YT YouTube2Text

YouTube2Text → Transcripts → Laundromat Valuation: Assets, Leases, and Real Estate

Laundromat Valuation: Assets, Leases, and Real Estate — Transcript

by Laundromat Ownership · 5,132 words · 833 segments · language en · Watch on YouTube

Open in transcriber Summarize with AI Download SRT/VTT

Full transcript

0:03[music]
0:08>> Hello and welcome to the Laundromat
0:10Ownership [music] Podcast. I'm your host
0:12Ian Gollahon. Me and my business partner
0:14Brian Henderson own a chain of
0:17laundromats in
0:18Tulsa, Oklahoma named Liberty Laundry.
0:21In 2025, that small chain of three
0:24stores did $2.5 million
0:26top line revenue.
0:28But we are also the founders of
0:30Wash-Dry-Fold POS, which is the original
0:33point of sale system
0:35for laundromats. Over the last 10 years
0:37in that company, I've talked to over
0:393,000 laundromat owners. And I've
0:41learned a lot of really interesting
0:42stuff, some of which I'll be able to
0:43share with you on the podcast today. And
0:46some of which I vowed never to speak of
0:47again.
0:49So, this episode is going to be a little
0:51bit of a throwback to our first episode,
0:53which was on laundromat valuation
0:55metrics.
0:56And that episode got a lot of interest.
0:58The first article is out now on
1:02we've made it into essentially a
1:04four-part um
1:06series in the Full Cycle magazine. Now,
1:11for those of you that aren't familiar
1:12with the laundry industry,
1:14uh Full Cycle is the
1:16laundry magazine of the CLA. It used to
1:19be called Planet Laundry, but it
1:20recently has gone from a monthly
1:23magazine called Planet Laundry to a
1:26uh
1:27essentially a quarterly um multimedia
1:32uh brand called Full Cycle.
1:35And
1:36one of the reasons that this
1:39talk was kind of adopted into this
1:42you know, it's it's going to be
1:43essentially an eight-page four part
1:45series is because
1:47it is actually pretty complicated how
1:49you value businesses, right? Um
1:52you know, if you know anything about the
1:53stock market and and how there's usually
1:55some correlation to earnings um with the
1:58value of a stock, but we also know that
2:01that's not the only thing that values a
2:03company, either public or private. There
2:05are a lot of
2:07pieces of it. Um and so,
2:10we're going to talk about how you arrive
2:13at a
2:14good market valuation for a laundromat,
2:17whether you're buying it or selling it,
2:19or just trying to assess it in your own
2:21portfolio. What is it actually worth?
2:23What's funny is if you go to someplace
2:26like let's call it a Facebook group. I
2:28sometimes I see people post, "Hey, I'm
2:30buying my first laundromat. What is it
2:31worth?" And it's essentially a race to
2:34who says
2:36"The only thing that matters is
2:38just take some multiple of net
2:40earnings." But in a laundromat, your net
2:43income is the amount that you get taxed
2:47on.
2:48And so, there are quite a few incentives
2:50to reinvest in the business
2:52instead of claiming all of that revenue
2:55as net income.
2:57And we will go over that in depth, but I
3:00just wanted to address the first thing,
3:02which is everyone says, "Oh, it's worth
3:04some some type of multiple of net
3:06income." If you don't understand the
3:07different levels of earnings, you're
3:10really not going to
3:12even know what number to start with to
3:14give a multiple.
3:16And so, I'm going to just show you here
3:17based on the the chart real quickly,
3:20you know, gross revenue, a lot of times
3:22you'll hear people say, you know, one to
3:24two times gross. SDE is what most
3:26brokers actually use. It's seller
3:28discretionary income.
3:30That's typically when you buy a
3:31laundromat, what it's based on.
3:33EBITDA, we'll get into that, but it is
3:36uh typically a reduction of SDE um
3:39because you're essentially saying, "I'm
3:41going to hire someone to run and manage
3:43this laundromat for me. I'm not going to
3:45be the person that runs and manages it."
3:47And then of course, uh free cash flow,
3:49that is really more of a banking metric
3:52that banks use. And then uh net income
3:55is what you get taxed on, right? And
3:57that's that that little circle there.
3:58So, uh we're going to go over all these
4:00throughout the
4:02uh
4:03life of this series.
