I’m a sucker for any type of income opportunity. If something can generate strong free cash flow with limited time involved, I’ll listen. There’s been plenty of discussion around the idea of seeking a laundromat investment for passive income. Is it as easy as investing and earning cash? We evaluate.
Is Buying a Laundromat a Good Idea to Earn Extra Income?
When investing in or buying a business, you have to make an informed decision based on market analysis, risk analysis, and most importantly, profitability.
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If you are looking into laundromat investment, you have come to the right place.
A ubiquitous business like a laundromat may seem like a recipe for success, but it is not all that simple.
Laundromats have been around since the Great Depression. The first-ever opened in Fort Worth, TX, back in the 1930s.
You could say that the depression created the need for a laundromat when people could not afford washing machines.
Of course, they have evolved dramatically since then, thanks to technology.
New York City, which is perhaps the most lucrative market for laundromats, is seeing a shrink in recent years. There are currently 2655 licensed laundromats in the city. Nevertheless, new laundromats keep opening as some that have been around decades close down due to high rents and low foot traffic.
Nevertheless, a laundromat can be a great investment provided you do it right.
With the UN projecting 68% of the world population living in urban areas by 2050, it could not be a better time to invest in a service business like laundromat than right now.
Making money with an asset like your home or even a bike is a great idea in my opinion.
You make money for something you’ve already paid for. With washing machines or laundry facilities, you make money with an asset at a larger scale.
Table of Contents
Is Buying a Laundromat a Good Investment?
You need to have the right information at hand before making a big decision, such as starting your own business or buying an existing one.
Here is why you should consider buying a laundromat:
High Success Rate
You probably are familiar with the statistics regarding new business. Almost 90% of businesses fail within the first five years. Even though this number sounds alarming, it does not necessarily apply to laundromats.
This industry is seeing what one could call a ‘renaissance.’ Laundromats have gotten a facelift, which has only increased their potential. By offering extra services, a new or existing laundromat business can be turned profitable relatively faster than other types of businesses.
The reason behind that is simple: people will always need to wash clothes. According to a survey by Coin Laundry Association, half of the laundromats offer wash and fold service.
This service is the number one money-maker for these businesses.
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What makes a laundromat investment so much safer is that it is recession-resistant. During a recession, the demand for doing laundry at a laundromat would automatically increase as people downsize their homes.
Like mentioned before, it was a time of recession that the need for a laundromat came about. Not that you should hope for one, it is good to know that when bad times come, you should be able to weather them.
People love clean clothes. I don’t see that changing anytime soon. It’s one of the many reasons why laundromats are a great rental business idea.
Any business investment is also an investment in your future and your children’s future. A laundromat can provide a steady income for you and your family.
You are ultimately creating an asset that could be passed down to generations.
If you own the location, the estate value will keep on increasing with time. Depending on the location, you could be looking at a double-digit growth over just one decade.
Small businesses like laundromats are what contribute significantly to the economy. These businesses create more jobs than large corporations combined. In 2015, small businesses created over 70% of the total new jobs in the US.
By having a local laundromat business, you will be contributing to the economy and giving back to your community.
Everyone benefits from valuable services, and in the longer run, it helps build a safer society.
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What to Consider When Buying a Laundromat
There are a few important things to keep in mind before venturing into the laundromat industry. Here is what you need to consider:
Believe it or not, location can single-handedly make or break your laundromat investment. The phrase ‘location, location, location’ could not be more useful than when buying a laundromat. You need to be very smart about where you choose to have one.
It is important to realize that the laundromat is a mature industry. In simple words, there is a laundromat in almost every neighborhood in major cities. You have to identify a location that may be lacking a laundromat (at least a good laundromat with value-driven services).
Areas, where a laundromat could have a high potential for profitability, are apartment complexes, college towns, and tourist hubs.
You should also make sure that the laundromat you are buying is listed on Google and preferably comes up on top.
Whether you are building a laundromat from scratch or buying one, you have to crunch the numbers and look at how much the expenses would be. The good news is that laundromats tend to have less recurring costly expenses.
The single highest expense would be the rent you pay every month. In most cases, you would want to get the longest lease you can get.
If the current proprietor does not own the place, the lease will transfer to your name when you buy the business.
Make sure to review it thoroughly and factor the rent in your budget.
Another major expense could be renovations or new commercial laundry equipment. If the laundromat is in serious need of overhauls, it may not be a good idea to invest.
If the owner is selling it at a price lower than the market average, it may be because it is a rundown place with legacy washing machines.
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Like any other business venture, you should do a thorough competitor analysis. Laundromats have been around for a long time and are considered a mature business.
There is only so much laundry people can do. Having a laundromat less than a block away from an existing one may not be the best idea.
