking out CoinLaundry.org.
Step 2 - DYODD: Do Your Own Due Diligence
Do the right due diligence
You're going to need to start digging into the operations of the business now. More often than not, businesses like laundromats won't have incredibly organized books, or they just have years and years of receipts to hand you.
Nonetheless, there are a few things you need to make sure you do and ask for.
1 - Ask for any and all bills. Lease, utility, etc.
2 - Get information on outstanding insurance records and policyholders
3 - Get information on the equipment's age, working order, and maintenance records. Replacing this stuff will be your biggest expense
4 - Meet your seller. Do an onsite inspection and walk through with them.
5 - Ask for their books. Financial information, tax information, lease agreements, everything.
Here's a due diligence checklist to keep this all in one spot for you.
Download here
Understand the financials
The next step is valuing the laundromat you’re looking to purchase. You can use this calculator to plug in basic numbers to evaluate the deal based on the multiplier, then fill out the pro forma and the P&L.
Download here
Note that most listing prices are likely inflated for on-market deals, so you’ll want to focus on your numbers and forget about the seller and broker here.
For the rest of the financial valuation, there are a few considerations.
With this type of biz, we typically use the Seller’s Discretionary Earnings (SDE) to determine the value of the business. SDE is essentially anything of value that went to the previous owner of the laundromat.
This includes the owner’s salary, profits from the business, the owner’s auto, gas, or insurance, health insurance benefits for the owner, etc. Current standard multiples value laundromats anywhere from 2X to 6X SDE.
The multiple is dependent on the following factors…
- Equipment - The newer, the better. Make sure that everything works efficiently and is in good shape
- Lease - A high-quality lease is hella important. Shoot for 10 years with 2.5-year options and 5% increases every 2-3 years. If you're evaluating a deal with a lease that is coming up for renewal soon, make sure you factor the potential increase into your projections or ask for an extension of the current rate, if favorable
- Location - It’s all about location. You want somewhere with a growing population, high visibility, and high traffic with a well-known name and little competition close by
- Income - This one speaks for itself. You gotta make sure the money is flowin’
The better quality and conditions of all these items, the higher the multiple.
Numbers to look for
There are a few financial metrics to look at/benchmark as you're evaluating the financial health of your deals.
Weekly gross income: In simple terms, how much is your laundromat making each week or month from every revenue source? Does it make enough to have attractive margins?
Lease time: Straightforward, but how long is the lease? How much is the lease? What are the terms?
Utilities as a percentage of gross profit: Outside of replacing equipment, utilities are your highest expense. This metric helps you determine if your turn price is keeping up with the cost of water, electricity, etc., and how to increase it as needed.
Turns per day: You can use this number to see how busy your laundry is. Should you increase prices or just get more business? It also allows you to find your most profitable style of machine.
NOI: Your gross income less all operating expenses leaves you with your Net Operating Income, or NOI. Which way is it trending year over year, positive or negative? Does it leave enough in your SDE to cover debt service?
When you come to the table with an understanding of these major points, you have a leg to stand on when you start negotiating. Which will result in you coming out on top.
Submit the LOI
Once you’re ready to get the information from an owner to start pulling together a deal, you need to create a non-binding letter of intent, or LOI, that outlines your findings and the offer you're comfortable giving.
Here’s an example of one we did for a laundromat recently.
Download here
**To view the rest of the playbook and access your resources, visit the vault!**
