Laundromats can be a terrific source of income if you are looking for a profitable, reliable, recession-proof business that enjoys an incredibly high success rate.
What’s better is that you can structure your laundromat business to provide passive income to you. With the right processes, equipment, and workers in place, you can make the business almost completely passive.
Those machines will keep churning out profits day in and day out regardless of what you are doing.
Sounds intriguing, no?
This article will walk you through how you can get started. It consists of 4 Sections which I have outlined below. If you want to skip ahead to any specific Section, just click on the associated link for that Section. The section focusing on how to make your laundromat passive is the Sixth Step in Section II.
Section I. Introductory Financial Information About Laundromats
Section II. The Six Steps to Starting a Laundromat
Section III. How to Buy an Existing Laundromat
Section IV. Pros and Cons of Owning a Laundromat
That’s a lot to cover, so let’s get into it!
The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.
Introductory Financial Information About Laundromats
Are Laundromats Profitable?
A well-located and operated laundromat can be profitable, but the amount of profitability can vary. According to the Coinlaundry.org, coin laundries can generate cash flow between $15,000 and $300,000 per year.
How Much Money Can You Make Owning a Laundromat?
The annual gross income from a single laundromat can range from $30,000 to $1 million, while expenses can be between 65% to 115% of the gross income. Source
So, you have the potential to make quite a lot of money by owning a laundromat, but the amount of money that you will keep will hinge on how you manage your laundromat’s expenses.
What are the sorts of things that can impact your expenses? Here are some of the most common costs that a laundromat will incur:
- Rent
- Utilities (water, sewer, gas, electricity)
- Insurance
- Repairs and maintenance on machines
- Employee payroll and related expenses
- Miscellaneous expenses, such as cleaning, bathroom, and vending supplies (if applicable)
As you can imagine, being efficient and effective at operating your business will play a key role in how much money you make with your laundromat.
How Much Do Laundromats Cost?
For an average-sized laundromat (2,000 sq. feet), you can expect to pay between $200,000 and $500,000. The actual cost will depend on how much renovation or construction will be involved, how high-end you want to go on your washers and dryers, etc.
For construction costs to remodel an average-sized location, you can expect to pay around $200,000. To fill an average-sized laundromat with washers and dryers you will likely be paying between $150,000 to $300,000.
Can You Start a Laundromat With No Money?
As you can see, the costs of starting a laundromat can be daunting. But if you do not have a lot of cash, don’t count yourself out. We have compiled some great options for you to explore.
Here are some ways you can start a laundromat with no (or little) money:
- Laundry equipment financing (100% financing available)
- Lease laundry equipment
- Federal, state, and corporate grants
- Credit Cards
- Partnering with an investor
- Seller financing (when buying an existing laundromat)
- Use funds from your HELOC
- Get a peer to peer loan
- Lease Out Vacant Laundromat
I think most of these options are self-explanatory, but I will go into a few that require a bit more discussion.
Given the high costs of starting this business, you will likely need to use some of these methods in combination with each other to cover the costs (as well as use more traditional methods of financing like SBA loans or bank loans).
100% Laundry Equipment Financing
There are some companies that offer 100% financing for commercial laundry machines. You can use this option to finance your machines, but will have to use other funding sources to cover the remaining costs of starting a laundromat.
You can check out the 100% equipment financing companies below:
- Low Laundry
- Trust Capital USA
- Coinmatic.com (not available in all states)
Leasing Laundry Machines
You can reduce your start-up costs by leasing your laundry machines instead of buying. This can get expensive over the long term but may be your only option if you can’t get financing for your machines and don’t have the money to buy them. Like with the 100% laundry equipment financing option, this will only take care of getting the machines – it won’t cover other costs of starting a laundromat.
Leasing Out Vacant Laundromats
One strategy for obtaining a laundromat with no money that is getting some attention is finding a vacant laundromat and negotiating with the landlord for a long-term lease. You tell the landlord that you are going to update the laundromat with brand new machines and convince them that the property will have a brighter future with you as the new operator of the laundromat.
How is this a no money down strategy?
The idea is that the property already has been outfitted for a laundromat and you won’t need to spend money to build out all of the connections, and other infrastructure. All you need to do get new machines in place, which you can do with the 100% equipment financing options I discussed above.
