Everyone predicted a revival in purchase money mortgage lending in 2013, and it looks like they’re right, so far.
During the first quarter of the year, an estimated $119 billion in purchase-mortgage loan originations were recorded, according to new figures from Inside Mortgage Finance.
This represented a 15% improvement over the same quarter in 2012. However, purchase originations were down 13% from the fourth quarter.
Still, things are only expected to get better, if the loan application data from the Mortgage Bankers Association (MBA) is any indication – demand for purchase mortgages was at a three-year high this spring.
And it appears as if the purchase market is just starting to heat up for the big summer buying period.
Late last year, the MBA predicted purchase activity would increase from $503 billion to $585 billion, while refinances were slated to slip from $1.2 trillion to $785 billion.
With mortgage rates on the rise, we’re finally starting to see the refinance share of the market cede to purchases, though the former still has a commanding 71% share.
Will the Higher Mortgage Rates Hurt or Help?
In case you haven’t heard, mortgage rates shot up over the past month, and the 30-year fixed is now going for somewhere in the low 4% range, as opposed to the low 3% range. Ouch.
Clearly this will make many rethink a refinance, and it could even influence some home buying decisions. Let’s hope most borrowers were locked prior to the onslaught.
Still, it’s easy to freak out over nothing – if you allow me to get historical for a moment, mortgage rates are still on the low, low end, even with this most recent uptick. And anyone purchasing a home today should be happy with a 30-year fixed at 4%.
However, happiness aside, there still is the qualification issue. Even if motivation is unscathed, there’s the more black and white numbers game.
Now that mortgage rates have increased nearly one percent, a lot of would-be home buyers may have been thrown out of the qualification pool as purchasing power has been diminished.
Even if they can afford the monthly mortgage payment, their higher debt-to-income ratio may not fly with banks and lenders.
Let’s face it, mortgage rates aren’t the main problem right now; the issue is finding a property that doesn’t involve a bidding war.
It’s hard to believe that the recent increase in rates would sway someone’s interest in purchasing a property, especially if they are willing to offer $50,000 above the list.
But it could thin out the eligibility pool, which would actually make it easier to land a property for those who do still qualify for a mortgage. So there is a silver lining there for some.
Good News for Mortgage Brokers?
While the higher rates may or may not be good for homeowners, the shift from refinance to purchase money should benefit local mortgage brokers.
When it comes to refinancing, borrowers tend to shop around for the lowest rate, whether that’s with their own bank or credit union, or with an online lender.
With home purchases, buyers are heavily influenced by their real estate agents, and many agents have broker friends they refer business to.
So as purchase mortgages gain traction, brokers may see an uptick in business, while online lenders and other not-present players will probably see volumes decline.
After all, a lot of borrowers will want to meet the individual handling their ever-important purchase loan.
If you’re a buyer, take a moment to think about your agent’s referral. Make sure you’re actually getting the best deal, and using someone reliable. Don’t just believe everything your agent tells you.
Read more: Is the real estate market about to be tested?
Is the housing boom already over? Did home prices peak before summer?
Well, a new report from Redfin revealed that competition among home buyers eased in May, which may be an ominous early sign of what’s to come.
The company noted that 69.5% of Redfin real estate agents that wrote an offer last month faced competition from another agent, which while high, was down from 73.3% in April and well below the 2013 high of 79%.
Additionally, the percentage of homes that received multiple offers was nearly at year-ago levels again, when the number was 69.3%.
Meanwhile, 49% of Redfin’s winning offers were above the original asking price, down from 51.9% in April.
Why Is the Housing Market Cooling Again?
If this report was for June, as opposed to May, one could look to the higher mortgage rates as a potential housing market buzz killer.
But these are the May numbers, when mortgage rates were still relatively low for a decent chunk of the month. So the obvious issue is an increase in inventory.
Housing inventory always rises in spring as it’s the start of the traditional home buying/selling season, and that’s exactly what happened this year.
In April, the number of homes for sale increased 6.4% month-over-month, the largest monthly increase since March 2010, when the homebuyer tax credit was phasing out.
At the same time, inventory was down 26% compared to April 2012. Home buyer demand was also down, with home tours and written offers slightly lower in May, per Redfin.
Of course, housing demand is definitely local, with Los Angeles and San Francisco still red-hot in terms of competition, while San Diego and Orange County saw significant month-over-month declines in interest.
