When you think of a billboard, what do you think of? Most people think of an iconic sign in Times Square, while others think about the clever ad they saw on the freeway. But what most people don’t know is that a billboard is a financial work of art: a high-octane performance machine when it comes to making money. In short, billboards have the highest rates of return of any real estate sector.
So how high is it?
There are billboards that generate 50% to 100%+ per year on investment. That’s phenomenal. Here’s an example from a billboard I owned. I bought it for $1 as an old, abandoned wooden billboard structure, and put another $4,000 in it. I rented it on one side for $1,000 per month, and the other for $400 per month. Net of all costs, this sign generated around $12,000 per year. That’s a 300% annual return on investment. No other sector of real estate can even come close to these levels of return.
Low cost of construction and acquisition
Billboards come in many price points. Most people think of the steel monopole structures that are found on most American interstates, which are expensive and can run $50,000 to $100,000. But there is a whole different level of billboards that most people don’t know about, and those cost $1,000 to $5,000. And this less expensive grouping are the true high-performers in the world of billboards.
Reasonable ground rent
The initial reason that billboards have such high rates of return is that ground rent is so low – and that’s the single largest cost on a billboard’s expense statement. The U.S. average ground rent on a billboard is 15% to 20%. That’s a pretty reasonable amount. For just 15% to 20% of revenues, the landowner provides the ground space, access, and freedom from obstruction. That’s a good deal.
Low operating costs
Billboards have few moving parts. As a result, they have very low operating costs. The only expense items are ground rent, electricity, installation of the advertisement, repair & maintenance and taxes. That’s only a few checks per month. As a result, the normal expense ratio on a billboard is around 40% or less.
Solid revenues even in a recession
Another interesting feature of billboards are the fact that they maintain solid occupancy in good times and bad. The reason is simple, yet most Americans do not realize why. Billboards have the lowest cost per thousand exposures of all advertising media (also known as “CPM”). Since they are the cheapest, they remain in demand even in recessions, kind of like the Dollar Store.
Easy to negotiate when nobody knows the real numbers
So how can billboard owners get away with garnering such high levels of return? Simple answer: nobody knows how much money they make. Billboards are well-known to be one of the most overlooked industries in America. Property owners, if they knew what billboards made, would require drastically higher ground rent. But there are no classes in high school on billboards, and most property owners don’t have a clue as to their profitability.
Conclusion
Some billboards have extremely high rates of return. They far outstrip any other sector of real estate. Most Americans would be shocked if they realized how much those wooden signs, 8-sheets and wall-mounts generate.