4:05But I wanted to really kind of pace it
4:07along with Full Cycle
4:09because it's a great place that gives
4:11you news and articles and also
4:13inspiration about uh maybe ideas that
4:16you could implement in your stores and
4:17technologies. There's a lot of uh you
4:20know, when there's a big announcement
4:21about either an acquisition or new
4:23product or something like that, it
4:25typically ends up in Full Cycle. I want
4:27to kind of walk you through
4:29what we're going to focus on today,
4:30which is
4:32the meaning of the asset sale.
4:35And then how the assets are actually
4:37purchased and
4:40either depreciated or expensed on the
4:43balance sheet.
4:45And we'll really talk mostly about that,
4:48and then we'll also talk a little bit
4:49about the lease or the property. Because
4:53again,
4:54you know, the laundromat could be making
4:56$0 in net income or negative amount in
4:58net income. But if you're on a $2
5:00million piece of real estate, obviously
5:02the the real estate is valuable too. And
5:05same thing, it could be very profitable,
5:06but if you have a terrible lease and
5:08there's 1 year left in it,
5:10it's worth zero. There's nothing that
5:12you should pay to buy that business. And
5:13so, um I am going to go through this
5:16stuff and
5:17kind of explain this is really where you
5:20start when you're trying to evaluate
5:22either your own property or a property
5:25that you you want to look at purchasing.
5:28So,
5:29um again,
5:30uh just a quick review. There's a lot of
5:33different types of earnings.
5:35And we're going to get into that, but
5:37first we're going to focus on
5:40assets. So,
5:42anytime you buy a laundromat, I say
5:45anytime, but it's probably 99% of the
5:47times.
5:49What you're buying is considered asset
5:51sale.
5:53And people hear that and they think,
5:56"Oh, that just means I'm buying the
5:57assets of the laundromat."
6:00Not really. No, you're still buying um
6:02the earnings. The asset sale is how you
6:05are buying the earnings.
6:08You want to be able to depreciate every
6:10asset at the
6:12price of what you purchased it.
6:14And if you were to go in and buy the
6:16company that owns the laundromat,
6:19right? And so, that would be like a
6:20corporate acquisition. So, if
6:22you know, Liberty Laundry LLC owns
6:25Liberty Laundry. And so, if you came in
6:26and buy Liberty Laundry LLC,
6:29what you would also be buying is all the
6:31books
6:32>> [snorts]
6:32>> on Liberty Laundry. And if you bought
6:34those books, you would see that we've
6:36already taken all the Section 179 uh
6:40elections on all the equipment. And so,
6:42you now have to pay taxes on all the
6:44profit, but you don't get any of the um
6:49benefit of all the money that was spent
6:51on the equipment. So, that would be very
6:53foolish. You want to buy the assets,
6:55bring them into a new business entity,
6:57whether it's an LLC, an LLC filing as an
7:00S corp,
7:01or an incorporated,
7:03whatever it is, you want to bring in
7:06fresh assets so that you can depreciate
7:08them at the value that you paid for
7:09them. The first thing that people ask is
7:11like, "Well, how old are the machines?"
7:14Why would you ask this? Well,
7:16if you have machines that are 20 years
7:17old or or even older, and they are
7:20breaking all the time,
7:22they are really not worth much because
7:24you're going to have such a hard time
7:26keeping those machines going.
7:29They're worth something, sure, but when
7:31you hear the zombie mat, a lot of times
7:33what they're talking about is the
7:34machines are just total junk. So, if we
7:36can all agree then
7:39that the assets are worth something
7:41aside from the business, no matter if
7:43the business is generating revenue or if
7:46it's negative in the revenue because of
7:48some mismanagement or some choice of
7:50management, machines are worth
7:51something, right? A modern laundromat
7:53typically has half a million dollars
7:55worth of relatively new machines in it.
7:57And so, those are worth something,
7:58right? My advice to you as a buyer or
8:01seller,
8:03or as just an owner,
8:05understand what your washers and dryers
8:07are actually worth.
8:09Now, they're not worth as much as the
8:10day that you bought them.
8:12And if they're 20 years old, they're not
8:13worth $0.
8:16But
8:171 year old, they're worth most of what
8:18you paid for them. And 20 years old,
8:20they're worth
8:22nearly nothing, or they're worth 10% of
8:24what you paid for them. Think about a
8:261-year-old car. That's almost the same
8:28as a new car as long as it's been well
8:29taken care of. If you look at a
8:3120 or 30-year-old car, you know that
8:34thing is just going to be a money pit,
8:35right? So,
8:37it's going to break down all the time.
