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FREQUENTLY ASKED QUESTIONS?
- How do I go about buying a golf course?
- What kind of financing can I get for a golf course?
- How do I determine a fair purchase price for a golf course?
- Should I hire a management company?
- How do I select a golf course management company?
- What kind of management deal should I make?
- Where is the best source of information about the golf course industry?
- What can a consultant do to help me?
- What costs can I expect if I buy a $5 million dollar golf course borrowing $3 million?
How do I go about buying a golf course?
The first thing is determining exactly how much cash you have available to buy a golf course. Keep in mind that you'll need money for closing costs, legal fees, lender's points, inventory adjustments, license renewals, utility deposits and a dozen other expenses you will encounter after the closing.
As a starting point, I suggest you have the equivalent of 33% to 40% of the purchase price of a golf course available in cash. I said cash! This will allow you to purchase a golf course worth up to three times the cash you have on hand. If you've got $1million handy, you can probably buy up to a $3 million dollar golf course. Of course, the golf course would have to show a minimum of $300,000 in net earnings to be worth $3 million.
The second thing is to be open to acquiring a golf course in almost any location. If you geographically limit yourself too tightly, you may find it difficult to make the best deal for yourself. Too many potential golf course buyers are looking within a few miles of their home. The fact is, the best value for you may be 1,000 miles away. Are you prepared to move to buy the right golf course?
Click here for more details about buying a golf course.
What amount of financing can I get for a golf course?
Finance sources value a golf course primarily on cash flow history. A golf course showing no earnings will not have good luck getting financed unless the borrower offers other sources of collateral to the banker. The lender will base its comfort level on a debt service ratio (DSR), which is the cash flow available after all operating expenses divided by the annual debt service. The lender will consider the quality and condition of the property, and things like location, strength of income history, appraisal, etc. The experience, skill and risk of the buyer will also be considered. A comfortable DSR established by the lender, usually no lower than 1.25 to 1. Therefore the $3 million golf course earning $300,000 a year could qualify for an annual mortgage payment of as high as $240,000 (300,000 / 1.25 = 240,000).
Therefore, an experienced golf course buyer could borrow up to $2.6 million at 8% over 25 years on our $3 million dollar golf course.
How do I determine a fair purchase price for a golf course?
It is hard to set a price on golf courses, because they are all so different from each other. The variables are endless. However, the best way to set a fair price for a golf course is based on its income and earnings. It is this gray area where inexperience can cause buying mistakes. Usually the income side of the statements can be clearly verified, but the expenses side needs study by an expert.
Too many golf courses try to show high earnings to command a higher price for the property. What cannot be seen by inexperience are hidden maintenance insufficiencies and shortcuts that result in a perception of higher earnings. There are formulas to find the 'real' costs to maintain a golf course and they need to be applied to the subject. If reasonable maintenance costs are higher than shown on the subject's financial statements, the property is probably not really earning what is says. Therefore, it is worth less.
Once you've determined the real cash flow of a golf course, you can base a price on a multiple of net earnings - usually from six to ten times earnings. We priced the $3 million dollar golf course mentioned above at ten times earnings: 10 X $300,000 = $3 million.
Should I hire a management company?
Unless you have lots of money, lots of experience, or both, you need to hire a source of experience to help you learn to operate a golf course. I consider daily golf course operations as an endless series of decisions. When I'm in the manager's seat, I make most of these decisions almost without thinking because of my 45 years of experience. Many decisions cannot wait for consultations with a far-away source, nor can they be put off to another day. That's why you need experience at your fingertips during your first few months as a golf course owner. Whether it's a manager or management company depends on the magnitude of the project. If you are acquiring a country club with tennis, swimming, fitness center and an emphasis on food and beverage, you may want a management company for their experience and available trained personnel. However, I cannot believe a $3 million dollar golf course with an owner-operator on site needs a management company. An experienced club manager may do.
How do I select a golf course management company?
Selecting a management company is like hiring any individual. You want to be sure you're getting the right element for the job. I don't recommend hiring management companies who also own their own golf courses, because you'll always become the second fiddle in a crisis. Make sure they have a track record, and be sure to interview their current and former clients. Make sure they have a full scope of golf course operation experience including inside the clubhouse and out on the golf course.
You would be smart to use your consultant to help you find and hire a golf course management company.
What kind of management deal should I make?
Do not enter a management contract where the management company's fees are not at least partly based on performance incentives. Don't pay a management company strictly on the base of gross revenue, and never more than 6% of gross revenue. Don't rely on any of a management company's equipment or machinery. Make sure you have everything you need to maintain and operate your own golf course. Never let a management company take any of your equipment off the grounds, because some will borrow yours for their own courses if they can. Keep all your records and record keeping equipment on your property where you can inspect them at all times. Make sure a contract allows you to remove the management company including all of its personnel and affects from your property at a moments notice without reason, subject to cancellation fees.
Where is the best source of information about the golf course industry?
The National Golf foundation (NGF) is my choice of the best-unbiased information about the golf course industry. Their web site is www.ngf.org.
What can a consultant do to help me?
If your consultant has experience in all areas of golf course operations, you will have help and guidance in all the decision processes. After all, that's all you really want. Unless your consultant has worked in golf through at least one generation, I suggest you're not getting enough experience.
I am a consultant with 50-years experience in golf. I have run golf courses, planned golf courses, designed golf courses, sold golf courses, and bought golf courses. I've been a golf teacher and a licensed superintendent. I've financed golf courses. I have conducted feasibility studies, completed diligences, supervised ownership transitions, and prepared dozens of business plans for golf courses. I've operated food and beverage operations, pro shops, practice ranges, and golf retail stores. I have accomplished several successful golf course turn arounds. When I have full cooperation of my clients, I have never had a failure.
What costs can I expect if I buy a $5 million dollar golf course borrowing $3 million?
The answer to this question can be found at the "FREE! MIKE KAHN'S GOLF COURSE BUYER'S MANUAL" page. Have a paper and pencil handy to do your own calculations.
