They say that for family owned businesses, the third generation is when the true business test happens. I was reading a biography of some successful businessman, and he mentioned that the founder of the business, the guy “actually swinging the pick in the ditch” often passes along his business empire to his children.
Then, those children typically saw their parents “swinging the pick” so to speak, and they understand the value of what they have been given. They also generally have the founder to go back for guidance.
But, the third generation … that’s where things sometimes get troublesome.
That generation grew up hearing about grandad and gramma, but didn’t really see them pay their dues.
To them, this dynasty business has always been around, and is theirs to shape and run the way they see fit.
Often, this backfires on that generation. There is a saying, “the first generation starts. The second generation runs. The third generation ruins.” Ha
Warren Buffett has a saying, “make sure your business is idiot proof. Because at some point, idiots will be running it.” Ha (again)
One of the best asset types for building family dynasties is the production of goods that are consumed in the process. Think about some of these you deal with all the time:
* plain old sand and gravel is used in the process of building roads, pouring foundations, and construction
* frac sand and other oilfield minerals are consumed during the process of drilling and completions
* water is consumed and used for lots of industries, including oil and gas
Another good asset type is the commercial real estate space. So long as the location is in demand, and the property has a long life, the long term returns on commercial real estate space can be outstanding, due to:
* simple to run business
* the businesses doing the leasing will often just pay for and improve their properties themselves, giving the owners “free” capital improvements
* commercial and industrial space are in high demand across the country, especially in areas with booming industry.
In the West Texas area, of course lots of frac sand properties are coming online to meet the enormous demands for completions.
And lots of water is used for completion as well.
And lots of commercial and industrial real estate is needed.
A colleague of mine is looking to sell a piece of West Texas commercial property and business with the following features:
** Located off Hwy 302 in Kermit Tx (Winkler County)
** 38 acres of land in the parcel
** Currently being used as both a Water Station AND commercial real estate rental property
** Oil companies and Frac Sand Producers in the area line up to buy fresh water 24/7.
** This is a simple (idiot proof) business with extremely low overhead.
** They are currently drilling another commercial well which will add even more profits to the business.
** As of right now, two commercial wells and a regular well are on the property.
** There are 10 acres of undeveloped land that would be perfect to develop a truck stop as another one is greatly needed in the area.
** Financials on the property are interesting (you would have to do your own due diligence of course)
– the owners generate $80K-$100K of gross profits per month
– $27K of that is generated from the leases they have on the offices and shop.
– Selling Price is $7,500,000
– Seller Financing is available. Includes all the land, 4 structures, 4 wells, and the current water consumers/ buyers/ clients.
– One office alone generates $13,500 per month in rent.
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