While running this morning I was doing some thinking.
If I actualy go out and find sites and get leases, only to flip the leases to one of my competitor’s in the area, won’t that limit me from building my own business empire locally in the area?
It seems to me it’s better to build your own boards and become competition to your competitors, rather than flipping the leases and making your competition become stronger. Competition may become concerned and try to buy you out anyways.
The only way I think it makes sense is to flip is for sites on major highways. I am in no position financially to build a $50k monopole.
It all depends on your goals. Yes, personally, I’d rather keep a sign than flip it, because I’d rather make continual income than just a one-time shot. But some people may prefer just to flip leases and not get involved in building or renting the ad space. It’s a free country. Regardless of your goals, however, you pretty much always want to flip weak locations. Larger billboard companies often are just looking for “dots on a map” that they can stick in their rotary or poster programs, and are in a position to rent a weak sign that you will have trouble with yourself. So I’d debate whether to keep or flip great locations, but I’d always try to flip weak locations. Weak signs are a burden.
I am planning on flipping leases but I am trying to figure out how to value it accurately. I know the basic formula is (yearly gross profit x GPM X Cap Rate. What are some realistic numbers as far as the gross profit margin and cap rate? I have seen people on this forum using 60% GPM and 10% cap rate. That seems a little high in todays market so i was wondering if anyone knew where the numbers are at right now in the current market?
For example. Billboards in my area are renting for $1200/month per side so that is $28,800/year. If i took that number and plugged it into the formula what would that give me for the lease and permit value?
In that scenario, you’d take $28,800 less maybe $12,000 in expenses = $16,800 at a 20% cap rate = $84,000. Then subtract the cost of the proposed structure (let’s assume $50,000) and the value of the lease and permit is $34,000. Of course, there’s a huge number of variable in this formula, from the cost of the structure to the cap rate (the range is 10% to 20% normally).