Laundromat Investment: Worth Your Money?

Investing in a laundromat can be a profitable business venture, but it also has its risks. Laundromats can be a great investment option for entrepreneurs who want to enter a recession-proof industry with 20-30% profit margins and passive income opportunities. However, it's important to consider the initial investment costs, which can range from $65,000 to $940,000 for a moderate-sized laundromat, as well as the ongoing operational expenses. The success of a laundromat business also depends on factors such as location, competition, and the additional services offered. While laundromats have a high success rate, with 95% surviving past their first five years, they require attention and hard work to be profitable.

High success rates

Coin laundromats have an extremely high rate of success, with a recent study finding that approximately 95% of laundromats succeed over a five-year period. This is significantly higher than the success rate of other small businesses, and it makes coin laundromats an attractive investment opportunity for entrepreneurs.

There are several reasons why coin laundromats have such a high success rate:

• Recession-Resistance: People always need to do laundry, even during economic downturns. In fact, laundromats tend to do well in recessions because people may be less willing to purchase or repair home laundry machines when money is tight.
• Low Overhead: Laundromats have very little physical inventory and don't require a large number of employees, which makes them cheaper to run than other businesses.
• Flexible Work-Life Balance: Laundromat owners can set their own hours and don't need to be present at the business for 40 hours per week, especially once they get used to running the business. This flexibility means that laundromat owners can often maintain a full-time job alongside running their business.
• Simple Business Model: In a laundromat, the customers do most of the work, and they pay upfront, which makes training, onboarding, labour, accounting and tracking easier than in many other businesses.
• Community and Support: There is a strong community surrounding the laundry industry, with organisations such as the Coin Laundry Association providing resources and support to laundromat owners, investors, and equipment distributors and manufacturers.

While coin laundromats have a high success rate, there are still some challenges and risks that potential investors should be aware of:

• Substantial Investment: There are significant costs involved in starting a coin laundromat, including the cost of building or renting a facility, purchasing or leasing laundry equipment, and ongoing expenses such as utilities, maintenance, and staffing.
• Competition: Laundromats face competition not only from other laundromats but also from multi-housing facilities (like apartments and condos) that offer laundry equipment, and customers who purchase laundry equipment for their homes.
• Maintenance and Repairs: Laundromat machines require regular maintenance and repairs, which can be expensive.
• Customer Service: As with any business that serves customers, laundromat owners will need to be prepared to deal with conflicts, unruly customers, and customers who abuse their equipment.

Recession-proof

Laundromats are considered a recession-proof business, and for good reason. People will always need to wash their clothes, and during an economic downturn, they may be more inclined to opt for a self-service laundry option rather than outsourcing to dry cleaners.

The laundry industry has proven its resilience during tough economic times. For example, the American laundry service industry was born during the Great Depression, and more recently, the COVID-19 pandemic saw the national laundry industry grow while adjacent consumer services suffered. Data from the U.S. Bureau of Labor Statistics (BLS) shows that the number of coin-operated laundromat establishments increased from 9,548 in the first quarter of 2020 to 9,710 in the first quarter of 2022.

Laundromats also have a short payment cycle, which is an advantage for small businesses. According to Business Insider, 82% of small businesses fail due to cash flow problems. The pay-as-you-go model of laundromats eliminates the uncertainty of extended payment cycles and the need for invoicing, billing, and accounts receivable.

Laundromats also benefit from a quick turnaround on their initial investment. They have a surprisingly high return on investment, averaging 20-35% in the first year. Additionally, once the location and equipment are set up, they are relatively easy to get up and running without the extended lead time required by other service businesses.

Laundromats are an essential service and, therefore, a stable investment opportunity. They have a consistent customer base with a recurring need. This is further supported by the fact that many rental properties do not have dedicated laundry facilities, ensuring a steady stream of customers.

The laundry industry has also adapted to meet modern demands, offering specialized services like eco-friendly washing, quick-service models, and laundry subscriptions. With the rise of urban populations and limited space in apartments, the demand for laundromats is projected to grow.

