When preparing your laundromat to sell, there are a few things you need to do. For example, if you’re planning on listing it with an agent, you’ll need to find a great agent to work with. You’ll also need to prepare the information a buyer will need as well as physically prepare your laundromat to sell. The other key piece of preparation that needs to be done is to determine a valuation for your laundromat.
When selling your laundromat, your asking price should be 3.5-5 times the net operating income of your business. You can determine that multiple by considering the age of the equipment, the length of the lease, and the terms of the lease.
Valuing a Laundromat Business
If you’re thinking about selling your laundromat, you definitely want to watch the replay of a webinar on how to sell your laundromat for the most money with Andrew Cunningham. (It’s usually only for pro members with the other webinar replays, but I won’t tell if you don’t tell!) See below to watch it!
When determining how much to ask for your laundromat, there are various factors to consider.
Laundromats, like any business or commercial real estate, are valued based on performance. The way we measure performance is through a number called the net operating income (NOI). NOI is the gross income minus expenses (excluding taxes and loan payments). The other 3 main factors to consider are the ages of the equipment, the length of the lease, and the terms of the lease.
Another to consider is the current market conditions. Is there pent-up demand causing a seller’s market? Is there an abundance of laundromats for sale and not enough buyers causing a buyer’s market? As a general rule of thumb, in a seller’s market, you can probably add .25-.5 to the multiple in your asking price. Conversely, in a buyer’s market, you may want to subtract .25-.5 from the multiple.
Now that we understand how market conditions affect price, let’s talk about how each of the three main factors in a laundromat’s value affects your asking price.
1. Age of the equipment
Having newer equipment in your laundromat is obviously more valuable than having older equipment. That will factor into the value of your laundromat through its influence on the multiple. Obviously, then, the newer the equipment, the more upward pressure it puts on the multiple, and the older the equipment, the more the multiple is depressed.
Let me give you some rules of thumb to help you determine the value of your laundromat.
These numbers are not precise as there are a lot of factors to consider but in a neutral market, equipment that is 0-5 years old should fetch a 4.5-5 times multiple. Equipment that is 13-16ish years old is going to be valued at 3.5-4 times NOI.
Equipment older than that is nearing the end of its life and will need to be replaced soon. This needs to be factored into your financial model and may lower the multiple below that 3.5 times mark.
2. Length of the lease
Lease length is critical to the value of your laundromat. Longer leases make laundromats more valuable. The reason for this is that a long lease gives stability to a business that is difficult and expensive to relocate if a lease is not renewed or the rent is increased dramatically. Therefore, when preparing to sell your laundromat, if you don’t have much time left on your lease, you may want to consider negotiating a new, long-term lease or adding options to the end of your lease. This extra time will give buyers more confidence and increase the value of your laundromat.
Here’s how the length of your lease can affect the value of your laundromat. Again, longer leases are better, so leases that are 15+ years tend toward 4.5-5 times the NOI. Leases around 10 years, as a guideline, are valued at around 3.5-4 times NOI.
When I consult with buyers, I almost always advise them not to sign a lease under 10 years. Even at 10 years, I’m feeling a little uncomfortable about that lease length. I advise them to make an offer contingent on negotiating a new lease or adding additional options to that lease. But, since they have to work that out during due diligence, that depresses the multiple. So, if you can, do that work before you list your laundromat for sale and keep that value yourself.
3. Terms of the lease
There are a lot of things that go into the terms of the lease. Specifically, however, I’m referring to the rent amount, including any common area maintenance (CAM) or triple net (NNN) costs. When looking at the rent amount, we generally determine the multiple based on the percentage of rent amount versus the total gross income of the laundromat.
Here are some general guidelines to help you get a feel for how the rent amount influences the multiple.
Obviously, paying less rent is better, so lower leases will command a higher multiple. As a guideline, rents that are around 25% of the gross income of the laundromat or less fetch a multiple of around 4.5-5 times NOI. When that percentage creeps up around 33% and up, the multiple decreases to around 3.5-4 times NOI.
Again, these are all guidelines and will fluctuate depending on a variety of factors, but these guidelines will get you very close to a proper valuation of your laundromat when it comes time to sell it.
And, of course, if you are planning on selling your laundromat, either on your own or through an agent, make sure you list it for free over at LaundromatMarketplace.com. Thousands of visitors a month browse the Marketplace looking for their next laundromat investment, so be sure to list yours there. And, as always, it’s free to list it!