Memo From Frank
August is the last official month of summer, and temperatures can be brutal. There are many investments that have a rough time in summer, such as apartments, where A/C systems can die from extreme temperatures, and water bills skyrocket. Summer is one of the months where you have to appreciate the operational simplicity of the billboard. Regardless of the weather, it keeps on making money and requires no maintenance. It stands in the bright sun without any shade, and 100+ degree days have no impact at all. The other day in Phoenix, the planes could not take off because it was 120 out. Airplane A/C systems collapsed due to demand, and tires melted. And all those billboards on the roads of Arizona kept on making money without any problems at all. So when you can’t believe how hot it is out, remember that thousands of billboards are taking that weather in stride.
How To Retire On 10,000 Pounds Of Steel
The typical billboard weighs as much as five automobiles. But unlike five cars – which you may have in your driveway – this pile of steel can fully support your retirement. So how can a single billboard make enough income to pay your bills?
Giant numbers from giant signs
The truth is that there are many types of billboards and they all create different income streams. Basically, the bigger the sign and investment, the bigger the net income it can provide. For example, a large steel monopole sign can rent for $10,000 per month per side in Chicago, or $5,000 per side per month in Dallas. Either way, assuming an expense ratio of 40%, they would provide an annual income of $70,000 to $160,000 per year – and that’s astounding.
The importance of strategy
To build or buy a billboard with that type of potential, the key is strategy. Like a chess player, you need to use your brainpower to position yourself into the right spot. For most people, there are two key strategies to act on. The first is to buy or build billboards “ahead of the curve”, which means to foresee the path of development and be in position while the general growth of the market envelopes your location. For example, Dallas only grows north and smart billboard operators build or bought signs in northern rural areas at a low cost before the general growth had the revenues go up exponentially. The other trick is to deliberately identify and search for those opportunities to find billboard positions that others have given up on, or don’t even know exist. In Dallas, there’s a road called Stemmons Freeway that everyone assumed was deed restricted against signs. However, a smart billboard owner searched the deeds of all the properties fronting the expressway, and found that one of them had not been under that covenant. That sign is immensely valuable – enough to support two people in retirement.
Using leverage as a tool
Big steel signs like this can cost $75,000 to $100,000. But that’s possible using the concept of “leverage” which basically means bank debt. Using conventional lending standards, a borrower could potentially build or buy a $100,000 billboard for roughly a $20,000 down payment. Sensible leverage is a way to get into higher-producing signs when you cannot afford to pay for them in all cash. It’s been a standard feature of real estate since John Jacob Astor invented the industry in the 1700s.
You only need one
Giant signs have a unique feature: they produce giant income streams. As a result, while you might need a small portfolio of smaller wooden signs to retire, giant signs offer the potential to retire on just one billboard opportunity. This allows you to be very selective and move at your own pace. It’s not a race, it’s an adventure that can have a terrific ending.
Given the right location, you can indeed retire on just one billboard. But you have to use skill, strategy, and probably leverage to pull it off. But it’s worth the effort, and can change your financial picture overnight.
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The Story Of The “We Buy Ugly Houses” Billboard
I have rented billboards to thousands of advertisers, but none more famous than Ken D’Angelo and Homevestors. Ken founded the company in 1989, and grew it into a national powerhouse in the home flipping business, franchising units since 1996. Virtually every American is familiar with the “We Buy Ugly Houses” tagline. But what few people know is that I was the first person to ever put up a Homevestors billboard. And I was very nervous about it. At that time, Ken had just opened his first office, and it was just a cheap executive suite. I had a meeting with him, and I had serious doubts that he could pay his bill. Here was a guy that had some crazy idea about buying ugly houses, and obviously didn’t have a lot of money to back up that concept. The only reason I went with the ad was that I didn’t have another advertiser ready to sign up. For the first few months, I had to stay on him pretty regularly to pay the invoice. But after a while, his concept must have taken hold and there were no further problems. I never really thought much about it, until I got a call from a magazine years later that was doing an article on Homevestors’ early roots, and wanted to know about that first billboard. It just goes to show that you can never really predict the future of your advertisers – some of your biggest doubts may be the next Facebook.
The Qualities That Make Certain Signs Epic
Not all billboards are created equal. Some are downright spectacular. They are the superstars of outdoor advertising. So what qualities make a billboard one-of-a-kind?
One of the best traits that any sign can have is “head-on” visibility – that curve in the road that makes the sign sit in the viewer’s windshield for a long, long period of time. While most highways have long straight-aways but they almost always end in curves, and those are the most desirable part of the road. When you can see a sign before you can even read the message – and it stays visible right up till you pass it – then that makes the sign worth more to the advertiser. It’s kind of like a measure of how much time the advertiser has to convince you to buy their product.
