Financing a renovation

[Dahren Allen]

Hello,

I am considering to invest in a local laundromat. However, the laundromat will need a major renovation. Can anymore tell, me the best way to approach this project? Should I lease the machines? Should I paint the walls myself? Should I update the carts? Should I put in a card system? In addition, can anyone give me a estimate of how much a complete renovation would cost? The store is 1800 sq ft. and its priced below their annual sales at $130,000.

Thank you,
Dahren

[Jordan Berry]

Hi Dahren,
I’ll take a shot at some of these questions for you.

Leasing Machines:
This generally doesn’t make sense for laundromat owners. It can make some sense for apartment owners who want to have machines in their buildings, but because the machines are the primary asset for a laundromat, it typically makes sense to own them. I do recommend financing them if the business supports that, however. Distributors, who you would buy the machines from, have connections with financing options who understand the laundromat business.

Painting the walls:
I’ve done that in the past. Whether you should or not depends. If you’re looking to renovate as cheaply as possible, it may make sense to do it yourself. However, if you have to close the business down to paint, then factor in the lost revenue. If a professional can get it done quicker it would be worth it to pay to have it done.

Update the carts:
When you start painting and putting in new machines, it starts to make the old parts of the business look even older. If you’re renovating the rest of the store, you should probably put in new carts, too.

Card system:
If the business can support the costs then I would consider it. However, they are typically very expensive to buy and install.

Renovation cost:
There are so many variables here it’s really impossible to say. The best thing to do would be to start getting quotes- new machines, paint, carts, card system, flooring, new bulkheads, etc.

One final thought, the income doesn’t really play a role in how much a laundromat costs other than you use it to find the net operating income (NOI) by subtracting the expenses from the income. The value of a laundromat is then determined by the NOI multiplied by the value multiplier (usually 3-4.5x).

Hope that helps some!

[Dahren Allen]

Thank you

[Jordan Berry]

No problem!

[Ross Dodds]

Hey Dahren,

I’ll jump in and add my 2 cents too. Do you have cash to buy the store and then you would need to finance equipment or remodel or do you need to finance a large part of the entire project?
Like Jordan mentioned, price should be based on the net income of the store not gross income of the store.
I agree completely with carts may work but like Jordan said, you start to make the rest of the laundry look clean, fresh and new and all of a sudden what “worked” before now looks like you forgot in your thinking process and in an overall project, another $2-$3k is probably worth it when every customer needs one just about.
Think about refreshing the signs too… when you are driving down the street, folks notice changes with colors, new things… a sign is the first chance to show people something new is happening at that laundry, maybe I should check it out!

[Jordan Berry]

Ross, awesome point about the signage! I think that gets overlooked a lot but it really is the face of your store for most people driving by. It’s their first experience with your laundromats and you know what they say about first impressions!

[Mitch Brunette]

In anything we are researching the answer almost always seems to be “it depends”. As Jordan mentioned, I’d start making phone calls and getting quotes or request ballpark ideas as a baby step so you can conceptualize if its even feasible in any capacity before sinking a ton of time in due diligence only to find out it wasn’t even remotely possible. If your goal is to open or buy an existing laundromat then local equipment distributors and repair firms know that you are a part of their sales funnel. If you find ways to respect their time, yet still LEVERAGE their free advice, you’ll probably find yourself in a position of confidence and have a better ability to make good decisions. Eventually you’ll be their customer and they’ll happily take your money for the transaction plus their past investment in you.
All of this said, I’m a rookie in this space and have done a couple real estate deals, and a laundromat is my potential next step in my investment career.

[Dave “Laundromat Millionaire” Menz]

Hi Dahren,

You didn’t answer the most vital questions to this project.
Where is it located? What are the demographics like? What type of competitors do you have? Is this your first laundromat? Do you have a full time job? What are your financial resources? These all play a factor in your decision making. And many more as well…

It sounds like you may be brand new to the business. If so, finding a strong coach or mentor will likely be invaluable to you. Even if you pay them consulting fees, they’ll likely easily justify their cost and pay for themselves many times over.

Overall, I recommend you get a solid handle on the questions above, then try to answer the more basic questions.

Should you lease equipment? No

Should you paint the walls yourself? Well,if you have more time than money then yes. Painting is typically a pretty easy diy chore to tackle. If you’re hiring a contractor to manage the project, adding painting to the mix can be very reasonably priced.

Should you replace the carts? If doing a full reno, then yes! Don’t stop 5 feet short of the finish line…. Also if they are absolutely atrocious, then yes replace them immediately.

Should I put in a card system? If you decide that’s the best payment system for you and you are replacing all of the equipment, then yes now is the time! I don’t recommend that people tackle a payment system right away. There are many pros and cons to each type. Get to know the business and the options available to you before making this decision.

If you’re doing those in phases, then typically no. While payment system is important, there are many things much more vital than your payment system.

Whether you’re doing this in phases or at one time, the approach should be the same. Sit down with experienced mentors and coaches who know the industry but do not have a conflict of interest.(like a distributor)

Develop a master plan for full renovations, then work backwards prioritizing the most vital components, the impact they will have on the growth of your business and your budget. Don’t be afraid to borrow some to get started. Leverage can accelerate your growth, just be careful not to overleverage your business. Money is dirt cheap right now, take advantage of that if you can.

I hope this all helps you in the process. Best wishes to you my friend.

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