At SRMD we talk a lot about hidden value and how to simultaneously increase both the cashflow AND value of real estate investments. Laundry is one way for investors to tap into hidden value.
[Disclaimer: We are not accountants, lawyers or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
There are a range of options for making money with laundry
Here they are in a nutshell:
- Purchase units with existing hookups and machines
- Adding in-unit laundry
- Supply hookups only, tenant provides their own machine
- Rent machines to the tenants and provide hookups
- Provide hookups and machines for higher rent
- Add a dedicated laundry room facility
- Coin-operated machines (buy or lease)
- Credit card-operated machines (buy or lease)
- Partner with the company to split income (company provides machine, the company leases space from you for part of the income)
- Provide a laundry service (pick up and drop off)
Let’s run through each of these options in order:
In-unit laundry
Option 1:
The easiest and simplest way to make money with laundry is when in-unit laundry hook ups and/or machines exist in a property you purchase but the seller isn’t charging a premium for it.
Option 2:
If you buy a property where hook-ups are not present in units and there is enough space, you can create in-unit laundry by adding hook-ups. This would entail installation of hot and cold water lines, a drain, potentially a 220-volt outlet, and is estimated to cost between $2,000 and $5,000 for labor and materials per unit.
Option 3:
The next option is to provide the hookups and machines to your tenants but charge tenants rent for the machines. This would be the next step up in cost, but you can choose the type and cost of machines to install. In this case, the additional maintenance of the machines themselves would become your responsibility, but you can charge additional rent for the machines themselves AND the convenience.
Option 4:
The last option is to provide hookups and machines, and simply charge more rent for the unit. The convenience of having in-unit laundry facilities AND not having to buy machines comes at a premium in many markets. They also bring higher rents.
Any of these options adds the benefit of increased rent potential compared to units with no in-unit laundry. Average rent increases range from $50-$100 per unit with these in-unit laundry options. The cost and maintenance of hookups and machines is of course a downside. We have found that the increase in revenues usually far outweigh these costs. In-unit laundry can be a worthwhile added-value investment.
Dedicated laundry room facilities
Sometimes unit size and configuration can’t accommodate in-unit laundry. If this is your situation, you’ll want to find space for a dedicated laundry room.
Option 1:
The first laundry room option is to use coin-operated machines. The main benefits of this option are that the machines are typically cheaper than card-based machines. The downsides to this approach are the coins (who uses coins these days anyway!). You will have to deal with collecting the coins, having to deposit the coins at the bank, maintenance, and theft. Yes, theft. We actually had this happen in the laundry facility at our 16 unit! As a result, we put cameras up inside the laundry room, which was an additional cost. Though theft IS a risk, it is ‘figureoutable’, and students have told us they take joy in collecting the coins and even have their kids help as part of their real estate-related work saving for their Roth IRAs!
Option 2:
Another option, and perhaps a step up as far as management required, is to purchase credit card-based machines. While this can be expensive and potentially even cost-prohibitive, in our experience this can be a viable option in some situations. Basically, it will come down to the expected revenue vs. the cost of buying and maintaining the machine as well as the card reader. Machines with card readers are expensive, running as high as $2,000 or more. Also remember, you are still responsible for maintenance. But do your research. There are lease options available that can help offset these costs. Make sure to be clear who is responsible for the maintenance of machines and facilities in any partnership arrangement.
Option 3:
A final option is to partner with companies that offer app-based laundry units. For example, we have a 7-year lease with a company called wash.com with whom we split profits 50/50. We provide the laundry room space and wash.com provides the units and handles all of the maintenance. The machines are brand new and everything is done via the wash.com app. Our tenants love it! One thing to consider with long-term leases is, if you decide to sell, the next owner assumes the lease. Of course, this could be a positive or a negative depending on the buyer!
Laundry service
Larger apartment complexes utilize a laundry pick-up and drop-off service. This might not necessarily be a money maker for the owner. However, having a service like this might attract a tenant to rent your unit who otherwise might not have rented it. According to the 2017 NMHC/Kingsley Renter Preferences Report, tenants care about laundry. The report found that 89 percent of renters were interested in in-unit laundry. Also reported was that 77 percent won’t rent without it.
In conclusion
Providing some sort of laundry option to your tenants is an excellent way to add value and help your properties stand out. Whether installing hookups or partnering on a dedicated laundry space we’re sure one of these options will benefit you, your tenants, and the empire you’re building.