And not every major market is seeing home prices go for well above the asking price, despite all the rosy media reports.
While that was the case in a staggering 96.8% of properties in San Francisco, which on average sold for 9.7% above list, just 19% of winning offers went above ask in Chicago.
In some major metros, including Baltimore, Chicago, Los Angeles, and Washington D.C., the average difference between offer price and asking price was actually negative.
Now we’ve got the prospect of even more homes coming to market, coupled with significantly higher mortgage rates.
As I’ve noted in the past week or so, mortgage rates are about 1% higher than they were a month ago, so there’s definitely going to be some kind of effect, though it’s too early to tell what that may be.
Plenty of pundits think housing can recover in the face of higher mortgage rates, even with rates in the 5-6% range.
But others are questioning the entire rally now that rates have begun to tick up, calling the recovery nothing more than a weak attempt to keep home prices inflated.
In any case, competition will remain elevated, even if not at levels seen earlier this year.
Characteristics of a Winning Bid
Wondering what it takes to get your offer accepted? Wonder no longer. Below are the most common attributes of a winning offer in May, per Redfin:
– 68.3% were conventional loans, up from 61.7% in April – 29.4% had a cover letter, up from 28% in April – 11% waived the inspection contingency, up from 8.3% in April – 8.9% waived the financing contingency, up from 7.1% in April
As you can see, government loans have fallen out of favor with prospective home buyers, most likely because of the recent increase in annual FHA mortgage insurance premiums.
Additionally, many FHA loans now require insurance for the life of the loan, which clearly isn’t economical, let alone feasible for many would-be borrowers.
Both FHA and VA loan volume decreased from April to May, accounting for just 8.5% and 6.6% of winning offers, respectively.
Meanwhile, all-cash offers grabbed a 5.5% share of the market, up from 5.1% in April – 16.1% of offers were all-cash in Orange County last month, up from 9.7% a month earlier.
What this all means is that if you’re a seller, you better get on it, as things appear to be trending down. And if you’re a prospective buyer, you might be able to bide your time, though you’ll have to contend with the prospect of rising rates.
Read more: Slowing mortgage market could lead to looser lending.
Zillow Gone Wild, the popular Instagram account with 1.8 million followers, is getting its own nine-episode series on HGTV, the company announced on Tuesday.
Slated to premiere in early 2024, the show will feature eight 30-minute episodes and an hour-long season finale. The series will take fans into the action, touring one-of-a-kind homes on the market. Each episode will showcase three “weird, wonderful and wildly quirky homes” and share the backstories of their buyers and sellers, according to the announcement made by HGTV.
“Millions of people are obsessed with scrolling through outrageous and over-the-top properties on social media while dreaming about where they would like to live,” Loren Ruch, head of content at HGTV said in a statement. “Zillow Gone Wild will take the fascination a step further by giving fans a cheeky glimpse inside the most unusual homes on the market, offering those unexpected ‘wow’ moments that will keep viewers coming back for more.”
Ultimately, the series will tell whether each home has sold, to whom and for how much, culminating in the season finale where the wildest home will be revealed. The show will also focus on people who have embraced non-traditional homes and the methods real estate professionals use to market them.
Online listing portal giant Zillow offered support for the show, reported Inman.
“We are huge HGTV fans and are excited for this show,” a Zillow spokesperson told Inman. “We can share more details in the coming months.”
New Yorker Samir Mezrahi launched Zillow Gone Wild in 2021 and quickly earned popularity across multiple platforms. Posts have included a house made out of huts in Virginia, a pristine mid century modern home in Florida, and a Barbiecore-themed house in Hudson, Wisconsin.
Over the past week and change, I’ve begun to notice the early signs of an overheated real estate market.
For much of 2013, virtually any property that made its way to market was “pending” within a week, largely due to a lack of supply, coupled with record low mortgage rates and relatively low home prices. This made it extremely attractive to purchase a home.
Typically, properties were shown to prospective buyers a few days after being listed, and final and best offers were due within a week. It was pretty much a slam-dunk.
Many of these properties got tangled up in bidding wars, much to the delight of listing agents and the sellers they represented. And most eventually sold above list, often well above list in fact.
Meanwhile, real estate agents sent out e-mails boasting about how their properties received multiple offers, sold before the first open house, or already had offers before hitting the market.
This environment was the true definition of a seller’s market. Finally, those who had no equity for so many years were able to sell for a profit. Amazing turnaround, to be sure.