8:38It's going to cause more trouble than
8:39it's worth.
8:41One of the first things you'll look at
8:43is what are the machines worth, and I
8:45think you should write it all down,
8:48put a value on it, and then keep that
8:50value in mind because you're going to at
8:52least going to manipulate the earnings
8:53based on that. And that is what brokers,
8:55buyers, and sellers all do. So, it's
8:57going to help you keep track of the
8:59transaction in your own head.
9:02So,
9:03when we talk about a balance sheet, and
9:05you might have a buyer
9:08um ask you for your balance sheet,
9:10what they want to see
9:12are all the assets in the business.
9:15But if you bought washers and dryers and
9:18Section 179 elected to expense them out,
9:22which means instead of a like a 10-year
9:24or 15-year straight line or accelerated
9:26depreciation, any of that, you're just
9:28saying, "Hey, these washers and dryers,
9:30that was a $300,000 expense, and I want
9:32the full tax write-off today."
9:34Great, that's what Section 179 is for.
9:37It's it's the industry standard. It's
9:39why we use it.
9:40But then you want to maintain the value
9:43in the year that they were purchased on
9:45your balance sheet, so you can see,
9:46"Okay,
9:48these washers were $500,000
9:505 years ago.
9:52And now maybe they're worth 300,000 or
9:55something like that.
9:57But that won't be on the balance sheet.
9:58It would just show the original purchase
10:00price and then it probably show minus
10:02$500,000 section section 179 deduction.
10:06And so, that will be on the balance
10:08sheet to help you understand when the
10:09machines were purchased. Even though
10:11they're technically have already been
10:14fully depreciated out of that business.
10:15So, they're on the balance sheet as a
10:17record, but they're not literally worth
10:20anything on the balance sheet.
10:22But, there's some other stuff you might
10:23notice on the balance sheet as well. Um
10:26like you might see a trade name. And why
10:28would that be on the balance sheet?
10:30But, it is worth something if you have a
10:32brand. Like in in Tulsa laundries a
10:34great brand people go to if one of our
10:36laundromats is closed, they'll go across
10:38town to the other laundromat under the
10:39same name and they'll pass five or six
10:41laundromats on their way because they
10:42have loyalty to our brand
10:45and our style of managing the business.
10:47They know it's safe. They know all the
10:49machines are going to work. They know
10:50there's kind ladies there to help them.
10:52And they have the loyalty card from from
10:54our um store as well. There's things on
10:56the balance sheet that you might see
10:58that are going to be depreciated. You'll
11:00see things like goodwill or covenant not
11:02to compete. Let's say you get a lawyer
11:03involved
11:05and the lawyer wants you to break down
11:06all these assets that you're buying from
11:09the seller and she says,
11:11"Okay, you're going to pay X amount for
11:12goodwill.
11:14You're going to pay X amount for uh
11:15covenant not to compete."
11:17You might see the trade name on the
11:19balance sheet. There's going to be line
11:21items that the lawyer is going to ask
11:23you to do and you might be tempted to
11:24say, "Well, I don't need to buy a
11:26covenant not to compete. The owner's
11:27retiring, whatever."
11:29That's really not the point.
11:31The point is that you are buying the
11:33earnings, but you're buying the earnings
11:35through an asset sale.
11:37And so, every piece of that earnings has
11:40to be associated with an asset.
11:43And so, the asset that you might be
11:45buying might just be goodwill, which is
11:47essentially just a bucket of saying,
11:49"These are the earnings. We're going to
11:51put the earnings in the goodwill bucket
11:52and saying like,
11:54Yeah, it's goodwill because I just
11:56assume that people will keep on coming
11:59to this laundromat, right? It's kind of
12:01a you know, an intangible asset that you
12:04would be purchasing. But,
12:07you're not really purchasing it. You're
12:08really just allocating that part of the
12:10earnings to those uh intangible assets.
12:16So, a quick summary on this.
12:19Laundromats are not just a value of
12:22their assets, but I do think the assets
12:25have value to them and you should
12:26calculate that value. In the case of a
12:28bad lease agreement or in the case of,
12:30you know, there's certain situations
12:32where they might be less than the assets
12:34that they have. If the machines are
12:36worth $10,000,
12:37it would cost you $10,000 to move them.
