Buying a Ranch That Creates Cash Flow
By: Jim Taylor
Some years ago a client who prefers to go unnamed told me something to the effect of “I really would love to buy a beautiful ranch in the American West, but you know, Jim, it really must wash its own face.”
At that time, he and his wife represented a relatively rare breed in the marketplace for Rocky Mountain ranches. The average ranch buyer in those days was typified by people like Ted Turner, who was tearing out interior fences and restoring the landscape for indigenous species such as elk and bison. Others were focused on improving trout streams as private fisheries for themselves and their guests and preferred to limit cow numbers – to protect riparian habitat – and thereby income.
“Washing its own face” refers to the ability of a particular holding to produce enough cash flow to cover its own expenses. Basically finding and buying a ranch that can pay for itself. In practice, many owners, who use their ranches extensively for their own personal pleasure, do tend to segregate those personal expenses. In these cases, the ranch is not required to cover its own expense.
We believe that the recent recession has not only created a “new reality” in terms of land prices, but it has also created a new reality in terms of buyer motivation. Much of our sales volume in the last couple of years has been comprised of operating ranches and farms that will do more than just wash their own face. Increasingly, this has become an expressed requirement – particularly as investment-quality rural real estate has become a legitimate asset class.
Our management group currently manages over one million acres and has seen a growing demand for their services because of our approach. I asked Jerome Chvilicek, the most senior member of our management team, how he has seen our management business evolve over the years. He stated “We have always taken a down to earth practical approach to control expenses and to try to make ranch operations cash flow. The difference is that we now have many more clients who appreciate this.”
He feels that the two most critical components of any ranch management plan are the hiring of a top quality manager and implementing a tight and sophisticated cash flow budget system that separates the ranch operation from the owner’s personal budget. “High commodity and cattle prices are beginning to make “face washing” a lot easier” – Wes Oja.
This change in orientation is most obvious with Ted Turner’s ranch operations where both elk and bison, once considered a vital part of the scenery, have been converted to major cash generating crops. While Turner’s operating numbers are not public, it would seem he is now running a very successful business. Other examples of people who bought beautiful ranches and insisted that they wash their own face are individuals like Craig Barrett, former CEO of Intel, and Jim Manley founder of Atlantic-Pacific Capital, are also examples of ranch owners who have managed their properties to wash their own face. Craig has turned his Triple Creek Ranch into one of the most popular resorts in the world. In an amazingly short amount of time, Jim has made his Rock Creek Ranch into a wildly popular ranch resort operation.
Whether it’s cows, bison or human guests, we feel that “washing its own face” or buying a ranch that can pay for itself is a trend that is here to stay. It goes without saying however, that there will continue to be an active “private retreat” market where the cows and bison are few, the scenery and wildlife are sensational, and the “two-legged” guests are by invitation only.