It can work, but you need to get a lease with favorable terms and understand why the prior laundromat failed. If it was due to bad management, you can deal with that. But if the cause was something more systemic (poor location, etc.), you should proceed with caution.
What is the Success Rate For a Laundromat?
According to Laundrylux.com, laundromats enjoy a 95% success rate over a 5 year period.
Is a Laundromat a Good Investment?
A laundromat can be a good investment. According to Martin Ray, laundromat businesses can yield between 20%-35% ROI.
If you combine the strong ROI with the other financial benefits that laundromats can provide, including their low failure rate, lack of seasonality, resistance to recessions, and ability to be operated in a mostly passive way, you can wind up with a pretty attractive investment.
Of course, as with all the numbers and information provided in this article, we are looking at averages or ranges, so your actual results may differ.
Step-By-Step Guide To Starting a Laundromat
Ok, now that we’ve covered the basic financial information about laundromats, let’s dive into the meat of this article: The step-by step guide to starting a profitable and passive laundromat business.
Step 1: Set Up Your Business and Create a Business Plan
Set Up Your Business
One of the first things you should do is set up your business. That includes (i) figuring out a name and logo, (ii) creating a website, (iii) listing your business online, (iv) setting up your business entity, and (v) creating a business plan.
Name and Logo
Select a name and logo that you like and create a website (if you want your business to have an online presence).
Having trouble figuring out a name? Try Shopify’s business name generator. It’s free.
As for a logo, I have zero artistic ability and limited tech skills, so I like a simple and easy to use option.
Looka will provide you a professional looking logo at reasonable prices. You can choose from hundreds of logo designs (based on parameters and preferences you select) before settling on one you like. You can also customize to your heart’s content. Check them out here.
Note: You want to make sure your name and logo are original to you and are not going to infringe someone else’s intellectual property. If you are unsure, you can check the USPTO’s trademark search tool as a starting point.
Create a Website
As far as your website goes, it does not have to be incredibly fancy or cost a lot of money to set up. There are a lot of resources available to help you with this.
In fact, Google allows you to build your first business website for free.
Get Your Laundromat on Google My Business
It is also important to get your new laundromat on Google. You can do this by listing your laundromat on Google My Business. This way, people that are searching for laundromats in your area can find you. You want to encourage people to leave good reviews there for you if they had a good experience with your business. Research has found a strong relationship between the number of online reviews a business and the revenue that it generates.
If you want to learn more about how to do this, check out this tutorial from Google.
Set Up Your Business Entity
If your business is going to be a corporation, LLC, or some other business entity, you should establish that as well. You can hire a lawyer to help you or you can use many of the online resources that can help you set up your business entity.
I like Northwest because they can get you up and running quickly and easily. They are also one of the most affordable options that I was able to find that still offered great customer service ($39 as of the date of this article).
According to their website, they are the only national registered agent service that lets you use their office address so you don’t have to use your own. That’s a killer privacy advantage.
Definitely worth checking out.
You should consult with your accountant and lawyer before taking this step, so you understand the tax and legal consequences of setting up this type of organization for your business.
Create a Business Plan
A business plan is essentially a roadmap for your business. It is important because it organizes your thoughts relating to your business into an actionable plan. Some things to include are budgeting, identifying your target market and competition, pricing strategy, operational plans (how you plan to run your laundromat), and growth projections.
Don’t stress too much about getting it perfect. I would use it more as an organizational tool at this point.
Another benefit of having a business plan is that it can help you raise money from banks and investors.
These folks will want to see a professional-looking business plan as part of their lending or investing process.
Don’t know how to get started? The Small Business Administration has a great tool to help you write your business plan.
Step 2: Find a Great Location For Your Laundromat
Once you have set up your business and created a business plan, you will want to look for a great location for your new laundromat.
Finding the right location is one of the most important steps in the process because it can mean the difference between a profitable business and one that fails.
How do you find the right location?
The first thing you need to look at is the neighborhood. More specifically, you need to examine who is living in the neighborhood.
You want a neighborhood that consists mostly of lower-income (less than $40,000 per year) renters. And you need to look most closely at people living within 1 mile of your intended location because 87% of customers live within 1 mile of the facility.
The reason is obvious. Most affluent homeowners already have the means to get washers and dryers in their homes, so they don’t need a laundromat. Avoid where they live.