The Pendulum Has Swung
But there seems to be a market shift in the works. Perhaps all that euphoria and subsequent greed is coming to a head.
Lately, I’ve seen homeowners listing their properties for way too much money. You can simply eyeball prices and realize they’re too high.
A few months back, list prices were still fairly conservative, which explains why bidding wars ensued and final sales prices were higher than list.
Now, it seems some homeowners are trying to play catch-up to take advantage of the hot market. Unfortunately, they might be too late to the party. Or simply too desperate to break even.
You can’t list your home for significantly more than what recent comps went for, especially when mortgage rates are more than 1% higher than they were when those homes sold.
Well, you can, but don’t expect your home to be pending within a week. And if you list too high, it’d be pretty embarrassing to have to lower the price, especially in this hot, hot market. Or risk the appraisal coming in low.
When it comes down it, as home prices and mortgage rates rise, the pool of eligible home buyers will shrink. It’s an affordability thing. At the same time, inventory will rise as more homeowners look to sell after missing the apex.
[Home Buyers Are More Worried About Rising Mortgage Rates than Prices]
No Hard Data…Yet
For the record, I don’t have any hard evidence or data to support my claim at the moment. Why? Because every single metric out there is based on old data, from a month or two ago.
So the good news will continue to pour in for months – but if you look at your local market, you might see what I see. Price reductions, properties sitting on the market longer, and rising inventory.
It’s simple really – when properties begin selling close to all-time highs again (just years after the crisis), and mortgage rates (which were the impetus for the recovery) are significantly higher than they once were, you have to question whether this boom will continue.
Sure, it might not result in a bubble, but I think some homeowners looking to score a tidy profit could be in for a rude awakening, especially if a bunch of them all have the same idea at the exact same time.
Read more: Five Reasons Housing Inventory Will Begin to Rise
A new startup called “Roam” has launched a service to make assuming a mortgage painless.
The company is backed by some prominent real estate figures, including Opendoor co-founder Eric Wu and former Fannie Mae CEO Tim Mayopoulos.
The goal is to help more home buyers take advantage of the many low-rate mortgages in existence via a loan assumption.
This includes FHA loans and VA loans, both of which are assumable by home buyers.
Roam acts as a hands-on guide for buyers and sellers to ensure the process goes smoothly in exchange for a 1% fee.
How Roam Makes It Easy to Assume a Mortgage
While many home loans are assumable, including all government-backed loans (FHA/VA/USDA), the process isn’t so straightforward.
Roam notes that the loan assumption process is “opaque and time-consuming,” and often requires buyers to fill out forms with paper and pen and fax them to the lender or loan servicer.
There’ also uncertainty for the home seller, who might not be sure if they’re still liable for the loan post-assumption.
To alleviate some of these pain points and ensure the process is done correctly, Roam manages all the operational details on behalf of the buyer, seller, and real estate agents.
Additionally, it makes it easier to find homes for sale that feature an assumable mortgage.
Once you sign up via their website, they’ll compile a set of for-sale listings that feature an assumable, low-rate mortgage.
These listings will also be tailored to fit your other criteria, such as location, home price, number of bedrooms and bathrooms, and so on.
At the moment, it seems only FHA loans and VA loans are included, not USDA loans.
If you come across a property you like, they will work with the lender and loan servicer to begin the loan assumption process.
As noted, this includes obtaining a release of liability of the loan for the home seller, which should ease their concerns as well.
Bridging the Gap Between Old Loan Amount and New Purchase Price
One sticking point to a loan assumption is the shortfall between the sales price and the remaining loan balance.
For example, the existing loan balance might be $450,000, while the new sales price is $550,000.
The buyer could come in with the difference, but it’s unlikely they’ll have the funds unless they have very deep pockets.
In this case, Roam has “preferred partners” that can provide additional financing, typically in the way of a second mortgage.
Together, this should still provide a blended rate that is well below current market rates.
If we consider a 2.5% first mortgage at 70% loan-to-value (LTV) combined with a second mortgage for an additional 10% at a rate of 8%, the blended rate is roughly 3.2%.
At last glance, the 30-year fixed is priced around 7.25%, so that represents quite the discount.
To that end, only mortgages with rates below 5% are included in the Roam listings.
How Much Does It Cost to Use Roam for an Assumable Mortgage?