12:40So, they might be worth more or less
12:42than the assets. Um but, finding the
12:44assets, I think that value is the first
12:47step to valuing the laundromat. Just
12:49write down on on the page what you think
12:52the machines and the assets in the
12:53building are worth.
12:56Um when we did this, when we closed on
12:58our laundromat,
13:00I got too focused on, "Okay, how much is
13:02goodwill? What is the covenant not to
13:05compete? What value should we
13:09uh ascribe to each name of each asset?"
13:13And then we're like, "Oh, the machines,
13:15maybe they're worth $200,000." Okay, so
13:16the these all seem like arbitrary
13:18decisions in the moment when you're
13:20buying it because you've already
13:21probably agreed on the price. We'll get
13:23into how you agree on the price later.
13:25But, then you you break everything out
13:27through the assets. So, you break out
13:29all the earnings. You you apply some to
13:30machines. You apply some to goodwill,
13:34whatever it is.
13:35That actually makes a difference on your
13:37tax returns in the future because if
13:39it's machines, you can section 179
13:41deduct it
13:43and make your net income zero the first
13:44year even if you've made a million
13:46dollars in profit, net income still
13:47shows zero because all that profit went
13:51into equipment.
13:53So, kind of a kind of an edge case that
13:55might not happen often, but I'm kind of
13:58hearkening back to why net income is not
13:59the thing that you should be looking at
14:01when you when you buy or sell a
14:02laundromat. The assets to which you
14:05apply the earnings to are important
14:09because they are all depreciated at
14:11different rates. So, you might have a
14:1415-year straight line and so so it takes
14:16that number away from your profit each
14:19year. So, you pay that much less taxes
14:21each year.
14:23Or if it's equipment, you recoup all
14:26that the first year with the section 179
14:28election.
14:30So, what I would do instead of obsessing
14:31about the names, I would actually
14:34research
14:35how fast you can depreciate something
14:38and then you can kind of have an idea of
14:41how much do you want in each bucket. And
14:44then you can approach it from that
14:46perspective.
14:47So, we haven't even gotten to the
14:49earnings yet, the different types of
14:51earnings you can get into. We've just
14:52gotten into the assets.
14:54We're not actually going to touch on all
14:55the earnings today cuz the second thing
14:58that's most important
15:00is the leasing or the real estate,
15:03right?
15:04And so, obviously, if you can buy the
15:07building and the laundromat,
15:10do it, right? Because
15:12real estate is just one of the most
15:14stable
15:15one of the best investments, but most
15:17importantly, you get a subsidized loan
15:19to buy real estate. So, if you get an
15:22SBA loan, they'll give you a loan at a
15:25lower interest rate just for the real
15:26estate than if you got an SBA loan
15:30for the equipment. It's actually a
15:31longer loan that you can repay as well.
15:33So,
15:34if you can do it, do it
15:37as long as it's not totally unreasonable
15:39because
15:41that becomes clear because of what we're
15:43about to get into, which is the
15:46the lease.
15:48Now, an ideal lease, let's just start
15:50with
15:51Okay, what's a good lease? What's a bad
15:53lease? Let's just start with ideal lease
15:55when you're you're going in to buy uh a
15:58laundromat.
16:00Ideally, you want a 25-year lease, but
16:04it's not just a straight 25-year lease.
16:06It's in five arms of five years.
16:10Um my friend Dan Brynderson uh really
16:13helped me understand this. He buys a lot
16:15of laundromats in the California market.
16:18He owns Express Coin Laundry. Really
16:21nice guy, very knowledgeable.
16:23But, the reason you would do five sets
16:26of five
16:27is because let's say you buy it, you put
16:29the equipment in there and it just
16:32doesn't produce revenue. There's no
16:34demand.
16:36Maybe uh there's some big franchise
16:38store next door that you have to compete
16:40with that you didn't know was going to
16:41be built there.
16:42Who knows what it is?
16:44But, you want to be able to get out in
16:46that first five years. You don't want to
16:47be stuck there for 25 years.
16:50It is essentially a 25-year lease, but
16:53every five years there's an out for you.
16:56Now, those arms are your option, not the
17:00landowner's option. So, it's not like
17:02they can kick you out every five years.
17:04That's not what we're talking about
17:05here. So, it's a five-year initial lease
17:07with your option to extend it four more
17:09times for a total of 25 years.
