113. Laundromats

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Jordan Berry was at a crossroads in his career. After working for 15 years as a youth pastor, he was looking for a low-effort business that would bring in money and free up time to spend with his two young kids. I was trying to figure out what to do with my life. And my thought actually was to rent out our house in Southern California and to buy a condo on the beach in Hawaii and, you know, sell.

seashells on the beach or whatever. But a friend of the family ended up buying a laundromat and working five to 10 hours a week. So I thought, you know what? That sounds good. Let's shoot for that. Barry knew nothing about laundromats, but he contacted a broker and found one for sale outside of East Los Angeles. It had 30 washers, 24 dryers, and a lot of issues.

It was very run down. Half the machines were out. The mismatched wood paneling all over the place, dirty and dingy. It was what we call in the industry a zombie mat. It's functioning, but, you know, just barely alive on its feet. I bought it all cash for about $70,000 and financed brand new equipment and then remodeled the place. Since then...

Barry has become something of an expert on laundromats. He's owned and operated four of them and runs a company called Laundromat Resource that offers consulting services to hundreds of others in the industry. And if there's one thing he's learned in the trade, it's that laundromats are no walk on the beach.

It's fun to see buckets full of quarters. It's really fun to see huge stacks of cash. But whenever you have people and you have machines, you're going to have problems that you're going to have to deal with. And laundromats have a lot of both. For the Freakonomics Radio Network. This is the Economics of Everyday Things. I'm Zachary Crockett. Today, laundromats. For many centuries, washing and drying clothes was labor-intensive and hygienically questionable.

In ancient times, dirty garments were soaked in urine, stomped on, and brushed with the skin of a hedgehog. Over time, a series of contraptions were invented to simplify this process. From washing boards to hand-cranked wooden drums. It wasn't until the early 20th century that electric washing machines hit the market.

Those early machines, which cost the equivalent of $6,000 today, were out of reach for most American households. Business owners saw an opportunity to buy them and rent them out. The first laundromat? opened in Fort Worth, Texas in 1934 during the Great Depression. It featured four washing machines and charged by the hour to do loads. Eventually, the industry shifted to coin-operated machines.

Today, this business model is still going strong. By one estimate, there are around 30,000 laundromats in the U.S., and the industry segments itself into two broad categories. Traditionally, what people think of when they think of laundromats is what we call self-serve laundry. It's the store full of machines and you go in, you bring your laundry, you pay to do your own laundry on self-serve. Again, that's Jordan Berry.

As our society has shifted, we've added a service component to the business that's growing at a rapid rate right now. And that would include, you know, drop off laundry or wash and fold or fluff and fold. It's got a lot of names, but essentially. People are realizing, hey, the most hated chore that I still do today is laundry. And you're trying to tell me somebody will come to my house, pick it up and bring it back to me, fold it and clean and ready to go? Yes, please.

There are now dozens of services and apps that offer laundry pickup and drop-off. Some of them partner with local laundromats and split the revenue. In other cases... Laundromat owners do the job themselves, with delivery vans and dedicated staff. But the bread and butter of most laundromats is still the self-service side. Customers coming into the store and using coin-operated machines.

Typically, what we're looking for is a renter demographic, below median income, larger household sizes are better. Kids, we all know, are filthy, disgusting creatures and create a lot of laundry. Only around 50% of apartment dwellers in America have a washer and dryer on premises. So the demand for laundromats is still pretty robust. And customers who use them tend to use them a lot.

One of the great things about laundromats is that they're what I call habitual business. People get in the habit of doing their laundry at the same place, usually on the same day, usually around the same time. And it's one of the things that makes this business really strong is that sort of predictable recurring revenue. Laundromats also have a lot of commercial clients.

Airbnb management, short-term rental management companies, local small businesses, restaurants, small hotels, motels, salons, those types of things. What kind of things were restaurants bringing in? tablecloths, napkins, aprons, sometimes uniforms, you know, anything that needs washing, laundromats can do it. Historically, many laundry facilities in America

have been owned and operated by Asian immigrants. For many decades, laundry wasn't a desirable line of work. And many of the entrepreneurs who started these businesses did so as a way to survive. after encountering discrimination in the workplace. But these days, a new wave of owners is coming into the trade. This has traditionally been a mom and pop industry.

