Because of the way laundromats are valued, most existing laundromats purchased make money. In fact, when purchased correctly, laundromats can yield a return of 20-25% or more. However, not all laundromats make money. Poor management, being overleveraged, and a bad lease are the most common causes of laundromat failure.
How laundromats are valued:
The valuation of a laundromat is inextricably tied to how much money a laundromat makes. Let's do a quick overview of how they are valued and how that valuation translates to a business profit.
Laundromats are valued by taking the net operating income (total income minus expenses, not counting loan payments or taxes) and multiplying it by a multiple (the average is 3.5-5x). Because the value is based on the net operating income (NOI), buying a healthy laundromat should yield you a profit from day 1.
For example, if a laundromat nets $100,000 and you buy it for $400,000, you will return a 25% return on your money (not counting tax benefits, equity growth, and more!). That is a valuation of 4 times the net income. At a 5 times multiple, which is near the top end of valuations, you would purchase the laundromat for $500,000 and return 20% on your money.
How much money laundromats make:
Ok, since the price you pay for a laundromat is tied to its profits, your laundromat should be making money. But how much money will your laundromat make? The answer is, of course, it depends. A laundromat should start out making somewhere between 20-28% (3.5-5x multiple of the net income) unleveraged. This is a great return on money for any investment. It can really allow you to grow your cash flow and wealth very fast.
So, when you purchase a laundromat, you should expect somewhere between a 20-28% return on your investment at a minimum. Laundromats make very good money when bought correctly and run well.
Why some laundromats don’t make money:
There are three common reasons some laundromats don't make money.
- Buyers don't do thorough due diligence and purchase the laundromat at an incorrect valuation.
- New owners sign a lease that is too high relative to gross income, too short or has hidden "gotchas" that are overlooked.
- The final reason many laundromats don't make money is due to poor management. Do laundromats make money?
Laundromats are very lucrative businesses when purchased correctly and managed well. You can expect a minimum of a 20-25% return on your investment, with the potential to increase that significantly through better business practices outlined here.
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