You want to find a location that has mostly low-income renters within 1 mile of the laundromat site (especially renters that don’t have access to laundry facilities in their building). This is key!
How can you find this data? City-data breaks down income, renter info, and a whole host of other useful data by zip code. Pretty cool, plus it’s free.
Obviously, you also want to find a location that:
- Is in good condition and looks attractive
- Is near a major road, if possible
- Has great visibility and easy access from that road
- Has plenty of parking.
The location should also be a place where customers feel safe doing their laundry.
It should be clean, well-lit, etc. You may want to check with the police department on crime statistics for that area to get a better sense of whether the location is in a high-crime neighborhood.
Step 3: Account For Your Start-Up Costs
As mentioned earlier, the start-up costs for a new laundromat can be very high. Now, we covered earlier some of the major costs of starting this business, like construction and remodeling costs and the actual costs of buying the machines. But there are other costs as well.
For example, you will need to pay start-up costs for setting up your business entity (typically between $200-$1000)
There are also municipal fees that you will need to take into account. In some cases, there are sewer connection fees (they can go by a lot of different names), which can cost you between $200-$8,000 per washer.
That’s right, $8,000 per washer! You definitely need to look into what these costs will be before you make any serious commitments to this new business.
There may be other fees charged by the municipality or water authority, so it’s best to check out how much you will need to pay at the outset and on a continuing basis, so you can budget accordingly.
Finally, you will also need to budget for licenses and permits (again check with your local government on what’s needed) as well as cleaning supplies and miscellaneous equipment (like chairs, tables, change machines, detergent dispensers, etc.).
Step 4: Obtain Financing
If you have some money to invest toward your business (between 10%-20% down) and have reasonably good credit scores (typically around 680 or higher), you may want to consider an SBA loan to finance your business. These loans can offer some pretty great terms and rates.
If you want to learn more, check out this page discussing SBA 7(a) loans, which is the SBA’s general purpose loan.
If you are not able to qualify for an SBA loan, you may need to seek traditional bank financing or obtain equipment financing, as we discussed above.
If you prefer to operate online, you may want to check out Fundera. They are affiliated with Nerdwallet and offer small business financing options from a variety of potential lenders. You fill out one application and they provide you with a list of lenders suited for your situation.
Of course, all of the options that we covered under the no-money-down section can also be used to fund your start-up costs in part or in full, as needed.
Step 5: Select the Right Machines For Your Laundromat
The next step is to select and purchase your machines. You have a lot of options but you want to have a good mix of washers and dryers, with at least some that can handle larger loads. Speed Queen (one of the best known manufacturers of commercial laundry machines) states as follows:
“64% of customers prefer large-capacity 40 lb, 50 lb or 75 lb machines”
So don’t skimp on the larger load options. They are going to cost more, but many customers clearly prefer doing a single big load than a whole bunch of smaller loads. It makes sense – they get to save time and money this way.
Related reading: I found this interesting article from Western State Design that collected info from various laundromat owners. The article focuses on dryer strategies, but the owners talk about their washer/dryer mix and their pricing strategies as well. Worth a read if you want to learn about how other owners are thinking about these issues.
Let’s move to brands.
As I just mentioned, Speed Queen is the perhaps the most well-known and popular brand for commercial grade laundry machines. You can check out them out here: Speed Queen Commercial.
Of course, there are other players in the space as well:
If you want a bit more guidance on brands, you can check out some of the additional reading on this topic that I provide below.
Some of the key factors to consider in deciding which machines to choose are:
Convenience for your customers
- Machines with shorter cycles (this benefits you too, as you can complete more cycles during busy times)
- Machines with convenient payment options
- Good variety of load sizes
- Pre-wash sanitization option
Low running costs for you
- Reliable machines
- Water optimizing machines (regulates water use based on load weight)
When purchasing your machines, you may also want to consider installing laundry management software as well as card readers. These modern features can add some cost but may be worth it. We’ll talk about both of these options later on.
Additional Reading: Want to learn more about how to choose the right washer and dryer for your laundromat? Check out these articles:
Step 6: Make Your Laundromat Passive
Once you have set up your business, secured your location, and have your machines, you may want to make the business as passive as possible.
Fortunately, laundromats are fairly simple businesses that are easy to automate. They run on machines, after all!