Scarcity of supply
There are some markets in the U.S. where billboards are an extreme rarity. Their zoning just doesn’t allow them, or they have some highly restrictive ordinance that makes finding legal locations nearly impossible. In these type of markets, that lone sign is hugely valuable, as it has a virtual monopoly on all outdoor advertising in the market. That makes it extremely valuable and sought after by all advertisers.
I learned this lesson with my giant 120’ tall sign in Garland, Texas – advertisers get really excited by super tall signs. Not so tall that you have to crane your neck to read the ad message, but signs that stand above the rest and are clear of all obstructions. Often this is made possible by a geological freak of a hill or mountain along the highway that gives you an advantage (since most states restrict sign height to around 50’ overall).
Free of clutter
And speaking of being above the clutter, landmark signs are free of all clutter, in general. The best of these signs are in areas where the powerlines are underground, and the premise signs are few and far between. In a world of competing ad messages, it makes the customer even more interested if they have the complete attention of the viewer.
OK, this is reserved for the crème de la crème of billboards – having a setting that is amazing. When your billboard is framed by a panoramic view of downtown, or a beautiful mountain pass, it makes the sign take on an additional dimension that screams “hey, I’m one of a kind”. I was always zealous of the billboard in Dallas that was right in front of downtown on the freeway, so you had this impossible view of a billboard that was perfectly framed and centered in front of the downtown landmarks.
Some signs are epic. When you see these traits, you should put out extra effort to obtain those ground leases. These are the opportunities that can make a huge difference in the ad rents and net income, and are the best of the best.
How The Offset Made Billboards More Permanent
Most of the billboards from the 1920s to 1950s are gone. They were torn down for development. That’s because they were multi-pole structures that had no offset possibility. The modern offset has made billboards – in many cities – possible, and permanence a reality.
What is an offset?
An offset is when the monopole goes straight up and then takes a right-angle bend far enough that the pole can be right on the property line and yet not overhang the neighbor’s property. Prior to the invention of the offset, the billboard had to be about 10’ to 20’ inside the property for the sign not to hang over. And, of course, that made any future development of the property force its removal.
Picking spots that can never be re-developed
So with the advent of the offset, the billboard owner could suddenly go on a quest to find those locations that were beyond any future development potential. Smart sign owners began researching what portions of each property were off-limits to developers, as far as setbacks or natural obstructions. That’s why you see so many offsets built next to ravines, or dumpster pads, or areas that fall within the building set-back line.
Staying out of the way of what’s under the sign
And there’s more to successful billboard placement than staying out of the way of future development – you also have to stay out of the way of current property operation as far as what’s being done on the property. For example, your pole can’t block a road or parking space, or be right in the middle of a bay door.
The ability to create permanent easements
One interesting byproduct has been the creation of the concept of a “permanent easement”. These are situations where the land owner sells the property, but maintains the billboard income for an eternity. To accomplish this, they declare where the sign sits as an easement, and they get paid on the easement for as long as the sign stands. This was not possible in the days before the offset, as there’s no way somebody would buy a piece of land to develop and lose the ability to build on it. But by keeping the sign in an out-of-the-way area of the tract, it opened the possibility for development and the billboard to happily co-exist.
The offset has been hugely valuable to the outdoor advertising industry by allowing the billboard to stay completely free from property disruption – both current and future. It has made the billboard a permanent fixture instead of a temporary use of land.
Are You Leaving A Legacy To Your Kids?
Do you ever think about what you’re going to leave to the next generation? How you’re going to give your kids and grandkids a leg up, and a start on a solid financial future? If you ever think about this issue, you might consider building and/or buying billboard signs as the mechanism to achieve this. So why are billboards a good legacy to leave behind?
A lifetime of income
In the world of finances, nothing is as important as regular monthly income. Raw land is great, but you can’t eat it, and it’s very illiquid. Billboards get monthly rent which, after subtracting expenses, goes straight in your pocket. And advertisers pay rent every 30 days. In addition, unlike oil wells, the income never goes down or goes dry.
Nothing makes for having confidence more than knowing that you can survive any bad life event. Financial security gets a lot of talk in the U.S., but the most recent stats were that 70% of Americans do not even have $1,000 in savings. To counteract that, it’s great to leave a legacy of some significant money in the bank. Billboards offer both. They have monthly cash flow, and are also valued as financial instruments, which means they can be sold or borrowed against.
Freedom of time
Time is money, and a great legacy is one that takes little time to administer. Billboards only get rented once or twice a year, and everything the management entails can be performed on nights and weekends. Billboards are one of the best investments in America regarding time – they require very little.
