What Determines a Laundromat’s Price?
What determines a laundromat’s price? The price of a laundromat is determined by a 3.5-4.5 multiple of the net operating income. Its location, condition, and systems in place determine if that multiple will be higher or lower.
A laundromat that is located on a busy street, has new equipment, and has automated systems will command a higher price than one that has poor visibility from the street and has aging equipment. There are pros and cons to buying each type of laundromat.
What Kind of Laundromat Should I Buy?
When buying an existing store, you have the option of purchasing a turn-key laundromat or one that needs improvements. A turn-key laundromat is one that has newer equipment, a polished look, and established systems. One that needs work may need an equipment upgrade, renovations, or a solid marketing campaign to rehab it’s reputation in the community. There are pros and cons to each type of laundromat.
Turn-Key Laundromat
The pros of buying a laundromat that is in good condition for a higher multiple are that you will likely have less maintenance costs early on, less time to manage it, and a more stable income.
The cons of buying this kind of store for a higher multiple are that your return on investment will likely be lower and there will likely be less room to add value and income and equity; the profit potential is more likely to be optimized.
This type of laundromat is easier to run, less risky, and provides a larger immediate return, but does you do end up paying more of a premium for those perks. Owners with capital to invest but less time to manage the business should consider this type of investment. Aside from those whose primary focus is laundromat ownership, a turn-key business can suit the working professional, such as doctors, lawyers, engineers, and other high income professionals looking to benefit from the high cash flows and tax advantages of laundromats.
Fixer-upper Laundromat
The pros of buying a laundromat that needs work for a lower multiple are that there will be opportunities to add value by improving the store conditions and systems, replacing aging equipment, adding additional streams of revenue, and re-branding through renovations. In addition, your initial profits should be higher since you are buying at a lower multiple.
The cons of buying a fixer upper for a lower multiple are that it will be more work and money to renovate, it will cost money to replace aging equipment, and there is more risk introduced. Here is an idea ofhow much it costs to fix up a laundromat. There is no guarantee the business will improve after you have invested back into your business.
Fixer uppers can be acquired for less money, have potential income upsides, and have a higher likelihood of building equity. However, it tends to require more work and take longer to reach it’s income potential relative to a turn-key laundromat. Fixer uppers suit those who are looking to build sweat equity and sweat cash flow (is that a thing?), those with capital to invest and time to manage an improving business, and those looking for a project.
In Conclusion
In this article we have covered how much money an average laundromat makes in a year. Buying an existing laundromat, you can expect to net a 25%-35% return on the price you pay for the laundromat. The actual return on your investment will depend on the location, condition, and systems established in the laundromat. It will also depend on your management of the laundromat and your ability to keep customers and grow the business.
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