Yup, we bought a laundromat.
Randy and I were tired of watching our money slowly grow in savings accounts and the stock market, and being in the corporate rat race was getting really old. It felt like the right time to change things up, but we had no idea what or how. We wanted full-time income with a part-time commitment.
Do you know what I’m talking about? You feel like it’s time to do something big, something life-changing but you’re not sure what? You want to reach your savings and income goals faster, but you feel paralyzed where to start? That was us.
So in 2014, we put our finance and management backgrounds to work and bought our first unattended laundromat.
That went so well, we bought a second one.
But when we first started, friends and family were a little skeptical. “A laundromat? Seriously?”, they asked.
They wanted to know…
“What in the world made you want to own a business?”
“Why a laundromat?”
“Does it make a lot of money?”
Those were all great questions. The truth is that we really wanted to try investing in businesses, get a great return without a ton of time and effort, and eventually leave the cubicle life behind.
In Search of Semi-Passive, Recession-Proof Income
But, it couldn’t be just any business. It had to be fairly passive (not a lot of work), allow us to keep our day jobs if we want, but still provide some nice cash flow each month. There are only a few businesses that meet this criteria, and a self-service laundromat is one of them.
Owning a laundromat is not glamorous or fashionable (but we hope to change that). When the economy is down, folks may eat out less or put the brakes on frivolous purchases, but clean laundry is a necessity.
We decided up front that we were comfortable investing $50,000 into a business venture. (We had saved some money in order to purchase the business, but don’t let that number scare you. In fact, for several of the laundries we were interested in, the seller was willing to carry the financing and take payments.)
Risk vs. Reward
A general rule of investing is that the riskier the investment, the greater the profits (or losses). With less risky investments, you may not get skyrocketing returns, but you won’t likely lose your shirt either.
One of the ways we lowered our risk is by buying an existing business with an existing and steady customer base.
Investing in a brand-new startup restaurant would be much riskier than investing in a laundromat that has been in business for 20 years, for example.
Another way we lowered our risk was to buy a business that’s relatively recession-proof, as I mentioned before. No matter what the economy is doing, people never stop doing their laundry!
Our Target Store
Then we found it. The unattended laundromat in our neighborhood shopping center was up for sale. And they had just lowered the price from $150,000. The new list price was $129,500. (Hmmm…a motivated seller?)
But we had agreed to only invest $50,000 of our cash into a business venture. So we knew we’d have to get the rest through financing; either a business loan or perhaps even the seller would be willing to carry the financing? We weren’t sure.
We gathered our wits and every bit of courage, and reached out to the listing broker for more information.
He arranged to meet us at the laundry the next day to go over more details. We walked into the laundry that next afternoon, and knew we had a diamond in the rough on our hands. It needed a major cosmetic overhaul, but the customer base was solid, and the incomes were consistent.
But we had some work to do before we made our move.
What purchase price were we comfortable with? And if the seller is as motivated as he seems, would he accept an offer below asking?
Let’s Dig In to the Numbers, Shall We?
We decided to offer him $105,000, and let him counter if he wanted to.
Below are the initial numbers I ran. I used a purchase price of $105,000, with a down payment of 35%.
This meant we would make a down payment of $36,750 and finance the remaining $68,250. We had a rough idea that a lender would give us terms in the range of 8.25% for 5 years, based on information from the broker.
So our initial investment would be the down payment ($36,750) plus the estimated start-up costs of $12,400, for a total investment of $49,150.
Perfect. It would put us right around our target investment commitment of $50,000. (But again, if the seller is willing to carry a larger loan, then the cash you need could be much, much smaller. )
Once we knew the amount of money we’d be investing, it was time to determine what the return on our investment may be, based on prior history for the laundromat. We took the average annual gross revenue for the prior 3 years, subtracted the most recent annual operating costs (expenses), subtracted the annual debt payments we’d be making and determined our annual profits/cash flow.
(Note: Eventually we reviewed the seller’s bank statements, tax returns and profit/loss statements. These documents allowed us to confirm his stated revenue/expense/profit numbers.)
Alright friends, let’s get back to the numbers…
After reviewing the sellers rough numbers, we knew that the average annual sales for the prior three years were about $139,846, and his expenses were $90,276. Once we subtracted our loan payments of $16,704, then we would be left with net cash flow of $32,866.
And since our initial investment was $49,150, we would earn an ROI somewhere in the neighborhood of 66.9%.
The Adventure Began
So we made our offer of $105,000 and after some back and forth, the seller accepted!
Then our escrow period began.
I used a combination of research and my finance and analytics background to perform all sorts of due diligence reviews on the numbers the seller provided. Reviewed tax returns and profit/loss statements, ran a water bill analysis, attended collections for 30 days, etc. It all checked out.
We also convinced the seller to carry the financing, which was a bonus. Then came some negotiations with the landlord on the lease. (We documented the purchase process in much more detail in our earlier blog posts.)
And on February 28th, 2015, escrow closed and our dream of owning a passive business became a reality.
That morning, the seller did a walkthrough and handed us the keys. We celebrated by spending a leisurely afternoon together; we had lunch and went to a movie. And the whole time we marveled at the idea that we were making money without even being there.
As time goes on, we’ll see how our results line up with expectations, and I’ll eventually share that with you too.
******** Here’s a 2017 UPDATE! ********
[We now own two coin laundries, and business is going fantastic. With our first store, we increased sales by $30,000 in just the first year alone, and we doubled our net income to $61,029 after two years of ownership. Our second store we bought for only $28,000. After just some basic cosmetic updates, incomes doubled at that store, and continue to grow month over month.
Buying coin laundries was one of the best decisions we’ve ever made. Not only are we earning cash flow each month, but when we’re ready to hang up our keys, we’ll sell both stores for a nice chunk of change.
Since our journey began, a lot of people have reached out to us asking for a step-by-step guide on how to duplicate our success.
So we’re excited to announce our official “Laundromats101 Guide to Purchasing a Laundromat”. Click HERE to check it out!]
And if you do nothing else, you at least owe it to your future self to join our Laundromats101 community. You’ll get insider information, updates, special offers, etc. Just enter your email below. (We promise not to spam you, and you can unsubscribe at any time. We even send you a FREE 4-page Laundromat Purchase Checklist that lists every step of the process, as a welcome gift.)
Lastly, if you’re the curious type, and want to see some before/after pictures of our first laundry, and some gnarly before photos of our second laundry, check out THIS post. Or, just start digging around the site, there’s plenty more to see!
Until next time…