A lot of onesie, twosie store owners. However, over the last just two or three years, we've seen the profile of laundromats as an investment class rise thanks to... a lot of social media presence. We've been a very tech-averse industry up until recently, and we've just started getting some tech introduced to our space that is allowing us to...

manage our businesses in a more sophisticated way. We're able to accept digital payment options, credit cards, loyalty cards, Apple Pay, Google Pay, those types of things. And we're also able to utilize Software that allows us to manage more locations much easier. So we're seeing a business owner come in whose goal is not to necessarily only own one or two, but...

to actually build a portfolio of locations. If you go on YouTube and type in laundromats, you'll find dozens of videos of influencers collecting quarters from washing machines. I own this laundromat. Let's see how much money it made in the past eight days and in the entire month of September. These are my largest machines. They can build 80 pounds of laundry at once, and my customers love them. This attention has made buying a laundromat more competitive than it used to be.

There's a lot more buyer interest than laundromats that are for sale right now. So finding them is actually quite tricky. There are websites like a BizBuySell or a LoopNet that lists laundromats for sale. But a lot of laundromats get sold before they end up online. So in order to find those deals, you have to build relationships with brokers and maybe even reach out directly to store owners.

try to catch them before they've put them on the market. What might you expect to pay for a laundromat? Anywhere from $50,000 to multi-millions. I'd say you're looking at... Maybe around $400,000 to $500,000 for that average deal. When you buy a laundromat, a big part of what you're paying for is the machines. You're run-of-the-mill. laundromat's probably going to have between 30 and 40 washers and, you know, a comparable number of dryers, give or take a little bit.

The two main categories of machines are top load machines. The door swings open from the top and you throw everything in there. The water fills up three quarters of the way. So it uses a lot of water and it's expensive to run. And then you have front-load machines, which only fill up maybe a quarter to a third of the way, so a lot less water. And you can have a lot larger machines. These machines come in different sizes.

measured in how many pounds of laundry they can hold. And they don't come cheap. The cost for these machines varies pretty wildly. One of the issues in this industry is that there's not transparent pricing. It's very difficult to go online and find out how much these machines cost. So the prices are sort of gatekept by the distributors? Yeah.

Absolutely. But the typical range for the machines is anywhere from around $4,000 or $5,000 for some of these smaller front load machines all the way up to $25,000 plus for the larger machines. At a laundromat, machines can last from 5 to 15 years, depending on size and usage, before they need to be replaced. When Barry remodeled his laundromat a decade ago... New machines set him back far more than the $70,000 he paid for the business. To retool that 1,800-square-foot store was about $230,000.

But nowadays, as we're building larger stores, we're using larger equipment and more equipment. Those quotes get much higher than that. For that size store, if you had to replace all the equipment brand new.

then you're probably looking at $500,000 to $600,000. Part of the appeal of a laundromat is that it's a fairly simple business. Owners make money by charging a set amount per load. which might range from $3 to $12 or more, depending on the size of the machine. The big boy machine is the big boy money. Laundromat owners often measure the efficiency of their business in turns per day.

or the number of cycles each machine gets every day. On average, three to three and a half turns is what a typical laundromat is doing. Once you hit eight to 10 turns per day, your store is really doing well. you probably want to start thinking about, do you want more turns per day? Because that's more wear and tear on your machines and you're probably better off raising your prices.

The machines need a rest like us, too. That's right. That's right. But it's not just about turnover. Operators are also tracking the total capacity of their machines, how many pounds of laundry they can collectively wash. And sometimes it's more financially beneficial to have fewer machines that are larger in size. If an 80-pound machine takes the footprint of three 20-pound machines, what we just gained...

20 pounds of wash capacity for the same footprint. And the larger machines tend to be more profitable. We're seeing more and more laundromats with larger machines. 100-pound machines, 120-pound machines, 80-pound machines where you can just throw all of your clothes into one washer, get it all done at once.

