Laundromat ROI and Cash-on-Cash Return: Doing the Math Correctly
Laundromat ROI computed honestly uses all cash invested as the denominator — injection, closing costs, working capital, reserves, and near-term capex — and cash flow after debt service and after valuing your own labor as the numerator. Models that skip either produce numbers roughly double the truth.
Key takeaways
- All cash in, not just the down payment. Injection, closing costs, working capital, repair reserve, and funded capex.
- Cash flow after debt service and after your own labor. A return plus a job is two things, not one.
- The 27% surveyed operating profit is not a return. It precedes tax, debt, owner pay, and replacement reserve (Source: CLA 2024 Laundry Industry Survey).
- Set a replacement reserve. A store harvesting cash by deferring maintenance is borrowing from a future year.
- Model the exit lease term, not just an exit multiple. Five years of hold consumes five years of lease.
The Four Numbers That Get Skipped
Most laundromat return calculations you will encounter omit at least two of these:
| Omitted item | Effect on the headline |
|---|---|
| Debt service | Inflates the return by the entire loan payment |
| Owner's own labor at market value | Inflates by $30,000-$60,000 a year at a typical store |
| Replacement reserve | Inflates until the year the machines fail, then reverses hard |
| Total cash in beyond the down payment | Shrinks the denominator, inflating the ratio |
Fix all four and you get a number you can compare against an index fund, a rental property, or a salaried job — which is the whole point of computing it.
Step 1: Total Cash In
| Item | Example |
|---|---|
| Equity injection (at least 10% of total project cost under current SBA rules) | $46,800 |
| Closing costs, fees, legal, escrow, lien searches | $19,000 |
| Independent business valuation | $3,500 |
| Working capital, 2-3 months of operating expenses | $28,000 |
| Repair reserve | $12,000 |
| Near-term capex flagged by inspection | $15,000 |
| Transition costs, deposits, account transfers | $4,000 |
| Total cash in | $128,300 |
Illustrative figures on a $250,000 store. Note that the down payment is barely a third of the total.
Step 2: Cash Flow, Properly Computed
| Line | Amount |
|---|---|
| Normalized SDE | $96,000 |
| Less: market-rate value of your own labor | ($34,000) |
| Cash flow before debt service | $62,000 |
| Less: annual debt service | ($33,600) |
| Cash flow after debt service | $28,400 |
| Less: replacement reserve | ($10,000) |
| Distributable cash flow | $18,400 |
If you intend to work in the store full-time, you can legitimately treat the $34,000 as income to yourself rather than a cost — but then say so, and report both numbers rather than one.
Step 3: The Ratios
| Measure | Calculation | Result |
|---|---|---|
| Cash-on-cash, before reserve | $28,400 ÷ $128,300 | 22.1% |
| Cash-on-cash, after reserve | $18,400 ÷ $128,300 | 14.3% |
| Cash-on-cash, counting your labor as income | $52,400 ÷ $128,300 | 40.8% |
| Simple payback, after reserve | $128,300 ÷ $18,400 | 7.0 years |
| DSCR | $62,000 ÷ $33,600 | 1.85 |
Three defensible cash-on-cash figures for the same store, ranging from 14% to 41%. Any of them can be quoted honestly if the assumptions are stated. Quoting the 41% without saying it includes your own wages is how listings work; it is not how underwriting works.
The DSCR line is the one a lender computes, and they compute it after striking any add-back without a source document. Test what your coverage does when $9,000 of add-backs disappear.
Step 4: The Exit
Cash-on-cash ignores the resale, which for a laundromat is a large part of the return. IRR captures it.
The trap: exit value depends on the same drivers as entry value, and one of them decays while you hold. A store bought with eleven controllable lease years and held five years is sold with six — which is below the ten-year benchmark a financed buyer needs, and the multiple moves accordingly.
| Assumption | Conservative exit | Optimistic exit |
|---|---|---|
| Year-5 SDE | $96,000 | $118,000 |
| Controllable lease years at exit | 6 | 11 (option exercised or lease extended) |
| Exit multiple | 3.0x | 4.2x |
| Gross exit value | $288,000 | $495,600 |
| Less remaining loan balance | ($128,000) | ($128,000) |
| Net proceeds | $160,000 | $367,600 |
The single largest lever in that table is not the earnings — it is whether the lease was extended during the hold. That is an argument for negotiating lease term as an owner, not just as a buyer.