While this service sounds pretty great, there is a cost to use it. At the moment, Roam is charging 1% to the home buyer via closing costs. I assume the 1% is based on the assumable loan amount.
In exchange for this fee, Roam says it will “coordinate every detail on behalf of sellers, buyers, and agents,” including connecting buyers and sellers, handling paperwork, and overseeing the financing.
Home sellers do not need to pay anything to take part and Roam will ensure the seller’s name is removed from the mortgage.
This means sellers will not be associated with the mortgage or held liable once the process is completed.
That should provide peace of mind to the seller, who might be concerned about their credit score being affected by the buyer’s subsequent mortgage payments.
If it’s a VA loan that is being assumed, Roam can help find a qualified military buyer if the seller would like to free up their entitlement.
This allows military homeowners to take out a new VA loan when it comes to their next home purchase.
Roam may also make money from their second mortgage partners, though they are fine with home buyers using the lender of their choosing.
Same goes with real estate agents. If the home seller doesn’t have a listing agent, Roam can recommend one. This may also earn the company a fee.
But the company can work alongside any listing agent, loan servicer, or mortgage provider to complete the process.
Is This a Good Deal?
Over the past couple decades, assumable mortgages weren’t a thing because mortgage rates were constantly falling.
In fact, mortgage rates hit record lows in 2021 and have since nearly tripled in just over two years.
This has finally made the assumable mortgage a thing, and a potentially very powerful thing.
If a home buyer is able to obtain the seller’s mortgage, possibly in the 2% range, it would be a huge feat, even with a 1% fee.
For example, take a $500,000 home purchase that has a $400,000 outstanding loan balance set at 2.5%.
The $400,000 loan amount would be about $1,580 per month. But let’s suppose the home buyer needs a second mortgage to bridge the gap with the new purchase price.
A $50,000 second mortgage set at 8% would be another $367 per month, or about $1,950 all in.
Compare that to a single new mortgage at $450,000 with an interest rate of 7%, which would be roughly $3,000.
And it could be subject to mortgage insurance as well if it’s one loan at 90% LTV.
The only thing you’d really need to watch out for would be an inflated purchase price if the seller believes they can charge more thanks to their assumable mortgage.
But even then, the property would need to appraise and the savings could still eclipse a slightly higher price, as explained in the scenario above.
Roam is initially available in the states of Arizona, Colorado, Florida, Georgia, and Texas, with other markets expected soon.
Despite her initial misgivings, Boston U.S. District Court judge Patti Saris granted preliminary approval of MLS Property Information Network’s (MLS PIN) settlement agreement in the class action buyer-broker commission antitrust lawsuit.
In court documents filed last Thursday, Saris approved the agreement, stating that the releases in the agreement were “fair, reasonable, and adequate to the Settlement Class.”
Originally filed in December 2020, the Nosalek lawsuit, named after its lead plaintiff, alleges that the broker-owned MLS PIN is not directly required to abide by the National Association of Realtors (NAR) rules. However, it has nonetheless adopted a rule similar to an NAR rule requiring listing brokers to offer a blanket, unilateral offer of compensation to buyer brokers in order to submit a listing to MLS PIN.
Other defendants in the lawsuit include Anywhere, RE/MAX, Keller Williams and HomeServices of America. Unlike the two other buyer-broker commission lawsuits, Moehrl and Sitzer/Burnett, NAR is not a defendant in the Nosalek lawsuit. Additionally, while Anywhere has filed settlement agreements in the Moehrl and Sitzer/Burnett suits, it has not tried to settle the Nosalek suit.
MLS PIN, which is New England’s largest multiple listing service (MLS), filed the settlement agreement in late June. In the agreement, MLS PIN denied any wrongdoing, but stated that it agreed to the settlement in order “to avoid the further risk, expense, inconvenience, and distraction of burdensome and protracted litigation, and thereby to resolve this controversy, to avoid the risks inherent in complex litigation, and to obtain complete dismissal of the Action as to MLS PIN.”
The MLS also agreed to pay $3 million in the settlement, with up to $900,000 going towards attorney’s fees, up to $200,000 going towards expenses, $250,000 going towards notifying settlement class members, and each of the three named lead plaintiffs will get up to $2,500 for being class representatives.
According to the settlement agreement, the plaintiffs will use the remaining funds of at least $1.6425 million to pay for further expenses for the litigation against the remaining defendants “for the benefit of Settlement Class Members.”