In the laundromat business, the revenue generated by these machines is often measured in quarters. Because despite the rise of technology, touchscreens, and payment apps over the years, a lot of laundromats... still use coin-operated machines. I'm going to shoot straight with you, Zach. A lot of people prefer a cash business, and that might be because they just prefer to deal in cash, and that might be because...

They prefer there not to be a paper trail of how much money their business is making. And I'll let you draw conclusions on that. But I tell you, quarters get real heavy real fast. When you put a quarter into a washing machine or dryer, it falls into an internal metal box. The typical washer might hold between $100 and $200 in quarters at full capacity. That's anywhere from 5 to 10 pounds in weight.

per machine. And collecting all of them can be a pain. Yeah, so quarters are a real problem. What do you do with all the coins? Typically what you do is you collect your... quarters, you count them all out so you know how much money you collected, how much money came in. And then you just dump them right back into your change machine and you pull the bills out of that and take that to the bank with you. So usually you're recycling quarters. Some laundromats operate.

On a surplus of quarters, so they do have to take quarters to the bank, just not as many as you would expect. And some laundromats operate on a deficit, so they'd have to go buy quarters. And is that something you have to... do every couple days, empty out those coins? It depends on the area that you're in. If you're in a rougher area that's more prone to shenanigans, you really don't want to keep a lot of

money in those machines for too long. It might be every two days or so, but I'd say a typical laundromat, you probably need to collect once or twice a week. There's probably easier robberies to pull off than lugging like... 400 pounds of quarters out of a laundromat. Yeah, there are, but people try it anyways. From the outside looking in, it may seem like a pretty chill gig to sit back and watch the quarters roll in all day.

But just because a business is simple doesn't mean it's easy. At a laundromat, every day comes with a surprise. That's coming up. The Economics of Everyday Things is sponsored by Booking.com. If you're looking to grow your vacation rental business, this is the place to be. Booking.com is one of the most downloaded travel apps in the world. And for good reason.

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with Indeed. A few years after buying and fixing up his first laundromat in Los Angeles, Jordan Berry was doing around $27,000 per month in revenue. Around 17,000 of that came from the coin-operated machines inside the shop. Another 8,000 came from a laundry delivery service he ran. And around $2,000 came from snacks, drinks, and detergent, which he sold out of vending machines at a 50% profit margin. But that revenue had to cover some pretty substantial overhead.

starting with the upkeep of the machines. A lot of times the door locks jam, so people like to put as much close as possible in these machines and they really lean on the door locks to try to get it to latch. So those break a lot. The quarters getting jammed in machines happens a lot. A lot of quarters are bent a little bit or a little grime builds up. One issue in particular.

Drove Barry a bit nuts. The bane of my existence was the underwire in a bra. A lot of times these underwires would come out of the bras and they would go through the little... perforations in the drum of the washer and they'd get lodged in the drain and then they just become a magnet for lint.

You'd have to take the front of the machine off and pull off the drain and fish out this underwire and anything that was caught on it. Laundromat owners often learn how to deal with these things themselves. Because getting the machines repaired... has become increasingly difficult. If anybody out there is looking for a new business, being a service technician on commercial washing machines would be a great one because we have a huge drought. We have a huge need and it's nationwide.

Some distributors have service departments where they have in-house service techs, but usually they're pretty overworked and it can take a week, two weeks, or even more than that to get them to come in. These are your money-making machines. If they're down, they're not making you money. And so you want to get those things repaired as quickly as possible. Barry says many operators budget around 3% to 5% of their monthly revenue for repair work.

That's just to keep the machines in operation. And it's a footnote compared to the cost of the water and power it takes to run them every day. Typically, we're looking at somewhere between 15 to 25 percent. of your gross revenue goes to utilities. It depends on the size of store and how much business is doing, but you're probably in the $1,500 to $2,500 a month range just for the water bill.