Laundromats have proven to be a resilient business venture during economic downturns, and their essential nature, combined with a quick payment cycle and high return on investment, makes them an attractive recession-proof investment opportunity.

Low overheads

One of the most significant advantages of investing in a coin laundry business is the low overheads associated with this type of venture. This is mainly due to the nature of the business, which requires minimal inventory, staffing and upfront costs.

Firstly, coin laundries have very little physical inventory, which means minimal ordering, storing, rotating or discarding of products. This makes management easier and reduces overheads.

Secondly, coin laundries can operate with minimal staff, as there is no need for a large team to be scheduled and managed. This also reduces the costs associated with payroll and other employee-related expenses.

Thirdly, the upfront costs of starting a coin laundry business are relatively low compared to other businesses. While there are still significant costs involved, such as acquiring and designing/refurbishing the property and purchasing commercial laundry equipment, these costs are often lower than those associated with other types of businesses.

Additionally, coin laundry businesses are not typically franchised, which eliminates pricey franchise fees. This also means that owners have more freedom to build and run the business as they see fit, without having to follow specific franchise rules.

Finally, the simplicity of the business model contributes to lower overheads. In a typical coin laundry, the customers do most of the work, which reduces the need for training and labour. Additionally, customers pay upfront, which makes accounting and tracking easier and helps with cash flow.

Overall, the low overheads associated with coin laundry businesses make them an attractive investment opportunity, particularly for those seeking a simple, flexible and relatively low-cost business venture.

Not seasonal

One of the pros of investing in a laundromat is that it is not seasonal or weather-dependent. Many businesses and their products fluctuate with the seasons and holidays. While severe weather and extreme temperatures may impact whether people go out, people will always need to do laundry, so there is not a lot of seasonal fluctuation to manage.

In the US, winter is the busiest time for laundromats as people wear thicker clothing and more layers. This means more clothes to fill up the washers and dryers. Summer is a slower time for laundromats, with gross revenue generally 10-15% less than in winter. However, there is a "spring bounce" when people wash their winter clothes before storing them and take their summer clothes out of storage to wash before wearing them.

Overall, while there may be some minor fluctuations throughout the year, investing in a laundromat is a relatively stable option that is not heavily impacted by seasonal changes.

Passive income

A coin laundry business can be a good source of passive income, but it is not entirely passive. It requires an initial investment, ongoing maintenance, and management to ensure the machines are well-maintained, the store is clean and safe, and customers are satisfied. However, with proper planning and management, it can be a successful and profitable business model that provides passive income for years to come.

• Utilize technology effectively: Implement laundry management software to track each machine's usage, revenue, and send alerts when it malfunctions. This will allow you to keep track of your laundromat's performance and troubleshoot mechanical issues remotely.
• Utilize a management company: Hire a management company or broker to oversee your business for you, similar to hiring a property management company when investing in real estate. They can handle basic tasks such as hiring, training, and firing employees, money collection and deposits, machine maintenance and repairs, and marketing and advertising.
• Utilize a fund: Invest in a laundromat fund, where you pool your money with other investors to invest in larger deals or invest more passively.

Some additional tips to maximize passive income in a coin laundry business include:

• Optimizing your equipment by regularly maintaining your machines and investing in high-quality, energy-efficient equipment.
• Offering additional services such as vending machines, selling laundry supplies, or providing free Wi-Fi to increase revenue and customer satisfaction.
• Implementing automated payment systems, such as card-operated machines, to reduce the need for staff and increase revenue by eliminating the risk of cash theft or loss.
• Increasing your marketing efforts to attract more customers, such as advertising in local newspapers, distributing flyers, or creating social media profiles.
• Managing your operating costs by reducing utility costs, optimizing staffing levels, and ensuring you have a proper accounting system in place.
• Considering adding drop-off services, especially in areas with a high population density or many working professionals who have limited time for laundry.

Overall, a coin laundry business can be a good investment for passive income, but it requires careful planning, management, and a good location to be successful.

Frequently asked questions