17:12That is the ideal lease that you're
17:14going after.
17:16Now, I said that sometimes a laundromat
17:18is worth less than the assets in the
17:20building.
17:21Why would that be? Why would it be worth
17:23less than the assets?
17:25What if the the owner of that building
17:31already has plans, already has a
17:32contract in place to have a new business
17:36in that building that is the laundromat.
17:40If that's the case, then the laundromat
17:42owner now,
17:44he knows that he's going to be out in 12
17:46months, right?
17:48And
17:49the equipment in there is not really
17:50worth that much. Maybe the brand if it's
17:53if it's a single store owner, which is
17:54typical,
17:56maybe the brand really isn't worth much.
17:58I mean, it really is the location and
17:59the store, the physical laundromat is
18:01where all the value is, right?
18:03And so, if that's going away, if the
18:05physical location is going away, even if
18:07the machines in there are worth
18:09let's call it $100,000 and there's 12
18:11months left,
18:12I would say that is worth zero. Zero.
18:15And the reason I would apply no value to
18:18that is because
18:20you go through the whole transaction,
18:22you spend all this time.
18:24It typically these transactions take
18:26like six months at least, right? So,
18:27it's not like you just buy it today and
18:29then you get to cash flow tomorrow.
18:31That's not what's That's that is not
18:33what is going to happen.
18:34So, once you go through the whole
18:37transaction,
18:39then you've got the remainder of that
18:40lease
18:41to just get some recoup some of your
18:44cash.
18:45And then at the end of it, how are you
18:46going to sell those machines? Maybe you
18:47can sell them for $20,000 because
18:49someone has to come uninstall all of
18:51them and then install them in a new
18:52location and they do break when you do
18:54that. So, you're not going to they're
18:55not going to be in the same condition
18:56when they get installed. In that
18:58situation, if you have old machines in a
19:01location that is not going to be
19:03renewed, there is no reason to buy that
19:06laundromat.
19:07I don't think you're going to arbitrage
19:09that deal. Um what happens in that
19:12situation is the owner
19:14just gets as much cash out of it as he
19:16can. Maybe he sells the machines before
19:18he's he has to get out of the building.
19:20And that's how that winds down. There's
19:22there's no way that you go in there and
19:24you somehow succeed there. So, the lease
19:27is very important.
19:29So, you want to understand have an
19:30understanding in a contract in place
19:32with the landlord.
19:34So, let's get into the caveats of that
19:36contract. So, when you look at the the
19:40new lease that you're signing with the
19:41landlord,
19:43the first thing we talked about was the
19:44term, which we talked about a five-year
19:45initial term with four options for the
19:48laundromat owner to renew another five
19:51years each time, which is a 25-year
19:52total.
19:54In that lease negotiation
19:57with the standard term plus the options
19:59to renew,
20:00the landlord will
20:03want to have price increases to keep up
20:05with even just inflation. That's a very
20:07fair and and normal thing for them to
20:08ask for.
20:10Go ahead and negotiate it now. Give them
20:12a 3% price increase every year.
20:16That's
20:17probably below real inflation,
20:19right?
20:20And then it gives you some
20:21predictability on the location. The last
20:24thing you want to have is no agreement
20:26on the price increase and then they bump
20:29it up 5%, 10%, 15%. They could bump it
20:32up 100% if there's nothing in the
20:34contract against that. And so, if you're
20:37committing to 5 years, you want to know
20:39what the price is on year two and three
20:41and four and five. And so, negotiating a
20:443% annual price increase at the time
20:48of the agreement is a good way to go.
20:50Probably the second place that you want
20:52to look after that would be in the um
20:55personal guarantee.
20:57And a personal guarantee is very common.
20:59Every landowner is going to ask for it.
21:02What a personal guarantee is, to just
21:04explain real quick, is they're saying,
21:06"Okay, sure, your LLC, which, you know,
21:08let's take um
21:10Washington's Laundry. So, Washington
21:12Laundry LLC,
21:14you're going to buy equipment, you're
21:15going to get loans, you're going to put
21:17in machines. Maybe the machines are
21:18already there, you're just going to keep
21:19them up or replace them and and repair.
21:23But that LLC is going to be operating
21:25that building.
21:27And if that LLC goes to zero,
21:32you still are responsible for some of
21:34the rent on the building because you
21:36can't just say like, "Hey,
21:38uh we're going bankrupt next month.
