Laundromat Lease Characteristics

Laundromat Lease Characteristics

Self-service laundries are different from other retail businesses. They are not highly portable, making it necessary for special utility and build-out considerations. The laundromat needs costly mechanical alterations, which require permits, and they require expensive equipment.

Given this reality, laundromat owners should pay close attention to the leases they sign. This blog post will help you to recognize the important elements when agreeing to a lease.

1. Laundromat leases are just different. Commercial laundry equipment is secured to the floor of most laundromats (unless, you have opted for soft mount, high-spin machines). The floors have been modified for drainage, roofs have been cut open for venting, and bulkheads are built and installed to house the equipment. Because of this, laundromats are going to be leasing space for a long while.

2. The lease plays a huge role in the financial future of the business. The lease is a part of a larger business venture that requires purchasing hundreds of thousands of dollars worth of laundry equipment and FF&E. Equipment produces income for the business, so the very financial well-being of the laundromat is tied to the lease location. Overlooking a small detail in a lease has the potential to be very problematic to the business itself.

3. Demographics can change quickly. Revenues rely on the customer base needing laundry services. If those demographics change, the business can be in jeopardy. Profits can be destroyed if the demographics of the area are affected by things like gentrification.

4. Leases should outlast financing terms. Your laundry will require you to invest in machinery every 10 to 20 years. If you are financing your equipment, your lease should be long enough to cover the 5 – 10 year terms of your lease. If not, the risk of the lease not being renewed means there will be no cash flow to pay debts. Your lease should be made in 5 – 10 year chunks. You will need to track option deadlines to make sure there is enough time to pay off new capital investments that will occur.

5. Earning potential is directly proportional to the amount of time left on a lease. A laundromat’s earnings over time depend on the length of the lease. This is a major consideration when divesting the laundromat to new investors. A bunch of brand-new laundry equipment from Electrolux will be meaningless to a potential buyer if there is 3 years left on the lease with no extension options.

6. Leases to laundromats are usually lower per square foot than other retail businesses. Because laundromats require longer lease terms and extension options, they become anchor businesses for multi-unit properties. Laundromats do not fail often, and become long-term, dependable tenants. Landlords should enjoy the idea of less turnover, as well.

7. Rent increases written into the lease should not be overlooked. A laundromat can not just pick up and move readily, so the landlord will have some negotiating leverage. Ideally, you will want to spell out rent increases that are as far in advance as possible at initial negotiations before the lease is signed. The less time on the lease, the more leverage the landlord has.

In the coming weeks, we will be posting more about laundromat leases. Some future content will include: Negotiating a Laundromat Lease, Pitfalls to Avoid, A Guide to Laundromat Lease Options and Extensions, Organizing a Laundromat Lease Permitted Uses, Laundromat Lease Assignments, and How Laundromat Leases Affect Value and Selling Price. Stay tuned!