You should also consider customer loyalty. In some neighborhoods, residents may be highly loyal to the existing laundromat. That creates a serious barrier of entry for another one.
That said, with a strong marketing strategy and value-added services, you could be the new favorite among the residents in no time.
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Management style differs from owner to owner, but obviously, you need one that makes the most money. Make sure to see how the laundromat you are buying is currently run and if it is feasible enough.
You can always make changes you may deem necessary to improve customer experience.
More and more laundromats are going digital. You could have a digital card payment system that eliminates the need for more employees.
You could also have loyalty programs in place for frequent customers.
How Much of an Investment is Needed for a Laundromat?
Now that you are familiar with the ins and outs of laundromat investment, it is time to talk numbers. It is hard to estimate even a close number, as you can see from the information above that there are several factors at play.
If you are wondering how to buy a laundromat for free, well, the answer is you cannot. You will need quite some money to start. It also comes down to whether you are opening a laundromat or buying an existing one.
In both cases, you can expect to invest $200,000 to $500,000.
This is a big investment range that can even go higher depending on the location, the size of the business, and interest rates (if you are taking out loans).
The cost would typically include market research, legal fees, remodeling, licenses, and new equipment.
When you are computing the laundromat investment cost, make sure to have ample money to cover the running expenses for at least a year.
That is usually recommended for all new businesses, but some do not even start making a profit for two to three years.
However, that is highly unlikely for a full-fledged running laundromat.
How to Buy a Laundromat?
Once you have made up your mind about investing in the laundry business, here is what you need to do:
Create a Business Plan
First and foremost, create a business plan for your new venture. Your market research would be the precursor to this business plan.
After exhaustive research and interviews from people in the business, you should put everything down on paper and create a timeline for yourself.
Your business plan will indicate how much of an investment you need to buy a laundromat. You should start acquiring the required funds early on. With the investment capital in five figures, you may not have such an amount saved up.
A better alternative is to look for small business grants from the government as well as non-profit organizations. US Small Business Administration is a good place to start. If you are not eligible for grants, you can always take out a business loan.
However, be very careful about the interest rates and redo your expenses to factor in the interest you will be paying over the years.
Identify Target Area
As you can understand by now, location will serve as the key to the success of your new business. You should do your due research to find the right area to buy the laundromat business in.
This should be easy if you live in an urban sprawl with many areas and neighborhoods with existing laundromats.
Consult a Business Broker
This person can help you identify the right business to purchase in your target area. They have inside information about businesses that can help you make the right decision. They know which businesses are considering selling.
Alternatively, you can even prepare an offer for a laundromat that is not for sale.
Inspect the Space and Equipment
Before shaking hands on the deal, you must ensure that everything is by the book. Look into the paperwork for the business, whether they have a valid lease and all the licenses. You should also inspect the space itself as to what the conditions are.
For instance, if the space has proper wiring and smoke detectors.
Equally important is to check the equipment, whether it is in good condition. You can check the washing machines and dryers yourself.
However, it would be best if you could hire a professional to do it.
Just call one of those repair companies and have their technician check the equipment.
Seal the Deal
Finally, once you have checked everything and are ready with the funds, close the deal.
With some remodeling and changes, you can have the laundromat running in just a few days.
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Owning a Laundromat Pros And Cons
Here are some of the pros and cons of owning a laundromat.
Let’s be honest, one of the top reasons people go into entrepreneurship is to have more freedom. With a nine to five job, you may get a steady income, but your work-life balance is not exactly great.
With a laundromat, you can decide your work hours. You can travel freely and give your family the time they deserve.
Having your business is a proven way to become independently wealthy.
Ease of Management
Running a laundromat is not the most taxing task in the world. Machines do half the work for you. With laundry management systems, coinless payments, and cloud computing, running a laundromat could not have been any easier.
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There is a very high growth potential for a laundry service business. If your business acquires a good reputation and you make enough in profits, you could branch out to other areas or even cities.
Effect on the Environment
With climate change becoming such a big threat to our planet, it is worth noting that a laundromat may have a big carbon footprint. However, that can be controlled by following eco-friendly practices and conserving energy with smart appliances.
Buying a laundromat requires an investment of hundreds of thousands of dollars. That kind of money is not readily available for many of us.
The laundry industry is one to stay for good as people’s need to wash clothes would always be there. Laundromat investment is lucrative, given it is conducted right with proper research, and with a rigid business plan in place.
If the numbers from current businesses are taken into account, your new business could start making a profit from the get-go.
Even if you buy a laundromat that does not have impressive profits, you can always turn it around with your business acumen.
With so many businesses utilizing Artificial Intelligence, who is to say the good old laundromat cannot be completely revolutionized?