21:40Sorry.
21:41Um we'll be out of the building and
21:42you'll have zero revenue to the
21:44landlord."
21:46They're not going to like that. And they
21:47they typically won't sign that kind of
21:48deal.
21:49They're going to have you personally
21:50guarantee some amount on that space so
21:54that even if you do something crazy with
21:56Washington's Laundry LLC,
21:59you're still on the hook for the monthly
22:01payment of that rent.
22:03What they will do by default is just a
22:05full personal guarantee. What you should
22:06actually do is
22:08tell them, "Hey,
22:11if I need out of this, I'll give you a
22:137-month personal guarantee. So, once I
22:16notify you that we're going out, I'm
22:18closing the business, the LLC is going
22:20away,
22:21even if that happens, I'll stay on the
22:23hook for the next 7 months worth of
22:26the rent." Obviously, they if they take
22:28no personal guarantee, that's better for
22:30you. If you can go without a personal
22:32guarantee, do it every time.
22:34It's just that a lot of times they won't
22:35accept that. And so,
22:38you don't want a full personal
22:39guarantee,
22:41especially if you're not able to
22:42negotiate those options to renew. What
22:44if it's a 25-year lease, just 25 years
22:46straight,
22:47and then
22:49you're personally guaranteeing that
22:50whole 25 years. That's crazy. You don't
22:53want to be in that kind of a legal mess.
22:56And so, what you want to do is give them
22:57a 7-month out.
22:58And this is not a foreign idea. Imagine
23:00that you're renting a house,
23:03and let's say that you just renew
23:04automatically every year in that rental
23:06house,
23:07but then when you're ready to move out,
23:09you have to give the landlord a certain
23:11time notice. Let's say it's 90 days.
23:13That gives them 90 days to find a new
23:15person for the house. Well, commercial
23:17real estate is harder to find a new
23:19tenant, and so you need to give them
23:21about 7 months is usually the the
23:23typical minimum that they would accept.
23:25Let's say you've got a 7-month personal
23:26guarantee,
23:28you know the location is not working.
23:30Let's say you're 24 months into it. So,
23:32obviously, you're not going to take any
23:33of your options to extend the lease, but
23:35you're 2 years into it and you're
23:36saying, "Man, this is just a nightmare."
23:39So, I'm going to notify my landlord and
23:41I'm going to tell him, "Hey, I'm
23:42invoking the the 7-month personal
23:44guarantee clause. I'm going to cover the
23:45next 7 months
23:48through the laundromat, right? You're
23:49still personally guaranteed, but I need
23:51you to start looking for another tenant
23:53now."
23:54And if he finds that tenant in month
23:56two, you got to get out of there. Once
23:58he has the new tenant in there, that
23:59that releases you because what it really
24:02is is a promise that someone will pay
24:05that rent. If you're not there as a
24:08business, typically, they're not going
24:10to ask you to pay for it. So,
24:12what you would essentially do is say,
24:13"Hey, I'm giving you 7 months' notice to
24:16find a new tenant."
24:18And that reduces your personal liability
24:22on that business because
24:24most landlords will want to pierce the
24:26veil. They will not care
24:29that, you know, your LLC is making a
24:32deal with them. They want a personal
24:33guarantee on top of that. And that's
24:35very standard, especially in places like
24:36California. So, the next thing, so we
24:38talked about
24:39the length of the agreement, 5-year
24:41initial period with four
24:44options to renew another 5 years, so 25
24:46total.
24:48Then we talked about
24:50limiting the personal guarantee to a
24:51maximum of 7 months.
24:54The third gotcha to look out for is
24:56called CAM. You always talk about people
24:58call CAM, CAM.
25:00And what that is common area
25:02maintenance.
25:03And so, maybe you're not the only tenant
25:05in that building. The landlord has to
25:07take care of the
25:09um parking lot, right? That needs to get
25:11resurfaced. They got to take care of the
25:14shrubs and the bushes and they got to
25:15mow. They have to maintain that
25:17property.
25:18And they're going to pass those costs
25:20onto you as the tenant. So, the CAM
25:23fees,
25:25you want to either negotiate these as a
25:27flat rate that maybe has a price
25:29increase just like your rent does,
25:32or you want to negotiate it as just a
25:34percentage of the monthly fees. So,
25:37let's say you're paying $5,000 for the
25:39location. Let's say you want the CAM to
25:41be no more than $500 a month.