In early August, Saris expressed skepticism over the financial portion of the proposed agreement.
“I’ve never seen a settlement agreement like this in my 30 years,” Saris said at an August hearing.
With the payment structure outlined in the agreement class members in the case will not be getting any money from the settlement agreement, however the plaintiffs’ class-action attorneys, “get fully funded for expenses to date, and they basically get a litigation fund open-ended for the future for as long as it takes, which may be another three to five years,” Saris said. A final approval hearing for the settlement agreement is expected before the end of the year.
In an emailed statement, a spokesperson for MLS PIN said the firm was “pleased with the Judge’s decision to move the settlement forward,” but would not comment further.
Attorneys for the plaintiffs did not return a request for comment.
I was stoked to see two brands I love team up. Zillow and Giveback Homes partnered to “support real estate agents, their families and others in the industry community impacted by recent natural disasters to ‘make home feel like home again.’”
Zillow launched this campaign with Giveback Homes with a $10,000 donation and a promise to match donations up to $20,000. These funds, along with any other funds donated, are being used to help impacted families rebuild their lives. Families will receive in-kind donations such as refrigerators, washers and dryers, mattresses, and other necessities to help in their rebuilding efforts.
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I feel like I’ve been waiting years for this partnership to occur. Interested in donating?
Another independent brokerage has chosen to align with RE/MAX. Yakima Valley, Washington-based The Real Estate Collective, is RE/MAX’s latest franchise, according to an announcement on Tuesday. The brokerage will now operate under the name RE/MAX The Collective.
The new firm is owned by Haley Larson, who joined RE/MAX with her 17 agents. In 2022, Larson’s agents achieved $55 million in sales volume, according to the release.
“The education, the systems and the years of tried and true behind the RE/MAX brand is nothing short of excellent,” Larson said in a statement. “I love the RE/MAX values and the company’s emphasis on technology while not replacing the agent.”
Larson started her career in real estate as an agent at a large national franchise in 2014. After building her own team at the franchise, she set out to open a boutique firm in 2022, before ultimately deciding to align with the RE/MAX brand.
“I know this decision will fast track the growth of the office and fill a national voice here in Yakima,” Larson said.
RE/MAX The Collective will serve buyers and sellers throughout Yakima, Ellensburg and Cle Elum and it will specialize in rural and residential properties as well as large agricultural farms.
Larson said she is currently looking to grow the firm by bringing in more real estate agents.
Last week, California-based RE/MAX Proper, another RE/MAX franchise affiliate, announced that it had acquired All Nations Realty and Investments, an independent brokerage in Rancho Cucamonga.
I don’t think it would be much of a stretch to assume nobody likes high mortgage rates.
They make it more difficult for prospective home buyers to get to the finish line, especially with lofty asking prices.
And they’ve led to countless mortgage layoffs and job losses in a number of related industries.
Sure, investors might earn more interest on loans with higher mortgage rates, but only if the loans are held onto to.
There’s a good chance they’ll be paid off sooner rather than later, making them a little less enticing. But there is one silver lining to these stubbornly high mortgage rates.
There Will Be a Mortgage Refinance Boom in the Near Future
The longer mortgage rates remain elevated, the larger the number of high-rate home loans in existence.
It’s pretty straightforward. If lenders keep doling out new loans, they’ll undoubtedly have high interest rates.
If you look at the chart above from Black Knight, the average interest rate on outstanding mortgages is around 3.94%, but is inching higher as time goes on.
As more high-rate mortgages are originated, this average rate will climb, thereby replenishing the very dry refinance pool.
At last glance, the popular 30-year fixed mortgage is going for over 7%, up from the 2-3% range in 2021 and early 2022.
Mortgage rates are now close to their 21st century highs, with the 30-year fixed reaching 8.64% in May 2000.
Hopefully we don’t go that high, but anything is possible these days.
Even 7% mortgage rates have caused home loan volume to drop considerably, with mortgage refinances basically nonexistent and home purchases also dropping off due to sheer unaffordability.
We’ve never seen mortgage rates double in such a short span of time, and it’s clear this is taking a massive toll on the industry.
It’s hurting loan officers, mortgage brokers, real estate agents, title and escrow officers, and many others.
But despite this more than doubling in mortgage interest rates, there is still considerable business taking place.
