Are you an apartment building or multi-family housing facility owner looking for a smart and convenient way to increase your revenue, cash flow, and property value with a relatively low-maintenance business opportunity?
If your building has old, outdated washing and drying machines, or if it doesn’t have in-unit laundry, you’re in luck. Choosing to invest in on-site vended laundry can present building owners with surprising, substantial benefits.
In this blog, we explore how laundry can generate revenue, improve the resale value of your property, and improve your cash flow. Before getting into the numbers, you'll first need to understand the benefits of vended laundry for multi-family residential properties, why it is so important to consider laundry as an excellent business opportunity, and what revenue could potentially look like for you.
The Benefits of Investing in Vended Laundry
Apartment building owners work toward increasing the overall value of their properties by adding income and decreasing expenses where they can. Investing money into a business opportunity without having to do much direct work is the dream for many building owners.
Surprisingly, the majority of people don’t initially think of laundry as being the low-maintenance option for this—but it is. Investing in vended laundry units is an underappreciated way to provide major financial benefits for you and your property.
Having the convenience of laundry in your building will provide you with a constant stream of additional income because tenants will always have laundry to do. This additional and reliable stream is made that much more lucrative because not much work needs to be put into the investment. Laundry machines are low maintenance and don’t need to be serviced that often. This can lead to a decrease in your expenses while also adding resale value to your property.
Along with increased resale value, an investment like this increases your net operating income, which ultimately improves the capitalization rate of your property. Despite being underappreciated, investing money in vended laundry equipment has excellent benefits and it's a business opportunity every apartment or multi-family housing facility building owners should consider.
Laundry as a Business Opportunity
When someone buys an apartment building, they’re usually not thinking about the other opportunities of revenue that can be generated through that investment. Depending on the size of your units and how many beds and baths are in them, you can generally expect tenants to complete up to four or five laundry cycles per month (in this case, cycles are utilizing both washers and dryers). With the help of vended laundry units, you could potentially be sitting on a huge opportunity to generate substantial revenue that equates to or exceeds the cost of a single unit every month!
When an apartment building owner partners with someone like Lakeside Laundry, here’s what they can expect:
- All capital expenditures and calculations are handled upfront. The value attributed to your property depends on the range of the capitalization rate. We often see ranges between 5–7%.
- Assistance with choosing the right number of machines for your building. Our rule of thumb is one set of vended laundry machines for every 8-12 units in a building.
- We take care of machine installation, maintenance, and service.
- You share in the revenue
The beauty of a business opportunity like this is that the building owner doesn’t need to put in much work or capital. The two most important things they will need to do are collect their commission check and pay utilities when required.
In the section below, we outline two scenarios to clearly illustrate the revenue potential for building owners who are considering investing in vended laundry.
What Might Revenue Potential Look Like?
In order to fully understand what kind of revenue you could potentially generate from investing in vended laundry, it’s helpful to break down the numbers and illustrate the steps used to calculate what you could earn. When you hire a laundry equipment service provider, you will learn that a percentage of commission and a valuation of capitalization rate are calculated into your revenue total. For example, assuming a 50% commission along with a capitalization rate of between 5. So, how would this affect your revenue if you were a building owner with, let’s say, 100 apartment units? We break the numbers down for you below.
Revenue Scenario #1 (Potential Maintenance Fees Not Included)
- To determine potential revenue, you first need to know the total cycles of laundry being done in your building per month. As mentioned above, the average apartment tenet completes around 4.75 cycles of laundry per month. To find the total cycles of laundry being done in your 100 unit building, multiply these two values together (100 x 4.75), for a total of 475 cycles of laundry being done in the building every month.
- The average cost to complete a laundry cycle (wash and dry) on a vended machine is around $4. To calculate your monthly gross revenue total, multiply the cost by the total amount of cycles being done per month ($4 x 475). Your monthly gross revenue total will come to $1,900. This is approximately as valuable as adding an additional unit with no additional cost, and limited overhead for your business.
- Next, calculate your total annual gross revenue by multiplying your monthly gross revenue by 12 months ($1,900 x 12). The total comes to $22,800 of annual gross revenue for that year.
- Once the annual gross revenue has been calculated, apply our 50% commission rate to the $22,800 ($22,800 x .50). Now you’re left with a total of $11,400 of cash in hand.
- Assuming you wanted to take this a step further, and leverage that income stream to seek a cash-out loan to expand your investments. For this example, we will use a valuation at a 5% capitalization rate and apply it to the $11,400 cash in hand ($11,400 / 0.05). Adding vended laundry would increase your total valuation by $228,000.
Now that you’ve seen a breakdown of how the potential revenue is calculated and how capitalization rates are calculated, it’s also important to know that buying, renting, or leasing laundry machines from a different company can sometimes lower your gross revenue. Some companies will add on additional fees like a 10% gross fee commission split that is taken out of your annual gross revenue before the usual 50% commission is applied. To better explain, we will break down the same numbers as used in the scenario above, but we will apply the potential fees to show how they can substantially lower your revenue.
Revenue Scenario #2 (Potential Maintenance Fees Included)
- First, nothing changes in your characteristics as a multi-family residential property, and your expected annual gross revenue for that year from vended laundry comes to $22,800.
- Now it’s time to apply the 10% gross fee (this is before the commission split) to the $22,800 annual gross revenue ($22,800 x .10%). The fees total comes to $2,280. Next, apply the gross fee total to your annual gross revenue ($22,800 - $2,280) and your new annual gross revenue total is lowered to $20,520.
- Next, apply the company’s 50% commission rate to the $20,520 in annual gross revenue ($20,520 x .50) and now you’re left with a total of $10,260 cash in hand, $1,140 less than in the prior example.
- Finally, apply the 5% capitalization rate to the $10,260 incremental revenue generated ($10,260 / 0.05). This comes to a total valuation of $205,200—losing you over $20,000 in your property valuation.
Hopefully, both example scenarios clearly illustrate the general process used to calculate the potential revenue you could earn, how capitalization rates are applied, and the fees you may run into when hiring a laundry machine service provider.
Vended Laundry Might Be For You
An unnoticed and underappreciated form of investment, vended laundry can have endless benefits for you and your apartment building or multi-family housing facility. Improved capitalization rates, an additional stream of income, and an increased property value are only a few of the positive results that come from investing in laundry.
Decreasing expenses is something that all multi-family housing building owners strive toward, and vended laundry can serve as the low-maintenance solution. For more information on investing in on-site vended laundry machines and if it’s the right choice for you, contact Lakeside Laundry today.