Comparing Against the Alternatives
A return figure only means something next to something else. Compare like with like:
| Alternative | Return character | Work required | Liquidity | Leverage available |
|---|---|---|---|---|
| Index fund | Market return, fully passive | None | Daily | Limited |
| Triple-net retail property | Yield plus appreciation, near-passive | Minimal | Months to sell | 60-75% typical |
| Residential rental | Yield plus appreciation | Moderate, tenant-driven | Months to sell | 70-80% typical |
| Laundromat, owner-operated | Cash flow plus a job plus equity | Real, weekly | Median 139 days on market to an accepted offer (Source: BizBuySell, 2021-2025) | 90% under current SBA rules |
| Laundromat, semi-absentee | Lower cash flow, less work | Oversight and capital decisions | Same | Same |
Two honest observations from that table. The leverage available on a laundromat is unusually high, which is a genuine structural advantage — 10% down on an operating business is not available in most asset classes. And the liquidity is poor: 139 days is the median time to an accepted offer, before diligence and financing.
The excess return over a passive alternative is compensation for the work, the concentration, and the illiquidity. That is a reasonable trade for many buyers. It is not a free lunch, and a model that shows a laundromat beating an index fund on a risk-adjusted, labor-adjusted basis has probably left something out.
Sensitivity: What Breaks the Model
Run these before you sign, using the store's own fixed-cost structure:
| Scenario | Effect to test |
|---|---|
| Revenue down 10% | Does DSCR stay above the lender's threshold? |
| Revenue down 20% | Does the store still cover debt service at all? |
| Utilities up 15% | On a 20%-of-revenue base, that is 3 points of margin |
| A competitor opens two blocks away | Model a 12-18 month dip, not a permanent one |
| Water heater fails in year one | Is the reserve enough, or does it come from the loan? |
| Attendant quits and wages rise 10% | If attended, what does coverage look like? |
Because rent and much of the utility base are fixed, laundromat margin is highly sensitive in both directions. That is what makes the upside real when revenue grows, and it is why the downside case deserves as much attention as the base case.
What Actually Moves the Return
- Price paid. The multiple you pay is the return you give away.
- Lease term at entry and at exit. It decides both the multiple you pay and the multiple you get.
- Documentation quality. It decides the multiple, the financing, and the resale.
- How much of the work you do. Delegation is real cash out.
- Utility cost trajectory. Utilities were the most-cited operator problem at 53% of survey respondents, and rate increases do not pause.
- Equipment timing. A retool inside your hold period changes everything; one after your exit changes nothing for you.
What to Do Next
Build the model with all four omitted items included, then run it again at a 10% and a 20% revenue decline. If the store still services its debt in the downside case, you have a margin of safety. If it does not, the return figure in the good case is not the number that matters.
The Next Step If You Are Looking to Buy
Frequently Asked Questions
What is a realistic cash-on-cash return on a laundromat?
It depends almost entirely on price, leverage, and how much of the work you do yourself, so no single figure is honest. What is knowable is the method: all cash in as the denominator, and cash flow after debt service and after valuing your own labor as the numerator. Models that skip either produce numbers that look far better than reality.
Why is the advertised ROI usually wrong?
Because it typically divides operating profit by purchase price, with no debt service, no owner salary, and no replacement reserve. The CLA's surveyed 27% median operating profit sits before all four of tax, debt, owner pay, and capex reserve (Source: CLA 2024 Laundry Industry Survey). Recomputed properly, an advertised 30% often lands closer to half that.
Should I count my own labor as a cost?
Yes, if you want a number you can compare to anything else. If you work 25 hours a week in the store, that labor has a market value, and a return calculated without it is really a return plus a job. Both are fine to want; conflating them makes the investment look better than it is.
What about the resale?
That is what IRR captures and cash-on-cash misses. Exit value depends on the same drivers as entry: lease term remaining at exit, documentation quality, and equipment condition. A store bought with eleven controllable lease years and sold five years later has six, which is a different asset commanding a different multiple.
How long is the payback period?
Honestly computed — all cash in, cash flow after debt service and owner labor — payback is usually measured in years, not months, and it must be tested against the equipment's remaining life. A five-year payback on a store facing a retool in year four is not really a five-year payback.
Sources
- Coin Laundry Association, 2024 Laundry Industry Survey — https://member.laundryassociation.org/hubfs/IndustrySurvey24.pdf
- BizBuySell, Laundromat and Coin Laundry Valuation Benchmarks, 2021-2025 closed sales — https://www.bizbuysell.com/learning-center/valuation-benchmarks/laundromats-coin-laundry/
- U.S. Small Business Administration, 7(a) Loans — https://www.sba.gov/loans/7a-loans/
- Coin Laundry Association, How Much Is Your Laundromat Worth? — https://laundryassociation.org/fullcycle/2026/08/how-much-is-your-laundromat-worth-2/
This page is general information about laundromat transactions, not legal, tax, or investment advice, and not a guarantee of sale price, timing, or financing approval. Verify current rules with your own CPA, attorney, lender, and the relevant state or municipal agency before acting.