Mortgage Lenders Are Still Expected to Close Nearly $2 Trillion in Home Loans This Year
While the boom years have come and gone, the Mortgage Bankers Association still forecasts $1.7 trillion in 1-4 unit residential home loan volume for 2023.
That’s on top of the $2.3 trillion or so in home loan originations in 2022, for which the 30-year fixed was priced in the 6s and 7s for a decent chunk of the year.
Of course, these numbers are down significantly from 2021, when mortgage lenders originated a record $4.4 trillion or so in home loans.
Coming off a record year to a doubling in mortgage rates is one of the reasons it’s been so hard for those in the real estate and mortgage industry.
Because business was going gangbusters right before this unprecedented mortgage rate spike, lenders were fully staffed, as were real estate brokerage houses, escrow and title companies, and so on.
This sudden and violent shift meant staffing levels were going to need major adjustments. It wasn’t a slow trickle down in business, it was a rapid decline.
Because of depressed sales volume, many will leave the business and not come back.
But as we’ve seen time after time, there will be opportunity, especially if there are fewer players left after the dust settles.
Once mortgage rates do come down, which they invariably will, trillions in home loans will be ripe for a refinance once again.
It’s still not clear when this will happen, but it will happen, that much is true.
Homeowners Also Stand to Benefit from Lower Mortgage Rates in the Future
While the industry is going through some tough times, recent home buyers are also suffering.
The 30-year fixed was a screaming bargain a couple years ago, and is now a thorn in the side of homeowners.
Due to supply shortages, home prices have stayed near record highs, despite a major decline in affordability.
This has pushed the typical home buyer’s monthly payment up to $2,605, per Redfin, up about 20% from a year ago. It’s now hovering around an all-time high.
Meanwhile, months of supply is still lingering around the 3-month range, well below the 4-5 months that represent healthy levels.
So today’s home buyer still has to compete with many others, despite record high home prices and equally expensive mortgage rates.
However, a time will come when mortgage rates come back down, allowing those who stick it through to see some relief.
Lately, real estate agents and loan officers have been pitching the so-called date the rate, marry the house line.
Simply put, the interest rate is just temporary but the home can be yours forever. And if rates go down, you can refinance your existing loan and ideally pay a lot less for it.
This has yet to transpire, which hammers home the importance of being able to afford the housing payment in front of you, not some prospective future one if the stars align.
But as time goes on, interest rates will come down. And those stuck with rates in the 7s will be able to snag something a lot more reasonable.
So each day, as more and more 7% mortgages are funded, more opportunity is being created.
Are laundromats profitable? Or, are laundromats a dying business? Learn how much laundromats make and if laundromats are a good investment.
Are laundromats profitable? Is buying a laundromat a good investment?
Ever wondered if owning a laundromat is as profitable as people say?
I’ve been seeing a lot of videos on social media lately talking about how much money laundromats make (seems like it’s a popular small business idea right now!). So, I wanted to do my own research and learn as much as I could on the topic of laundromat businesses to see why it’s trending so much.
Whether you are looking to make extra income or if you plan on opening several laundromat businesses, there are some things to think about before you get started.
In today’s article, we’re going to talk about:
How profitable a laundromat can be
The pros and cons of owning a laundromat
Why a laundromat may be a smart investment
Tips on how to find a laundromat to buy
And more.
Quick summary: Yes, laundromats can be a way to make money (and even passive income!) due to people needing to wash their clothes and low costs to run. However, the amount of money that you can make is based on factors such as location and maintenance costs (new machines can be expensive!). High-quality laundromats with lots of amenities are in, and the old days of dirty and hot laundromats are not.
Are Laundromats Profitable?
Is owning a laundromat a good investment? Is owning a laundromat a good way to make money?
According to the Coin Laundry Association, there are around 35,000 laundromat businesses in the United States and nearly 95% of laundromats succeed.
That is a pretty good success rate.
It’s important to understand that, like with any other business, laundromats require an investment of money—both initial and ongoing. You’ve got your rent, machines (you will need more expensive commercial laundry equipment), utilities, and insurance.
The good news is, your income would hopefully be higher than these costs, making you a profit at the end of the month. Some people are able to run a laundromat as their full-time income, and for others it may simply be one of their side hustles.
The amount of money that you can make from a laundromat depends on your management skills, the location of your business (the average laundromat user lives within 1 mile of the laundromat that they use, so you want to be close to your customers!), and more.
Related content:
Is a Laundromat A Smart Investment? Do Laundromats Make Money?