Think about what it takes to run a single washing machine or dryer in your home. The power, the water, the duct work. And then multiply that by 50 or 60 times. Behind the walls at your local laundromat. there is some serious infrastructure in place. So typically what you have is there's a wall that has some system to heat water for your hot water. Traditionally, it's been a huge boiler that's like the size of a tank. And then there's a...

holding tank back behind a wall somewhere. This boiler heats up water, pumps it into the tank, and then into the washing machine. And between the washing machines or behind them, if they're along a wall, there's... what we call a bulkhead. Inside the bulkhead, there's a little panel you can lift up and peek down in there. And inside there is all the cold water plumbing, all the hot water plumbing, and then the electrical to each machine. The drainage.

goes out into the bulkhead, and there's either a pipe that catches all the water drained from the machines, or there's a trough system. So it's really fascinating. So all the dirty water gets sucked out and sort of just goes down a central drain. Yeah, exactly. Along with anything else that the bra underwire didn't catch. Where does all the lint go? There's a screen that filters the lint that needs to be cleaned daily, if not more often than that.

And if it's not cleaned out regularly, that lint can get all throughout your store and the coin mechanisms or behind the dryers can get sucked into the components back there as well. So it can be a really big problem. What do you do with all the lint? collect it in like a giant garbage bag and throw it out every day. Yep. That's pretty much what we do with it. It's another business opportunity out there. If you can find out how to monetize Lint, hit me up and we'll make a fortune together.

After accounting for maintenance, rent, labor, utilities, and all the other costs that go into running this elaborate system, a typical laundromat might see a profit margin in the range of 20 to 35%. That's roughly on par with the average dentist's office or boutique law firm. And some people find the work more entertaining. Over the years, Barry has seen people try to clean all kinds of things at laundromats.

including many things that don't belong in washing machines. Two women, they brought in a large rug that they rolled up. It was probably, I don't know, 10 feet. long and they were trying to shove it into a washing machine right obviously it didn't work but you know a for effort on trying to get that in there you get a lot of shoes

Yeah, shoes. One of the bad ones, actually, that you wouldn't really think is those bath mats. And the bath mats have like the rubber underside. You know, maybe they're fuzzy on top of the rubber underside and that rubber underside. It disintegrates a lot of times in the wash and in the dry. It makes a huge mess. Then there's the stuff that people leave in their pockets. We see all kinds of stuff that show up in the drains, if they're small enough, or in the lint screen.

What kind of stuff were we talking about? Well, my favorite is money. We'll see 20s, 50s, 100s ones or change. A lot of like jewelry, bracelets, necklaces, you know, notes, paper, stuff like that. Sometimes people even put in a load, leave, and never come back for their clothes. If we can look and see who it is and we know them, we'll try to reach out to them. If we don't know whose clothes it is, we'll keep it.

for two weeks and then we'll donate it. All of this makes laundry a highly personal business. To hand your dirty clothes over to somebody else is a big step for a lot of people. And not even just intimate. Maybe I went to the gym and my clothes smell. It could be kind of embarrassing. So it is very intimate. The intimacy goes beyond the clothing in the machines. Many customers...

tend to hang out in the store while their clothes are being washed. And the laundromat can become an unexpected community center. There's not too many places left where we just go and we hang out for an hour and we talk to... people in our community that we don't run into anywhere else. It's a really fulfilling part of the business. These days, Jordan Berry doesn't spend much time inside of laundromats with customers.

A decade after buying his first business, he moved to Hawaii with his family. But he's still not selling seashells on the seashore. He stays busy advising other laundromat owners, guiding them through the challenges of the trade. From quarter collection to bra underwires. There was a period of time there in those first couple years where I was not glad that I bought a laundromat. It was not the path that I probably ever would have.

dreamt of and aspired to. But looking back now, it's tough to beat. For the Economics of Everyday Things, I'm Zachary Crockett. This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz Rapson. And thanks to the many listeners who wrote in to suggest this topic. Adam Bentley, Lauren Ladinson, Laura Richter, Jose Munoz, Matthew Adler, Christina Palumbis, and the Smucker family. Holly, Matt, Grace, Abby, and Nathan.

If you have an idea for an episode, feel free to email us anytime at everydaythingsatfreakonomics.com. Our inbox is always open. All right, see you next week. I felt a few times during this interview like, oh man, I'm really nerding out right now. The Freakonomics Radio Network, the hidden side of everything. What is the secret to making great toast? Oh, you're just going to go in with the hard-hitting questions.

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