Laundromat Valuation: How to Accurately Value a Laundromat in 3 Steps to sell

Maybe it's time to retire, or maybe you own several laundromats and you want to narrow your focus — there are a lot of reasons for making the decision to sell as a laundromat owner. But, how much should you list for? Between assets, income, and utility costs (to name a few), how do you figure out the right price for your business? Luckily, accurate laundromat valuation has been done countless times before. Figuring out ballpark figures is pretty simple if you're willing to put in the time to calculate them.

To start with, your asking price should be 3.5-5 times the net operating income of your business. You can find that figure by considering the age of the equipment, the length of the lease, and the terms of the lease.

Download our laundromat profit calculator to find out how much profit your laundromat is making each month, quarter, and year.

Factors to Consider before Valuation

When getting ready to determine your laundromat’s value, there are some factors to consider that significantly influence the final appraisal. Starting off on the right foot means a successful appraisal and a strong listing. Here are the non-negotiable considerations before beginning the valuation process: 

• Market conditions: One key factor that’s impossible to control is the current state of the market. This will impact your laundromats value and should play a role in when you decide to list your business. Think of it this way: in a booming economy, demand for businesses might be higher, leading to a better sale price. On the other hand, during a downturn, you might need to adjust your expectations or wait to sell until market conditions are better.

• Location: Desirable, high-traffic locations typically bring in higher values. A laundromat located in a busy area, close to residential buildings, or near universities can command the premium rate you’re gunning for. For example, a laundromat in a busy city center will typically sell for significantly more than one in a less populated area.

• Competition: Survey the number of competitor laundromats in your local area. If your laundromat is one of many in the vicinity, potential buyers may use this to negotiate a lower price. If this is your situation, do your research and be prepared to communicate how your laundromat is unique and better serves customers. If you are in an area with few competitors, you might have the power to price higher and drive negotiations in your favor.

• Business reputation: Positive brand identity and customer loyalty can add a lot to the overall value. While this is a less tangible factor, laundromats known for excellent customer service, clean facilities, reliable machines, and community engagement will likely be valued higher than one with a poor reputation and low community presence.

• Financial performance: This one may seem like a no-brainer, but even the highest performing laundromats have to track revenue diligently in order to secure the listing price they deserve. Make sure to be consistent in tracking verifiable financial records showing strong performance. This is arguably the biggest factor in your laundromat’s value and a driving force in how much money you walk away with post-sale. Detailed financial records and evidence of profitability will also help potential buyers be more confident in purchasing your business.

• Condition of equipment: New, high-quality, well-maintained equipment is much more attractive to buyers and can be a huge selling point for a higher price. The last thing a potential buyer wants to do is invest hundreds of thousands of dollars into new equipment right out of the gate. This is why outdated or malfunctioning machines can result in a huge hit to your laundromat’s value.

• Lease terms: Favorable lease terms, such as long-term leases with options to renew, can add value of your laundromat. This is a major draw for buyers seeking stability and predictability in operating costs, and a good lease provides that.

• Operational efficiency: What kind of business operations have you invested in and implemented over the years? Modern and up-to date operations, including low utility costs and effective staff management, contribute positively to the valuation and can help you differentiate from nearby competitors. Highlight any energy-efficient machines or cost-saving practices in place.

• Demographic trends: Understanding the demographic trends of the area can play a role in valuation. Areas with growing populations or increasing numbers of renters can make your laundromat more attractive. 

The more data you have, the more accurately you can value your laundromat. Keeping these considerations in mind will allow you to add to your laundromat’s value and negotiate a sale price that benefits your pockets.

3 Steps for accurately valuing your laundromat

When performing a laundromat valuation, there are three main steps. 

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 age of the equipment, the length of the lease on the space, and the terms of the lease.

Here’s a detailed explanation for how each of the three main factors affects your asking price.

1. Age of the laundry equipment

In a neutral market, equipment that is 0-5 years old should fetch a multiple of 4.5-5 times NOI. Machines aged 6-12 years typically see a multiple around 4-4.5 times NOI, while equipment that is 13-16 years old is valued at 3.5-4 times NOI. Equipment older than this is nearing the end of its life cycle and will need to be replaced soon, lowering the multiple further. In this case, it may make sense to replace the equipment, making your laundromat a much more attractive investment to buyers. 

Here are some example scenarios based on these estimates:

Scenario 1: Equipment aged 3 years

• Net operating income (NOI): $100,000

• Valuation multiple: 4.5-5 times NOI

• Valuation: $450,000 - $500,000

Scenario 2: Equipment aged 9 years

• Net operating income (NOI): $80,000

• Valuation multiple: 4-4.5 times NOI

• Valuation: $320,000 - $360,000

Scenario 3: Equipment aged 15 years

• Net operating income (NOI): $60,000

• Valuation multiple: 3.5-4 times NOI

• Valuation: $210,000 - $240,000

2. Length of the lease

Lease length is critical in your laundromat valuation. Longer leases make laundromats more valuable because it provides stability for the business’s longterm operating expenses. This is a plus for buyers looking for a good, predictable investment because it means they won’t be burdened with an expensive relocation in the near future. If you’re preparing to sell your laundromat and you don't have much time left on your lease, you may want to consider negotiating a new, long-term lease. This extra time will give buyers more confidence and increase the business value of your laundromat.

Rule of thumb, leases that are 15+ years tend toward 4.5-5 times the NOI. Leases around 10 years are valued at around 3.5-4 times NOI.

Here are some example scenarios based on these estimates:

Scenario 1: Lease length of 16 years

• Net operating income (NOI): $120,000

• Valuation multiple: 4.5-5 times NOI

• Valuation: $540,000 - $600,000

Scenario 2: Lease length of 10 years

• Net operating income (NOI): $100,000

• Valuation multiple: 3.5-4 times NOI

• Valuation: $350,000 - $400,00

3. Terms of the lease

The terms of your lease, particularly the rent amount relative to your gross income, also play a critical role in determining the multiple. Leases where rent is around 25% or less of the laundromat's gross income can command a multiple of 4.5-5 times NOI. As the rent percentage increases, the multiple decreases. For instance, if the rent comprises 33% or more of the gross income, the multiple drops to around 3.5-4 times NOI. Favorable lease terms with lower rents increase the attractiveness and value of your laundromat.

Here are some example scenarios based on these estimates:

Scenario 1: Rent-to-gross-income ratio of 20%

• Gross income: $10,000

• Rent: $2,000

• Net operating income (NOI): $8,000

• Valuation multiple: 4.5-5 times NOI

• Valuation: $36,000 - $40,000

Scenario 2: Rent-to-gross-income ratio of 30%

• Gross income: $10,000

• Rent: $3,000

• Net operating income (NOI): $7,000

• Valuation multiple: 3.5-4 times NOI

• Valuation: $24,500 - $28,000

Conduct your due diligence before purchasing

When purchasing a laundromat, it's crucial to conduct the proper due diligence. Without this step, you could risk an improper valuation that can cost you thousands of dollars. To ensure that you buy the right laundromat for your business goals and needs, we’ve outlined everything future laundromat owners need to be aware of in this easy-to-use checklist.