On the topic of debt

[Gary_in_Indiana]

Dave, your philosophy is very much like mine was a few years ago. The change in mine now is that I don't have anything that falls into the "Acceptable Debt" category any more. I'm not saying I won't ever again, but right now I just don't.

One thing I'd mention about your theory of always maintaining an equity position on your "Acceptable Risk" purchases is the strong potential for values to change in a changing economy. The odds are probably pretty good that if you lose your job others are losing theirs, too. That diminishes buyers while increasing sellers of assets like yours. The economic result is that the market price then falls. It could well fall to the point where what was an equity position is no longer. That's why I like zero debt on those kinds of things. Even at salvage value, I still have equity if I need it. It's in areas like this where I'm becoming much more conservative.

 

[chim]

I agree with striving to be debt-free, with the exception of investments. Investments don't include tractors, cars, etc. unless they are a legitimate business expense. If we can afford to make payments, we can afford to put them into a savings account till we have enough cash for the purchase.

Time is the other thing I find myself needing to address now that I'm getting older. When I was young, I had all the time in the world, but not much money. Found myself getting bored sometimes. A weakness I need to fix is not being able to "Just Say No". This doesn't relate to drugs and such. It is regarding my time. I really enjoy helping others, and that is a big part of it. Why shouldn't I get involved in things that I can be a contributor? I can't just say "The heck with" this or that, but I do need to be more selective in where I spend time. Seems like some of the things I should be doing around my own place have fallen behind at least in part because of what I've been working on elsewhere...............chim

 

[Alan L.]

Debt can be a good thing, and a bad thing. Its hard to get ahead in business without using debt to leverage your funds available. And using debt can allow you to control more real estate and get a better return.

As for personal debt, if you can buy cars and tractors without borrowing any money, then you are in the minority. Some can't, but does that mean they shouldn't? However, using credit cards for personal purchases and not paying them off can be financial disaster.

I've never found any land that can be rented for anywhere near the debt service. Improved real estate yes, but land no.
However the fact that you have debt and negative cash flow on a good land investment doesn't make it bad. Debt can give you the opportunity to make money.

If you have a business and you refuse to accept any kind of debt, your might severely limit your chances for success.

 

[Anonymous Poster]

I firmly believe that a low debt load is why my partner and I continue to stay in business. The only debt we have is a contract for deed type arrangement with the man we bought out, and the building payment. We own all our equipment, and parts inventory. There is one other area where we carry some debt, that is up for debate what is the smartest move. That is an area that you will know all too well; our floor plan. I tend to believe it is wise to puchase machines with incentives, and floor the rest. My reasoning is that when times get tough, it is hard to pay the bills with a 660 Grizzly. I guess ultimately it would be smartest to own the machines outright, but there's also the little matter of coming up with half a million bucks. By the way, we just took delivery of a 2003 F250 diesel. We do quite a bit of driving to get product from other dealers, and we needed a dependable work horse. (We saved up the bucks to pay it in full upon delivery).

 

[DUMBDOG]

Do you do your flooring with the company's sponsored floor plan companies or do you go through the local bank?

 

[Anonymous Poster]

We floor through Yamaha's bank, because they almost always have some sort of incentive that makes them favorable, even to lower interest deals. Typically they will offer a certain grace period (30 days up to six months) before charging interest, which is, needless to say, pretty nice. Often they will offer a discount on the machine if you pay it off immediately. Local banks can't do that either.

 

[DUMBDOG]

Years ago, when I used to sell Yamaha's, the rate of the flooring companies was quite high after the grace periods and we would flip them over to the banks. This did have some risks as sometimes they would come out with a program on the items that would flip. Of course that was in the days when some motorcycles or snowmobiles used to have birthdays on the lot. Hopefully times have changed since then.

One of the happier days is when they pulled the franchise on us and we were able to sell back all of the parts to them. The obsolete parts allowance was kind of crappy compared to the auto dealers.

 

[Anonymous Poster]

Nice to met someone with a similar background. So, you managed to say the words that make my blood run cold. "When they pulled the franchise on us". Is that too painful of a memory to elaborate? If so, at least tell me what years you were a dealer. Yamaha was pretty much suckin wind in the eighties. The company went through some restructuring in the 1990's, and is really a market leader today.

 

[DUMBDOG]

Bought into a HD dealership in 1982 and at the same time we purchased a Yamaha-Kawaski-Suzuiki-Bolens-Mariner dealership. Bad timing is all I can say.

Sold 61 82 550 Maxims in 83 in six weeks.

The economy around here was really in the toilet about that time. Closed the purchased dealership in 86 and combined with the HD dealership.

Yamaha yanked the franchise in 97, granted we were not selling what they thought we should have been selling, but it was nice getting rid of all the old parts. The only competing brand that we were selling at the time was Kawasaki.

Yamaha still does not have a franchise in town here, trade area here is about 100,000 plus.

My partner got greedy and bought me out in January of 99, so that he could cash in on the HD name and sell out. He just sold out for a few million. That is the bad of being a minority partner. I did all of the work and he went water skiing.

Thus my new profession of commercial rentals.

Looking back, I guess I would not trade the experiences that I have had for anything, but it was a lot of headaches and worrisome nights.

 

[Anonymous Poster]

When I was talking to my uncle about my business plans (prior to actually jumping in), I asked him if he had any advice. Since he was CEO of LaMarche industries before he retired, I expected a many faceted answer. With all his business experience he offered me one nugget; choose your partner wisely. I sort of thought "boy, thanks for all the wisdom". I've come to understand his wisdom after all of the battles I've had with my partner. We always manage to work things out somehow. Thanks for the chat, and best wishes on the rental business. Didn't mean to steal your thread away Gary.