You will not be able to make your laundromat fully passive because every business requires some level of oversight, but you can take some simple steps to make the business hassle-free.
You can implement some or all of the options below to make your laundromat passive.
Obviously, the more you implement, the more passive your business will be. But with each option, there are additional costs, so you need to weigh the benefit of that option vs. its cost.
1. Install Laundry Management Software (this one can track each machine’s usage, revenue and send you alerts when it malfunctions). This will allow you to keep track of your laundromats performance and to troubleshoot mechanical issues without needing to visit as often. You can even have the malfunction alerts sent directly to your technician.
2. Install card payment technology (approx. $40,000-$80,000 extra). This is expensive, but radically changes your workload (it also has the added benefit of reducing the risk of theft, etc.). The one thing that most laundromat owners have trouble outsourcing is collecting quarters and handling money. With the card payment technology installed, you can radically cut down on (or even eliminate altogether) this task.
3. Have a reliable technician on call to repair your machines. This is a must if you want to have a passive laundromat.
4. Hire people to open and close your business and clean your laundromat each night. This is also a task that someone needs to perform everyday the laundromat is open. It is work intensive, but it is something that you can outsource fairly easily since it does not require special skills.
If you want an in-depth tutorial on how to run your laundromat as an absentee owner, check out my article on the topic here.
How To Buy An Existing Laundromat
If you want a ready-made business that is already profitable and has an established customer base, you can buy an existing laundromat.
Pros of Buying a Laundromat:
There are some great benefits to this approach, including taking a lot of risk off the table around whether a location will be profitable.
For a new laundromat, you just won’t know the answer to that all-important question until you open the doors for business. But an existing one has already proven itself on that critical element.
Cons of Buying a Laundromat:
That being said, buying a laundromat comes with drawbacks and risks too. First is the cost. You might have to pay a premium for a proven and profitable laundromat.
An existing laundromat can also have risks that a new laundromat won’t. Specifically, the equipment may be outdated or be in poor condition. This can be a huge cost and you need to carefully examine the age and condition of the equipment.
You also need to be aware of any developments that may be happening in that area. Find out why the owner is selling. You may not get a straight answer, but you should probe as much as you can.
Is there a new competitor that is building a new laundromat nearby? Is there some other local development that can cause the laundromat to lose sales (such as gentrification that may transform the area into a higher income neighborhood that won’t need a laundromat)
You should investigate these types of issues before buying.
In short, you should conduct thorough due diligence across all key dimensions (business, financial, legal, tax, etc.) before buying a laundromat.
If you are interested in finding laundromats for sale, check out the following sites:
Pros and Cons of Laundromats
Now that we have covered how to start (or buy) a laundromat, let’s talk about the pros and cons of owning a laundromat.
This information is important to someone considering entering into this business because if you don’t know the benefits and drawbacks of this business, you won’t be able to make an informed decision on whether this business is right for you.
|
Pros of Owning a Laundromat |
Cons of Owning a Laundromat |
|
Laundromats Can Be Profitable |
Starting Costs Are High |
|
Laundromats Can Be Passive |
Competition |
|
No Inventory and Few Employees |
Demographic Changes Can Hurt Profits |
|
Laundromats Are Resilient and Stable |
You Have to Deal With Customer Issues |
|
You Do Not Need Prior Experience |
Damage, Vandalism and Theft |
|
Laundromats Have Growth Potential |
|
Pros of Owning a Laundromat
Laundromats Can Be Profitable
We’ve already covered how profitable a laundromat can be so I won’t go into that again. The bottom line is that if you own a well-run and well-maintained laundromat in a great location, you can make serious profits each year.
Laundromats Can Be Passive
Owning a laundromat can be a fairly passive way to make money. Like any business, it will not be completely passive, but if you implement the steps I outlined above to make your laundromat passive, you can enjoy a steady income while your laundry machines do the hard work of making money for you.
No Inventory and Few Employees
Laundromats are great because there is no inventory to deal with (other than making sure that detergent packets, etc. are stocked). Unlike the supermarket, restaurant, or florist industries, there are no perishables that you are under the clock to sell.
And you can run this business with no employees if you want (although it will be less passive that way).
These two factors massively simplify the business because inventory management and employee management are two of the toughest tasks facing a typical business owner.