A huge example
The textbook example of using billboards as a legacy is the example of Ted Turner. Many people know him as the inventor of CNN and the Turner Movie Classics network. But they don’t know that his business career began with the inheritance from his father of a portfolio of billboards. In his biography, Turner said that he soon "discovered that the billboard business could be a gold mine, a tax-depreciable revenue stream that threw off enormous amounts of cash with almost no capital investment". You can’t get a better endorsement than that.
If you want to leave a great legacy to the next generation, then consider a portfolio of billboard signs. They provide monthly income, are recession-resistant, and offer liquidity in the event of emergency. You can’t do any better than that!
The American Passion For Billboards
Why do Americans love billboards so much? Perhaps it’s the colorful, nostalgia that messages of long ago evoke. Or perhaps it’s the longevity of billboards – particularly old, rural ones – that people find comforting. Or maybe it’s the fact that each billboard your pass on the highway holds the promise of something interesting to do at the next exit. But the bottom line is that all Americans find billboards attractive in their own right. Years ago, groups such as Scenic America tried to convince people that billboards were ugly and should be abolished. But their initiatives never went anywhere as the average American would completely disagree. Probably everyone that owns a model trainset owns a model billboard, and every man-cave has an old advertisement hanging on the wall. It’s a part of who we are as Americans, and it’s never going to change, despite any political effort.
Which Sign Is More Profitable?
So here we have – in one photo – two very different billboard structures. One is a standard sign, and the other is a “wallscape” affixed right to a wall. So which is the more profitable unit?
Wallscapes have lower revenue – they only have one side
Your first guess is correct, the wallscape has lower revenue because it can only have one side by definition. So the standard billboard has twice the potential revenue as the wallscape. That’s simple arithmetic and nobody can dispute that fact.
Wallscapes have about the same operating costs
Although the wallscape has lower revenue potential, it doesn’t make up any ground on operating costs. It costs the same to hand the vinyl and run the lights. The ground rent is roughly equivalent. The same repair issues pop up. So the two signs are tied on that front.
But the Wallscape costs a fraction of the construction cost
But here’s where the wallscape starts breaking away – it costs a fraction as much to build as the standard sign. Like roughly 80% less. So even though it makes less revenue and has the same ratio of operating cost, it creates an income stream on much lower capital investment. For example, if the standard sign has revenue of $4,000 per month and an expense ratio of 40%, coupled with a cost of construction of $80,000, then its rate-of-return is about 36%. But the wallscape has a revenue of $2,000 per month, a 40% expense ratio, and a total cost of $10,000, which yields a rate-of-return of 144%, which is roughly 4 times higher!
The Wallscape wins -- maybe
Based on strictly economic metrics, the wallscape is the clear winner as far as a profitable investment. However, there are other issues to consider. Once the debt is repaid, the standard sign earns twice as much. Additionally, it’s a lot harder to find a legal wallscape location than an average sign. But the lesson learned is that the cost of the structure is a big part of the overall economics, and that’s what wallscapes deliver – a lot of sign for a low price.
The cost of the sign has a significant bearing on its total economics. That’s why wallscapes are so popular, as well as abandoned signs that you can buy cheaply, 8-sheet signs and wooden signs. It’s hard to go wrong when you have very little in the sign structure.
The Benefits Of Gifts To Advertisers
This is a miniature billboard that was given by a sign company to the advertiser, in this case a fur retailer. It sits proudly on the shelf in the sales area. So is giving away these type of gifts to advertisers a good idea? The answer is “yes” for many reasons.
A reminder of what they’re paying for each month
Billboard ad leases are very long term – normally a year long. As a result, the advertiser has to write you a check every month, although they may not see you again for a year. Like everyone, advertisers need affirmation that they made the right choice in renting the billboard, and these miniature displays help reinforce what they’re getting when they write that monthly check.
A conversation piece that’s good for you
Let’s assume that another business person goes into the fur store and sees this miniature sign. They may think “since they’re doing a billboard, maybe I should” or “wow, I didn’t know you could do an ad like that on a billboard – what could my business do”. But no matter what they think, it’s good for your billboard company.
It gets a head start on next year’s advertising design
These miniature displays are a great source of conversation for the next rotation of the ad display. People will throw out suggestions, so that when it comes time to change the ad out, the advertiser already knows roughly what they’re looking for. One of the big frustrations is when you ask the advertiser “so what do you want on the sign” and they say “I don’t know”. These miniature idea starters get the advertiser thinking about the next design every day.
Giving miniature signs to your advertisers is a great idea. It’s not expensive, and yields big rewards in customer satisfaction – it can even improve your business and create new advertisers for you. That’s a win/win in our opinion.
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