This is a hard question to answer, as everyone is different!
For some people, a laundromat can be a smart investment, for others it may not be. The good thing, though, is that you are reading this article so that you can figure out if owning a laundromat is for you or not.
Yes, many laundromats make money. On average, a laundromat can earn a profit of around 20% to 30%.
Note: Before making a decision, I highly recommend reaching out to a financial advisor before making any decisions.
Factors Impacting A Laundromat’s Net Income
There are numerous things that can impact how much money a laundromat can make such as:
Location– The location of a laundromat is important in how much money you can make. This is because a laundromat located in a populated area often makes more money than one in a less populated area. The reason is, that when there are more people, there are more people likely to use laundromats.
Competition– If there are other laundromat businesses nearby, this could impact your profit because you now have competition. This is because too much competition may mean that there are less customers coming to your business.
Demographics– The demographics of people living around the area of your laundromat are important. For example, laundromats tend to do better in areas with a lot of renters, college students, or households without a washing machine or dryer (of course).
We recently stopped to use a laundromat while we were traveling in our RV. One thing we noticed was that this laundromat had a ton of amenities. Now that I’m thinking about it, this laundromat business owner was smart. They knew what their potential customer needed. They opened a laundromat right next to a popular cross-country trail, and added great amenities such as snacks and even a pay-to-use shower. These factors helped this laundromat stand apart from its competition and probably led to more people using it because it was a one-stop shop.
Some laundromats can earn profits as high as 35% or more! These are usually high-volume operations in urban areas with lots of people living nearby and they tend to offer a wider range of services such as wash-and-fold or dry-cleaning.
Owning a laundromat can be a smart investment for some people because they can possibly have a stable flow of income.
However, you will want to keep in mind that success in this type of business still depends on careful planning, an understanding of your local market, and more. Not everyone will succeed, of course.
How To Find Laundromats For Sale
Jumping into the laundromat business begins with finding a laundromat business that is for sale, or starting your own business from the ground up.
If you are looking for a laundromat business that already exists and is for sale, here are some tips and strategies for locating a laundromat for sale.
Online platforms– Many websites list laundromat businesses for sale. Examples include BizBuySell and LoopNet. These platforms can be your first stop so that you can easily look at laundromat listings. I was able to find many laundromats for sale, ranging from around $100,000 to over $1,000,000. These sites will give you a lot of information too, such as the revenue, monthly rent that the laundromat pays, the year it was started, and some background on the business.
Broker assistance– There are commercial real estate brokers with experience in the industry that can be invaluable resources. These individuals often have connections and insights that you may not have as an individual buyer. You may want to search for commercial real estate brokers in your local area and see who can help you find a laundromat business for sale.
Local advertisements– Sometimes laundromats are listed for sale in your local newspaper. You can see if there is a business for sale section in your local paper to get started.
Important Things To Think About When Purchasing A Laundromat
When you come across a potential laundromat to buy, here are some things to think about:
Location– As mentioned in the earlier sections, the location of a laundromat plays a very important role in if the laundromat will be successful or not.
Condition of equipment– Commercial laundry machines are expensive. These are not the washer and dryers that you have in the home you live in. These are meant to take a lot of loads and be running nearly all the time. Due to this, you will want to inspect the machines thoroughly and, if possible, have a professional technician check them. This is because broken or old machines could result in costly repair or replacement costs.
Business finances– If you find a laundromat that you are interested in, then you should ask to see their financial records and carefully review them.
Lease agreement– Many laundromats do not own the building that they are doing business from. Due to this, you will want to look at the terms of the lease. A laundromat with a long-term lease allows for longer operations without the risk of eviction or a sudden rent increase.
Demographics and competition– As you read in an earlier section, knowing more about the demographics of the local area, as well as about your laundromat competition, is important too.
Remember to approach this process with patience. Investing in a profitable laundromat is a journey that requires careful planning, research, and due diligence.
Owning A Laundromat
Operating a laundromat is more than just collecting coins from machines. There are maintenance needs, customer concerns, and potential unexpected issues that you may come across.
Below, I take you through the typical day-to-day operations of a laundromat.
Day-to-Day Operations Of A Laundromat
Opening up– Regular, reliable hours are important in the laundromat industry. Therefore, opening up the store in the early morning is always a good idea as many people like to get their laundry done first thing. Plus, many of your customers will be repeat clients, so making sure that you open up at the same time each day is required.
