BILLBOARD By Frank RolfeThe only thing better than building a outdoor billboard from scratch is buying a billboard that is already built and operating at a great price. When you buy a pre-existing billboard, you don’t have the stress of having to build it, or the risk of something going wrong. In addition, you can see exactly what you’re buying and, in some cases, actually buy the sign for less than it cost. So how do you properly buy a billboard?
It’s all about the current numbers
The first rule is to only rely on current performance, not what the seller says the sign “could do”. If the sign “could do” better, the seller would have already done that. The biggest con is when the seller tells you that he could get a much higher rent for the sign, but he doesn’t have the time to really work the market. The truth is that he’s worked the market as hard as he can, and the rent you are seeing is 90% of the time the correct rent – all that the market will bear.
It’s all about your rate of return
You’re only buying billboards to make money (at least that’s the only reason you should be doing it). So the most important piece of information the sign holds is how much money it makes and, as a result, how much money it’s worth at a certain return on investment level. A good deal should have around a 20% cap rate of return (and a much higher cash-on-cash return level). There are billboard owners in Las Vegas that will try and tell you that their billboards are a great deal at a 1% cap rate because the economy is in a temporary slump. Don’t listen to anything other than the current performance – period.
Look at the length of the ground lease
As a general rule, you should never buy a billboard that does not have a ground lease that is longer than the amortization of your note on the sign. If you are buying the billboard with a loan that takes 5 year to repay, then the lease length must be at least five years. Otherwise, you could lose the sign before you even have it paid off. And just getting the sign paid off