Billboard Mastery Podcast: Episode 18

Finding The Capital To Build Or Buy Billboards

Even though they’re relatively inexpensive compared to the other sectors of real estate investment, it still takes capital to build a billboard or buy an existing one. So how do you get the money to get your dreams off the ground? In this Billboard Mastery podcast we’re going to review various ways to obtain the capital to start your billboard investing, including how these loans can be structured.

Episode 18: Finding The Capital To Build Or Buy Billboards Transcript

There's an old saying that you need money to make money, and it's partially true. But billboards give you the opportunity in some formats to make money with no money, obtaining leases and permits and selling those off. But if you want to buy or you want to build a billboard, there's no question it will require some form of capital. So how do you get that capital? That's the focus of today's Billboard Mastery Podcast is all about how to find the capital to find and build billboards.

Let's start off with the first source, the easy one, the obvious one and that's your own capital. So if you have some money in the bank you can definitely jump into the game. Lot of options you can do at prices that are substantially lower than any other form of real estate. You can buy old, abandoned signs, old eight-sheet signs, various signs like that for as little as $500, $1000, and you can build wooden telephone pole signs typically for about $2,000 to $3,000. And then of course the price can go up substantially if you get up into the monopole signs. Those can be $50,000 or even $100,000. But again, most people have some money laying around - checking account, savings account, somewhere. So even if you don't have a lot of money you may well have enough capital to get into the billboard game.

But what do you do once you've exhausted your own capital? That was the easy answer is the money you've got. But what else can you do? Well the next thing you can do is friends and family money. What's friends and family money? Well, just that. Your parents, your grandparents, somebody that you know who wants to invest in something new and different that actually makes a good rate of return. So how do you structure those loans? How do you work with a friend or family member? Well, you tell them what you're trying to do. Trying to invest in billboard signs. Tell them exactly what it will cost. Tell them that you want to see if they'll invest the money, invest in you, loan you the money to go ahead and buy that sign or build that sign, or build or buy a group of signs. What they're going to want to hear is a couple items. Number one, what they get as far as a return on their money. That's often called a preferred return. Now, it can be anything you want. There's no law on it, it's fully negotiable. A lot of times a preferred return on a friends and family loan might be you know 6% to probably 10% interest on the loan. Then they should also get a split of the profit. Again, that's completely up to you how you put that together. It might be 50/50, it might be 30/70, 60/40, there's no law on that, it's whatever you can negotiate.

So the way it works is if you have friends and family money, they put in the money. Let's say they put in $10,000 and let's say the preferred rate of return was 10%. So for their $10,000 you pay them back $1000 a year in interest, and then they also get a percentage of the profit that the sign generates. Of course, they're still owed the $10,000. Now if you want to get it where they put in $10,000 and you pay them $1000 each year, and ten years later you owe them nothing, that's between you and them but typically that's more of a family situation where the person is not trying to make any money. The average person is going to need interest because if they put that $10,000 in something else- a CD at the bank, a treasury bill, a stock, a bond - they would get a rate of return and still get their $10,000 back.

Now the next option would be a self directed IRA. That's another function of friends and family perhaps. So what you have here is you've got people who have kind of patient money through IRAs. Many American's have IRAs. IRAs are very prevalent as an investment vehicle, but it's very patient money because people can't use their IRAs until they reach a certain age. As a result, people can't tap into those for typical things they want to do. So it's what they call very patient money. It's money that's there. They can't utilize it. There's a set timer at the end based on their age before they even have access to it. And they're just trying to get a good rate of return, so it's back to friends and family again, but it's an option they may not think of which is would they want to invest part of their IRA into billboards? Now you can't invest an IRA into billboards but you can invest a self directed IRA into any number of investments of which, to my knowledge, billboards are fully allowed. Not allowed to invest with art or collectibles with an SD IRA, but that's about the limitation. There's a handful of items. Read how SD IRA laws work before you do it, but people can typically convert an IRA to a self directed IRA at a price of around $500, which is not that much money. Since it's very patient money people are more than happy to invest in new and different things just in search of a return. Many things out there today don't pay a very good return. CDs only pay about 1%, treasuries pay about 1-2%. That's less than the rate of inflation, so if you can offer them something that pays say 8% then that's about 8X more per year than a CD would make. A self directed IRA, an SD IRA, is one more option of friends and family investing.