Machine maintenance and cleanliness– When running a laundromat, you will need to check on the washers and dryers, perform required maintenance, and make sure that your business is clean. You will also want to make sure you are well-stocked with detergents and fabric softener.
Customer service– While the average laundromat only has 2 employees or less, you will want to have good customer service. After all, a happy customer is far more likely to return and recommend your services to others.
Financial management– Collecting payments and record-keeping is something that is done every single day.
Tips on Managing a Profitable Laundromat
Sell extra services– Successful laundromats tend to sell many more services other than just self-service laundry. Due to this, you may want to also try diversifying your income streams so that you can make more money from your laundromat. You can sell other services such as wash-and-fold services, dry-cleaning, dog washing stations, showers, or even have vending machines.
Maintain your machines– Regularly maintaining your washer and dryer machines minimizes downtime and expensive repair costs, so that your laundromat can run smoothly.
Promote your business– Word of mouth is so important in this type of business, but don’t shy away from using social media or local advertising to draw in potential customers.
Running a money-making laundromat is much more than keeping the machines running. It involves good customer service, finding more services to sell, and marketing your laundromat business.
Frequently Asked Questions About Laundromats
Here are common questions about owning a laundromat.
How much profit can you make from a laundromat? How much do laundromat business owners make?
The profits from laundromats vary depending on location, operation expenses, size of the laundromat, the amenities you sell, and more. The average laundromat business sees a profit margin of around 20% and 30%.
The national average income for self-serve laundromats ranges between $15,000 to $200,000 per year. As you can see, that is a wide range and that is because it just depends on so many different things.
What are the pros and cons of owning a laundromat?
Like with any business, there are positives and negatives. Owning a laundromat isn’t for everyone.
Owning a self-service laundromat can earn you money and can be a stable, low-risk investment with low operating costs. It can be a fairly passive income stream as well, as you don’t need many employees (the average laundromat has 2 or fewer employees). However, running a laundromat isn’t all easy, there are challenges such as high start-up costs, machines braking, and more.
The challenges of running a laundromat include that high-quality commercial laundry machines can be quite expensive and purchasing or leasing a location with enough space for machines and customers can be a significant portion of startup costs. Also, wear and tear is going to happen in a laundromat as machines get constant use, and the cost of repairing or replacing machines can add up.
Is owning a laundromat a smart investment? Is owning a laundromat worth it?
Owning a laundromat can be a smart investment, and it can be worth it for some people. But, it will cost you money.
It costs around $100,000 to $300,000 to start a laundromat. Starting or buying a laundromat can be high, but it can also earn you a steady income. But, that doesn’t mean that it’s a smart investment for everyone. There are many factors that go into running a successful laundromat.
How to find laundromats for sale?
You can find laundromats for sale through websites, commercial real estate agents, or business brokers. You can also network with existing laundromat owners or associations who can provide insights into potential sale opportunities.
Are laundromats a dying business?
The laundromat business has changed over the years, but they are still very much needed. People use laundry facilities all the time, including myself such as when I am traveling in my RV or boat. Everyone needs to wash their clothes.
There are ways to keep your business up to date, such as having a laundromat that accepts different methods (such as credit card and cash), having a drop-off service, and making your facility comfortable (such as with WI-FI, TV, beverages, etc.).
What are the key success factors for running a laundromat?
Successfully running a laundromat depends on many factors like the location, maintaining clean and well-functioning machines, providing good customer service, having amenities (such as air conditioning or head depending on the temperature, TVs, etc.), and more.
Are Laundromats Profitable? – Summary
I hope you enjoyed this article on whether buying a laundromat is a good investment or not.
Here’s a quick summary of what we learned above about this business venture:
Running a laundromat can be a way to make money, but it depends on many different factors.
Laundry businesses typically have low labor costs (they are fairly passive businesses with a lot amount of workers needed) and can be recession-proof.
Owning a laundromat does have cons and challenges, such as the fact that commercial laundry machines can be quite expensive if they need to be repaired or replaced.
There are many laundromats for sale and you can start your search online.
Running a successful laundromat business in today’s world will likely mean running a higher-quality business and selling amenities for additional fees.
In all, the profitability of owning a laundromat may make the challenges worth tackling. The average laundromat is changing and improving, and there can be room to make money with this small business.
So, what do you think? Are laundromats profitable? Are you interested in owning one?