Billboard Valuation


#1

Is there a “back of the envelope” method to valuing an already built billboard? For instance Projected Revenue divided by Purchase Price should be at least 20%. I was thinking about buying one in my town and was trying to see if the asking price was reasonable. The one I am looking at is $225k and would get $3,600 month if fully rented (2 sides each tri spinners = 6 sides x $600 month = 3,600). I’m not familiar with what typical fixed expenses are on billboards. Land rent, utilities, maintenance, property taxes, etc.

Any comments or advice is appreciated.

Thanks,
Michael


#2

Michael,

I don’t want to sound like the most conservative guy in the world, but $225,000 is a tremendous amount of money for the billboard you have described. If you assume that each side of the tri-vision sells for $600, then I’d put in at least one face on each side vacant at all times (in the recession/depression we’re in, that’s still pretty liberal). That gives you total revenue of $2,400 per month. Then take out the costs of electricity, insurance, property tax, repair and maintenance, and, before overhead, you’ve got an income stream of about $1,700. Now take out some of that for your time, bad debt, etc., and you’ve really only got about $1,200 per month. That’s an annual income stream of $14,400. At a 20% cap rate, that’s only $72,000 – about a third of the asking price. THERE ARE A LOT OF BAD DEALS FOR SALE OUT THERE RIGHT NOW. That’s why I always urge people to build their own signs, so that there is no crazy mark-up in them. Of course, I don’t know the particulars of your sign, and it might be the greatest deal in history, but to me it looks enormously overpriced.


#3

Thanks Frank! That was my concern. I own several rental properties and I know how to value them based on rent, average vacancies, expenses, etc. However, I have no experience around the operating expenses of a billboard. Appreciate the info. I went ahead and picked up a copy of your book off Amazon.com.

Michael