Now let's move onto the next option which is to get a bank loan. So how do you get a bank loan to build a billboard? Well, it can be somewhat difficult, but it can well be worth the effort. Let me tell you about my first billboard loan. I went to a small bank in Dallas to get my first billboard loan. I went to a loan officer at the bank and explained I was going to start building billboards, and I explained to him the value of the billboard, and why it was a good thing for the bank to make a loan on because when I built that sign, the various parts of that sign had value. And the value of the sign when I got it done was more than the cost of the parts. So I would explain to them if I would have built a sign for $10,000 and rented it out, that sign as an income property might be worth $20-, $30-, $40-, $50,000 but they were only going to finance $10,000. I must have been good enough at explaining it to the officer, he decided to give it a whirl. He thought he would do one small loan just to see if I could make payments on it, which I did. So as you can imagine I went back to them and I did it over, and over, and over again. I did it over again so many times I eventually exceeded the entire bank loan limit of the bank. The bank back then had a loan limit of about $500,000 and over the years the total sum of my debt exceeded $500,000. All done in little increments of one sign at a time. Really, really shocked the loan officer of course. He never dreamed it would grow to that big of an empire. So ultimately when I exceeded that, I had to go find another bank, a bank that could give me an even larger loan limit. Kind of like living on a charge card, I had to change over from a Visa to an American Express card. Once again was able to pull it off by simply explaining to the bank how safe their money was, because every time I bought or built a sign the value of that sign was far in excess of what I was borrowing from the bank so there was really no way I could lose. And in the end, I was completely correct. Never missed a payment, they made plenty of money. They were very, very, very happy.

 So if you've never done a bank loan, it's not a bad thing to do. It really sharpens your skills. Makes you really hone your business plan. Teaches you a lot about talking to people and the great thing about banks are once you get in the door, once you've gotten a successful loan going they're kind of easy to do more with. You see, a lot of banks what they like to do is they like relationships. They like to get to know borrowers. They somehow feel a borrow that they know well is a lot better than the one that they don't know, so a borrower in hand is worth many borrowers in the bush. So it's well worth your time to get that relationship going with a bank. I will tell you if you're going to do it, do like I did. I would go to a small bank, once that only has maybe one branch or a couple branches with a small banker who's a lot easier to get to know, and a committee that's more open to doing crazy things. You will not have that success if you go to a big bank because they'll say they don't want to get involved in billboards. Besides that, one of the problems with billboards is since they don't cost a lot of money it's hard to really attract larger banks who like to make really, really big loans.

Now, the last item as far as to get capital and do billboards is only if you wanted to build a giant portfolio, and that is a Reg D 506. This is under the JOBS Act, which stands for Jumpstart our Business Startups. Started under the Obama Administration, it allows you to underwrite really large capital raises. You also may know if this concept as crowd funding. It's an exemption through the FCC to the securities act of 1933. It's really fascinating stuff. If you've never looked at it, you might Google Reg D 506 or the JOBS Act. They're not cheap however. To do a Reg D is going to cost you about $15,000 to do it. But for that $15,000 you might be able to go out and raise millions of dollars of capital. There is a huge amount of American business today that the capital comes from Reg D 506, even though they didn't exist not that long ago. So it's definitely an interesting route, but only if you're trying to really grow gigantic. If you're not going to be a gigantic portfolio of billboards, it's probably a whole lot easier to stick with friends and family, and bank lending. But if you want to go the extra mile, if you want to build something huge, then a Reg D 506 is probably the best option.

The bottom line is there's lots of different ways to get capital to build signs if that's what you're trying to do. Don't be shy. Put together a business plan. Talk to people. Typically, you're going to find the capital you need and the capital is what is going to jumpstart your career as a billboard investor. This is Frank Rolfe with the Billboard Mastery Podcast. Hope you enjoyed this. Talk to you again soon.