What's a reasonable rate of return if buying a gun range?

[Monkeyleg]

A little background: the land our gun club and range are on is owned by a disinterested party. She's been looking to sell the land ever since she inherited it from her late father.

It would seem that she now has a potential buyer who wants to develop the land. That would mean bye-bye to the range.

I approached a friend of mine who's always on the lookout for a new investment. I described the range to him, and he's going to meet with our club's president to talk about a possible deal.

It would take $375,000 to buy the land and keep the range.

So, what kind of annual return--in the form of dues, range fees, etc--would you think would be reasonable for him to pursue? I'm sure he has a number in mind, but I'm just trying to guess what would constitute a deal that's fair both to him and the club.

[Nathaniel Firethorn]

Not a direct answer to your question. But, if the range might get developed, consider that the land around it is likely to be on the block, too. That will mean eventual infestation by suburbatronic units who will try to force your range out of business and who may, for a time, have little better to do.

Two solutions:

1. Buy all surrounding land now;
2. Open the range next to a switching yard and a concrete recycling facility.

Cheers,
- NF

P.S. Re rate of return: All you really have to do is pay off a $375K mortgage. If you can do that within 15 years, keep the place up, and recruit new members, you're golden.

[Werewolf]

The below is a very simple analysis which does not take into account important financial criteria like inflation, varying interest rates, property tax rates, insurance rates, land values, cultural issues, risk of condemnation, etc, etc.

The below are assumptions. Adjust dollar values as necessary. The rate of return is a function of the number of members and who owns, insures and maintains the land. I assume the club will own the land and facilities and thus calculate a break even point that covers estimated annual expenses.

If an individual buys the land and runs the range his rate of return will be based on revenue which can come from a number of sources. I won't even attempt to estimate a revenue stream. If your friend is serious and is in it for the long term then the main thing to look at is the estimated future value of the land in question (assuming a revenue stream that will pay all the annual expenses).

For example the land value must appreciate to $1,674,444.87 in order for the individual to realize a 5% annualized rate of return on just the land purchase. Will the land appreciate that much in 30 years? Who knows. But that's just the ROR on the land and assumes that the individual can cover the mortgage and all other expenses from the generated revenue stream. If the revenue stream exceeds the annual expenses then that 5% will go up if not then it goes down. This doesn't take into account the owners time etc.
 
The club buying the land is a much better scenario as it dilutes risk.
Assume you've incorporated your club (a must)

Let's assume you can get a Bank to loan you the $375,000 at 5%:

1) Monthly payment to Bank = $2013.08=$24156.97 annual

2) Property taxes est at $3000 annual

3) Liability insurance est $10,000 annual

4) Maintenance est $2000 annual

5) Miscellaneous exp est $2000 annual

Total Annual Expense = $41,156.97

How many members of your club are there?

Lets assume 200 that means an annual expense per member of $205. Not unreasonable.

More members equals lower annual fees.

At end of 30 years the club owns the land outright. The benefits of that are too numerous to go into.

[Monkeyleg]

Thanks for the replies.

Wisconsin has a range protection act, so there's almost no chance that the range could be shut down by new neighbors in the subdivisions that are popping up all over. Besides, there's another range just 1000 yards away, and a trap range across a small lake from us.

There's only about 150 or so members in our club. That means that each would have to pony up $2500. Most of the members, including me, just don't have that kind of money.

The club has been leasing the land from the daughter of the former owner for several years. Obviously she must be getting enough from the club to pay expenses.

My friend likes to make money, especially big money, so I don't know what he'll be looking for. Right now he already owns a very profitable gun store, so purchasing the range is a somewhat logical extension.

There's other options on the table, such as having the Department of Natural Resources purchase the land, and then have the club lease it. However, the idea of getting the government involved frightens me.

Dues right now are just $45 a year, plus five work hours or an additional $25. The club runs IDPA and IPSC matches, as well as hunter sight-ins, that raise a decent amount of cash.

I'm just keeping my fingers crossed that my friend will come back with a deal that keeps dues at a reasonable level and keeps the club open.

[TarpleyG]

I'm with werewolf.  Get a loan and get you membership up to about 250 or so.  I'd pay $150-$200 a year for a private range, no problem.  Forget trying to buy it all in one whack, just doesn't make sense unless you have a member that have a lot of cash and are willing to loan it to the club.

Greg

[Nathaniel Firethorn]

Monkeyleg, PRNJ has a range protection act (believe it or not!) but ranges are still getting killed by the McMansionites. The mechanism is simply to hire an attack lawyer, sue, and repeat.

Oh, yeah, there's a third solution: Put "Police" somewhere in the name of the range.

- NF