Horse Ranch

I love apartment buildings but.. during a visit to my brother in a nearby city he told me of a horse ranch nearby his home. I really thought nothing about it because I LIKE BUILDINGS NOT BARNS. Anyway.. He did mention they were asking 2.5 million. Its an 80 acre ranch with many many barns and maybe 4 or 5 houses on it. Its delapilated but functional.
He (My brother) called me yesterday and said the the owner who lives in Germany was willing to take $800,000. I almost choked. I guess he is very motived.
1 Client (a friend of my brother) pays $ 6000 per mo. There is room for hundreds more. This would be a major cash cow..If he did accept $800k . The payment from above tenant would cover the mortgage.
I hope im not breaking any rules here but Im looking to see if anyone out there is interested in the horse business. Would need help arranging financing. BTW..I watched SEABISCUIT last night. What a story.
ARV = $2.5 million. (realtor info)
Income = $30 - 60 k (conservative )
:-)

I have some experience with horse farms, though the property I brokered wound up being sold for development land. In the case of the property I was brokering, it had an established business of boarding, summer camp and shows. The owners ran it themselves with the help of a caretaker who lived on the premises.

You need to look at value in the context of its income stream and also the operating expenses. These kinds of places aren't cheap to run--insurance, feed, manpower, etc. I would ask the RE agent the basis for the $2.5mil market value. I would also verify that the current zoning would permit this type of operation.

I loved the Seabiscuit story as well. When Smarty Jones was making his run this year at the Triple Crown, it reminded me of Seabiscuit.

Nancy

Again Nancy thanks.
It makes me feel good that you have some experiance in this arena. Yes I will get more info today.
The funny thing is ..that thew first thing that came to my mind was developing the 80 acres.
The ranch now is being used for boarding horses mainly ..but it has so much potential because it has so much area and also arenas.. barns..corrals for days ..etc.
Ill post more soon.

There's no reason why you can't explore 2 parallel possibilities--horse farm and development--and see which one may make more sense economically (highest and best use). Starting point for the development scenario would be uses and lot sizes permitted under current zoning and whether there's public utilities or if it would have to be on-site.

Update:
80 acre Ranch was appraised at $2.5 mm in 1998.
Income in the late 90’s was $50,000 per month. (Still was not at maximum potential).
Im still trying to get more information on the actual numbers of how ranch is doing financially TODAY.
The ranch is not listed at this time. Was listed earlier this month but realtor did nothing so owner let the listing expire. ( Is the fact that a realtor isnt involved a plus for the buyer)?
Realtor says there was an offer submitted last night.
Owner says that at this time he has not signed anything. (still open to offers)
Owner is in the U.S. at this time to inspect offers.
As I have said before the ranch has not been taken care of in the last 5 years. Paint is needed badly and much clean –up. Repair of barns, arenas , corrals , heating systems , mechanical and underground water wells.
There are valuable mineral rights attached to this ranch. 3 functional underground water wells.
Any Ideas on what direction to take here. Should I submit an offer now or wait for realtor to to get me more information about income. Would the offer work much the same a an apartment building where offer is based on income being produced at the time of sale minus repair or re-construction costs?
I believe it would take $1 mm plus to make this a 5 star operation.
More info to come…Thanks

I would also look into the development of homes for equinine people / similar to airport communities where a person can live next door to their hobby. This would almost guarentee your bording income. Homes strategically placed around the riding area - similar to golf course- would raise their inherent value. It all depends on the local market area-I'm no expert-I just examining the potential . I seen what happened in Naperville,IL with a farm field converted to airport community-same might apply :-D

Update:
I have finally talked to the owner of the horse ranch .He lives in Germany. He sent me his income/expense statements and the way I see it his ranch is not worth 3.2mm. (He said he will take 2.7 cash, fast close)
In 2000 his revenues were $459,000 and expenses were $446.000. He shows a LOSS every year since 1997. I don’t know how to go to someone and say ..Hey ..your property isn’t worth 2.7 million.
I know in my gut that the property can generate a good cash flow. I just don’t know how to structure a deal with him. I know he is willing to carry a portion if the note which is $ 800,000. Should I Try a lease option? How much do you think I should offer as a deposit?
Please help.

Let me get this straight. The property appraised in the late 1990's at $2.5mil when it was pulling in $600K of income. Now it's pulling in only 75% of that (and who knows how many expenses were not included in the $446K), and the owner wants $2.7mil for a fast settlement. In addition, you said that you thought it would take $1mil to get the property and business up to snuff.

Seems to me the first number should be a "1" and not a "2" and probably under $1.5mil. I think it comes down to whether you want to get into the horse farm business--to be able to rehabilitate this business, the existing improvements and make it as profitable as it can be. You will either have to do all of it yourself or hire people. As I said before, this type of operation is very expensive to run.

Why has the owner let it lapse--what's the demand for this type of operation in the area? Is the owner up to his neck in debt?

I would be VERY cautious about going down the horse farm route. I would, however, check out the potential of this property for residential development.

Hi Nancy
The demand is High. In Colorado there are many many horse people. I was raised not far from this area and I probably In the back of my mind have some selfish personal reasons why Im attracted to this enterprise.. plus lets face It most of us try to find a property that is down and out , (like this one) get a great deal on it and bring it back to life. I think Ill propose a lease option. In 3 - 5 years we refinance or sell and split the profit. 50/50 cap for him at $$1 mm. $10,000 non-refundable deposit. This is a long term project. I can still do other deals while I promote the Ranch. Im within 1 1/2 hrs of the property.
I KNOW that I can make money with the ranch and development is at the forefront of my mind. That all said , Nancy do you feel Im going in a bad direction? If he rejects my offer , which he probably will because Its so low. Ill be releived and move on. I have another project to post here really soon.
Thanks...Nancy

Instead of focusing on the property as a horse farm, I'd take a look at its potential for residential development, work some numbers and give the owner an offer, fully-contingent on getting all municipal subdivision approvals. I'd include a contingency for due diligence/feasibility--about 4 months. You might be able to up the number if the property is viewed in this context. Also, you can keep your options open. As somebody suggested, you might be able to combine development with the horse farm. But I admit, I can't help but think of that movie "The Money Pit" when I read your description of the property and business.