When selling your laundromat, your asking price should be 3.5-5 times the net operating income of your business. You can determine that multiple by considering the age of the equipment, the length of the lease, and the terms of the lease.
Valuing a Laundromat Business
When determining how much to ask for your laundromat, there are various factors to consider.
Laundromats, like any business or commercial real estate, are valued based on performance. The way we measure performance is through a number called the net operating income (NOI). NOI is the gross income minus expenses (excluding taxes and loan payments). The other 3 main factors to consider are the ages of the equipment, the length of the lease, and the terms of the lease.
Let's talk about how each of the three main factors in a laundromat's value affects your asking price.
1. Age of the equipment
These are some rules of thumb to help you determine the value of your laundromat.
These numbers are not precise as there are a lot of factors to consider but in a neutral market, equipment that is 0-5 years old should fetch a 4.5-5 times multiple. Equipment that is 13-16ish years old is going to be valued at 3.5-4 times NOI.
Equipment older than that is nearing the end of its life and will need to be replaced soon.
2. Length of the lease
Lease length is critical to the value of your laundromat. Longer leases make laundromats more valuable. The reason for this is that a long lease gives stability to a business that is difficult and expensive to relocate if a lease is not renewed or the rent is increased dramatically. Therefore, when preparing to sell your laundromat, if you don't have much time left on your lease, you may want to consider negotiating a new, long-term lease or adding options to the end of your lease. This extra time will give buyers more confidence and increase the value of your laundromat.
Here's how the length of your lease can affect the value of your laundromat. Again, longer leases are better, so leases that are 15+ years tend toward 4.5-5 times the NOI. Leases around 10 years, as a guideline, are valued at around 3.5-4 times NOI.
3. Terms of the lease
We generally determine the multiple based on the percentage of rent amount, including common area maintenance or triple net costs, versus the total gross income of the laundromat.
Here are some general guidelines to help you get a feel for how the rent amount influences the multiple.
Obviously, paying less rent is better, so lower leases will command a higher multiple. As a guideline, rents that are around 25% of the gross income of the laundromat or less fetch a multiple of around 4.5-5 times NOI. When that percentage creeps up around 33% and up, the multiple decreases to around 3.5-4 times NOI.
If you are planning on selling your laundromat, either on your own or through an agent, make sure you list it for free over at LaundromatMarketplace.com. Thousands of visitors a month browse the Marketplace looking for their next laundromat investment, so be sure to list yours there. And, as always, it's free to list it!
Book a free demo to see how Cents can assist you in all stages of your laundromat journey.