QuestionHi Bob,
I'm not sure you can answer this question for me. But you may be able to give me some insight with all of your experience. I have an opportunity to invest in a trucking Company. I don't know anything about the trucking industry so I am looking for any advice/ideas/thoughts you may have. The bottom line is that I would spend 40K - 60K to buy a tractor/trailer and a Company would pay me $2000 - $2500 a month to lease it from me. They cover insurance, repairs, etc.. I would cover the cost of a new engine when it goes...which I was told would be about every 4 years or 1 million miles. Plus they may not pay me full monthly payments if there is considerable down time for that month. I know this is very high-level basics leaving out many details, because I don't want to ramble too much...what is your first gut instinct. Good investment? Problems or other considerations come to mind? This investment would pay about 40% return on my money per year. That's in a perfect world without all of the risks.
Thank you in advance for any thought or ideas you may have.
-Jeff
AnswerHi Jeff.
Your question is interesting, to say the least. I would assume that the company leasing your truck is going to pay for fuel and the driver. My next assumtion is that your looking at a Class 8, over-the-road truck and trailer.
Now, lets say you have $60k to spend. $45k will get you around a 2002-2003 model truck (like a Freightliner Columbia) with around 500k already on the odometer. The other $15K will have to go towards a decent, used trailer. If the company hauls refrigerated freight, then you have to get a reefer trailer, more money.
Now that you have the equipment in order, the company says that they'll pay for certain things and you'll have to pay for the engine rebuild. If they say it needs to be rebuilt every 4 years or 1 million miles, it sounds like your truck will be running teams (two drivers). That means everthing will wear out twice as fast and your truck will depreciate that much quicker. This is why it would be important to HAVE IN WRITING everything they'll repair and pay for and what your responsible for. Engine rebuilds can easily run $10K. Who pays for the turbo if it blows? How about the A/C? Have you ever bought 18 semi tires? Rebuilt rear axles? Some things may sound minor, but I've seen simple things run into the thousands of dollars to repair on a rig (and when it's down, your not getting paid). I'd have it down to the last bolt of who's responsible for what!
My main issue with this investment is that trucking is unique. Your already buying a used truck and trailer. That money rolling in every month will only stay so far ahead of the depreciation of the truck/trailer and repairs. This truck isn't going to be on the road forever. That's why monthly payments on used trucks like what you'll be looking at will average $1500-$2000 a month. They become expensive paperweights fast. That's why you don't see many old trucks on the road. After a few years and over a million miles, they have too many issues. Then they get exported to South America, or wherever. Plus, drivers are in great demand. Especially team drivers. Why would they want to drive a 5 year old truck when there are thousands of companies that will put them in a new (or almost new) truck. That would be another question, if the company supplies the driver. What if you don't have one for two months in your truck? Not your fault, but you want your money!
Over the next two years, you could take in $60,000 on a $60,000 investment while owning a truck and trailer clear. If they run the truck and trailer, like I think they will, your complete rig will be worth perhaps $20k in 24 months. Then will engine rebuild, tires, etc., it doesn't look like such a hot investment. Like I said before, these trucks don't run forever, your would probably have to be upgraded to something newer. Back to another investment!
I don't want to scare you, but I want to advise you the best I can. If you decide to go ahead with it, check the credit of the company. Get some background information on them. Talk to creditors and talk with an attorney. It sounds like a lot, but it may save headaches later. I've been around trucking all my life and I've seen many companies that just "disappear" or go out of business. Make sure your company is stable and won't be one of them.
Other investments that I would recommend in trucking would be to purchase (or lease) a new truck, get your DOT numbers and lease it out to a big company. This differs in that the company will supply the driver, trailer, permits, many taxes, etc. You pay for all fuel, insurance and the driver's pay. Benefits are paid for by the company. You can even hire a driver if you wish, on your own. It requires more legwork (and paperwork) on your part, but not a huge amount. Here, though, you get paid by the mile not a "blanket" amount of $2000-$2500. Look into companies like US Xpress, Werner, CFI, etc. for info. (Which is another question, what determines the difference between your pay of $2K or $2500?)
Again, I realize I'm being longwinded here, but I want you to know all the obstacles before investing. Be cautious if you invest. If it was me, I'd buy a new truck, lease it out to a big company (that is in the top 30 trucking companies in revenue in the US) and put in a little more effort for more rewards. Before you know it, you'll have a fleet and the big companies can get you there!
Good luck and hope I helped you.
Bob Stephens