Laundromats Are Resilient and Stable
To me, this is one of the biggest benefits of owning a laundromat. I mentioned earlier that laundromats have an incredibly high success rate (95%). That is an eye-popping number! But I am not surprised by it.
After all, laundromats serve an essential function (in fact, they stayed open during the pandemic for this reason). They are recession-proof because even when the economy is bad, people still need to wash their clothes. They are also immune to seasonality (again, you still need to wash your clothes regardless of the season).
This resiliency to external factors that can harm other businesses is what makes laundromats so stable and reliable.
You Do Not Need Prior Experience
If you want to own a laundromat, you can do so as long as you have the financial resources. You don’t need special training or expertise.
While maintaining and repairing the machines will require some technical knowledge, you can easily outsource that job to a qualified technician.
Laundromats Have Growth Potential
If you own a successful laundromat, it is easy to expand. You can grow by offering additional services, like full wash and delivery services, dry cleaning, or even open a mini-market where you can sell food and other items to people while they are waiting for their laundry.
You can also expand by opening up new locations or buying out your competition in the area.
These are some nice and fairly easy to implement options for growth.
Cons of Owning a Laundromat
Start-Up Costs Are High
One of the biggest drawbacks of owning a laundromat is the high cost of entry. You are likely talking about hundreds of thousands of dollars.
Even if you can finance some or most of that cost, you will be saddled with enormous debt.
That is a stressful place to be, especially if you are opening up a new and untested laundromat.
Competition
As with any profitable industry, the laundromat industry is very competitive. You will face competition from existing laundromats in your area as well as new laundromats that may open up.
Whatever form the competition takes, you can’t ignore it. It’s part of the business and you need to effectively manage it.
What should you do?
Stay vigilant, assess what your competitors are doing, and try to stay a step ahead (or at least keep pace). Make sure your pricing is appropriate, upgrade your equipment if needed, and add amenities (like wifi, video games, play areas, and other services) if that will help you remain competitive.
Don’t get complacent – it is tough to replace or win back lost customers.
Demographic Changes Can Hurt Profits
As we mentioned earlier, if your neighborhood’s demographic changes, that could hurt your laundromat business. The key to a successful laundromat is a customer base that needs its services.
If the neighborhood changes so that there are many more homeowners (or even renters who can afford to live in places that offer in-unit or in-building washers and dryers), your laundromat could be in trouble.
You Have to Deal With Customer Issues
Even though your machines are doing the hard work of cleaning your customer’s clothes, there are still going to be issues that you (or your employees) have to deal with, such as complaints about the broken machines, lack of modern payment options, crowded spaces, unsavory characters hanging around – the list goes on.
Not every complaint is going to be valid, but customer concerns are something you will need to deal with and address. You don’t want a terrible yelp rating and you certainly don’t want to gain a reputation in the community for being unresponsive to customer needs.
Damage, Vandalism, and Theft
Your laundromat could suffer from damage, vandalism, and theft. Now, if you are in a safe, well-lit, and clean part of town, you can reduce the risk of these things happening. You can further decrease this risk if you have an attendant on duty at your laundromat at all times.
But the bottom line is that you can never completely eliminate the risk of these occurrences. So you should do what you can to prevent them, but understand that you may experience one or more of these events during the course of your ownership.
Conclusion
Owning a laundromat can be a terrific way to earn reliable and passive income. But as you can see by now, it’s not as simple as buying a bunch of machines and waiting for the money to roll in.
If you want to have lasting success in this business, you need to (i) have a great location, (ii) buy the right equipment, (iii) have the right processes and employees in place to keep your customers happy, and (iv) stay abreast of your local competition.
Further Reading: Interested in learning about other businesses that you can own for passive income?
Check out my articles on these other passive income businesses:
- Vending Machines For Passive Income
- ATM Machines For Passive Income
- Bread Routes For Passive Income
- Bounce Houses For Passive Income
- Car Washes For Passive Income
- Billboards For Passive Income
If you want more great passive income ideas, check out my ultimate beginner’s guide to passive income [25+ strategies that work], where I cover tons of effective strategies that generate passive income.
One of my favorite articles on passive income is my piece on businesses that run themselves. In that article, I cover some great businesses that can generate attractive levels of return without a lot of day to day involvement by the owner (obviously, laundromats are included in the list, but there are many more). Check it out here.