25:45That's pretty reasonable thing to put in
25:46the contract. The lower you can get
25:48that, the better. Obviously, it's going
25:50to depend on the region,
25:52um the requirements of that building.
25:54Maybe you're in a really high-traffic
25:55area and there there actually is
25:58a a legitimate reason to have a higher
26:00CAM. That's okay, but what you're
26:03wanting to do is putting something in
26:05the contract that protects you
26:08from the landlord making your CAM
26:10ridiculous, right? Because
26:13if you're paying for the CAM, they have
26:14no
26:16incentive
26:18to make sure the lawn guys aren't
26:19charging them three times as much, to
26:21make sure the exterminator isn't
26:23charging them three times as much.
26:25The parking lot, when that gets
26:26resurfaced, that's really expensive. And
26:28so,
26:29if that's going to be $10,000 versus
26:31$100,000, you want them to be
26:35aligned with your interests in getting
26:37those
26:38things done for the lowest price but
26:40best quality possible.
26:42And so, a good way to align those
26:44interests is to put a cap, either as
26:47just a fixed rate that increases every
26:48year,
26:49or um you do it as just a percentage of
26:53the
26:54um lease and the lease is increasing
26:56annually anyway. So, just to summarize,
26:59when we talked about the lease,
27:00you want to get at least 25 years for a
27:03new lease. The way you want to structure
27:05that is an initial term of 5 years with
27:07four extensions of 5 years each.
27:10You want to lower the personal guarantee
27:14of the lease
27:16as much as you can. If you can get zero
27:18personal guarantee,
27:20congratulations. Most of us can't. So,
27:22you want to lower that to maybe a
27:257-month personal guarantee. Don't
27:27personal guarantee the whole 25 years.
27:28And then the third the third thing is
27:30the CAM or the common area maintenance.
27:33You want to put some kind of cap or some
27:34kind of clause in there that aligns your
27:37interest with the landlord so that
27:40they're not using the most expensive
27:42guys for every single thing and then
27:44passing all of that expense onto you.
27:47You want a 3% annual rate, go ahead and
27:50negotiate it now.
27:52And then same thing with the CAM, let's
27:53say it's a 3% annual increase, negotiate
27:56it now. There's very few existential
27:58risks of owning a laundromat. One of
28:00them is that the laundromat burns down,
28:03but one of them is that the landlord
28:04just doesn't renew your lease.
28:06And when that happens, it's very hard to
28:08retain the value that you built in that
28:10business. And so, if you own that
28:12property, even if you have to take out a
28:14loan for it, not only will the value of
28:16that real estate likely increase.
28:18Historically, we can go back and say,
28:20"Yeah, real estate's a pretty good
28:21investment." Um but also,
28:24it
28:25it substantially de-risks your business.
28:28I would say more than anything else. You
28:29just buy the property and then you can
28:32own a laundromat on that property for as
28:33long as you want to. Um I will have a
28:35link to this and we'll do three more
28:38episodes about this, but next time we
28:40are going to start getting into the
28:41earnings multiples and really trying to
28:44figure out, besides the assets, besides
28:46the lease,
28:48the earnings and what does that add to
28:50the value of the business, whether
28:52you're buying it, owning it, or selling
28:54it.
28:56Thanks so much for joining me today,
28:57and I'll see you next time.
28:59>> [music]

About this transcript

This page contains the full transcript of Laundromat Valuation: Assets, Leases, and Real Estate by Laundromat Ownership, generated from the public captions YouTube serves with the video. The transcript has 5,132 words across 833 segments, with the original timestamps preserved so you can click any line to jump to that moment in the embedded player.

What you can do with it

Use the transcript to take notes, quote the speaker, build a study guide, generate a summary with ChatGPT or Claude via the YouTube Summary tool, or export it as a timed subtitle file with YouTube to SRT. You can also re-open it in the transcriber to translate the transcript into 100+ languages.

Free YouTube transcript tool

YouTube2Text is a free YouTube transcript generator — no signup, no daily limit. Paste any YouTube link and get the full transcript instantly, with timestamps, click-to-jump, translation to 100+ languages, AI prompts for ChatGPT, Claude, and Gemini, and exports to TXT, SRT, VTT, or Markdown.