Financial freedom is all the rage right now. There are blogs, YouTube channels, social media accounts, books, and every other form of communication touting the secret of the holy grail of personal finance. So what is financial freedom, anyways?
Financial freedom has many definitions but I prefer the simplest and clearest one I know. Financial freedom is the point at which your investment income exceeds your normal expenses, thereby giving you the option to spend your time the way you want. It is surprisingly not about money, but about time. Money is merely the vehicle used to buy time freedom.
This concept is exciting and very alluring, particularly to those who don’t enjoy how they are currently spending their time. And there are many people proclaiming many paths to financial freedom. There is no right way to get there, only a right way for you. In the video and blog post below, I show you exactly why laundromats could be the investment that helps you achieve financial freedom the quickest.
The secret to why laundromats can accelerate your journey to financial freedom lies in the way the business is valued. Small business valuation, like laundromats, and commercial real estate is based on the net operating income of the business.
The net operating income is the sum total of all of the income from the laundromat from all of the revenue sources minus the expenses, not including any loans.
For example, if a laundromat brings in $150,000 of income in a year, has expenses of $100,000 per year, and has loan payments totaling $20,000 per year, the net operating income (NOI) would be:
$150,000-$100,000= $50,000 NOI
Laundromats are then based on a multiple of the NOI, typically 3.5-4.5 times the NOI. This means for a laundromat that has an NOI of $50,000 you can expect to pay in the neighborhood of $175,000 to $225,000. This represents a return on investment of 22%-28%! This is the unleveraged return, assuming you pay all cash. If you leverage the acquisition, the return on your investment can be even higher!
With returns that high, you will recoup all of your investment in 4-5 years and still have the equity in the business. This is how laundromats can help you build wealth quickly.
In order to accelerate your wealth even faster, you can use the cash flow and/or equity in your business to invest in more wealth creating assets, such as another laundromat, real estate, or any other cash flowing investments that will help you achieve your goals.
By reinvesting your cash flow from your laundromat, you’re putting the money you used to buy one asset, your first laundromat, to acquire more assets. It is this asset accumulation that will set you on your way to financial freedom.
Wealth Turbo Charge
By accumulating the real estate that your new laundromat is located on, you can turbo charge your wealth. Let me show you how.
Commercial real estate, similar to small businesses such as laundromats, are valued based on the NOI (net operating income). In order to find the value of a commercial property, the NOI is divided by the capitalization rate, or cap rate.
The cap rate is the percentage return one can expect if they buy a property all cash. An 8% cap rate means that if you buy a property all cash, you can expect to get an 8% return on your money. Cap rates vary depending on the market location, where in the market cycle the market is, the property type, the property size, and a variety of other factors.
Mind-Blowing Example of Rapid Wealth Gains
Let me give you an example. We’ll assume the cap rate for the property in this example is 7%. If the NOI of the property is $35,000 (rent – any expenses), then we can calculate what the property is worth.
$35,000 / .07 = $500,000
You can use this simple formula to dramatically increase your wealth by merely moving around the money you already have coming in. Here’s how the magic works.
Let’s say you bought a property at a 7% cap rate for $500,000. That means your property is charging your laundromat rent of $35,000 per year, or $2,917 per month.
For our example, let’s assume business is good in your laundromat, or maybe you were able to increase the business coming in. Your property can now charge your laundromat $300 per month more, making the new rent $3,217 per month. Let’s calculate the new value of our property.
$3,217 * 12 months = $38,604
This is an increase of $3,604 per year to your property. Assuming the same 7% cap rate, the new value of our property is
$38,604 / .07 = $551,485
That is an increase of $51,485 in equity in your property, just for moving $300/month from your laundromat to your real estate. No money was gained or lost, it was just moved from one entity you control to another.
This is how you can use your laundromat, combined with the real estate that it is on, to supercharge your wealth!
You benefit from the high cash flow of the laundromat and the power of forced appreciation of the real estate. And to top it all off, both offer amazing tax advantages!
Your Next Step to Financial Freedom
Of course, you can only benefit from the amazing wealth building potential of laundromats and commercial real estate if you take action! It is critical that you begin taking steps toward your financial freedom. If you’re not convinced here, check out 15 Irresistible Reasons to Buy a Laundromat.
Here’s a great next step for you. If you haven’t yet, sign up for a FREE account here at LaundromatResource.com and receive our FREE ebook, The Keys to Buying Your First Laundromat. It will give you all the details you need to help you acquire your first laundromat and set you down the path to financial freedom!
If you have done that and you need a little extra guidance, we offer FREE coaching to anyone wanting to acquire their first laundromat! We are committed to helping you achieve your goals and attain financial freedom. We at Laundromat Resource are offering you FREE coaching until you get your first laundromat under contract! No strings attached.
Sign up today for our “Your First Laundromat” coaching program!