Weekly Roundup - May 27, 2017
|Happy Weekend! Check out what's been going on in my world and some of the best articles from around the blogosphere.|
Oil boom cities are interesting to me. When I got to this area it was relatively early in the boom in this area which meant lots of development in the form of hotels and restaurants. Now that I'm back nearly 2 years after the oil bust many of the new restaurants are already closed down or changed ownership.
There were about 5 new 150-200 room hotels built in an area with a combined population of around 7k with absolutely no tourist draw of any kind. I imagine many of those hotels will still do okay for the next few years as the production side works through all of the backlogs, but after that many of those hotels will likely be forced to close.
I imagine there has to be some kind of financial incentive for whoever it was that developed those hotels, but developing in a boom town has to be risky.
Let's take a look at some rough estimates for the economics of these hotels. Doing some internet searching brought up the average development cost for a 115 room hotel as $22 M. I'll assume that's the cost to develop these even though they are close to 150-200 room hotels because the cost of the land should have been much cheaper here plus I'm just doing some rough calculations.
Assuming 175 rooms in the average hotel @ $150 per night here's what the annual revenues look like based on varying occupancy rates.
The average net profit margin for the hotel industry a few years back was around 5%. I'll give them the benefit of the doubt and say that they are the best managers of hotels around and that they can squeeze out 7.5% net profit margins. Here's how the numbers play out.
Yikes! Assuming these numbers are in the ballpark of the actual numbers, you're looking at 30-44 years of net profits just to recoup the development cost. And that's without even accounting for the time value of money and the lost opportunity cost of other potential investments or any debt required to finance the projects. Even if you assume the cost is 1/2 what I assumed you're still looking at 15-22 year paybacks.
I don't know about y'all, but that doesn't look attractive to me at all.
Speaking of poor financial decisions it still blows my mind how many people that work out in the oil field are absolutely piss poor with their personal finances. The oil field is a great place to make money, but as we all know it doesn't matter how much you make it's how much you keep. I was talking with one of the guys out here over this past week and he was talking about how he needed to save up about $12k to buy something.
Let me start off by saying that's great that he's saving up for it instead of just putting it on a credit card, but it's absolutely ridiculous to me that he was saying it would take him about a year to do so. Now the length of time might not seem unreasonable, but keep in mind this is someone that's making somewhere around $200k per year. Assuming about 40% of his income goes to taxes, which it should be well below that, he still has about $10k per month coming in after taxes. How in the world can it take you a year to save up $12k?
What makes matters even worse is the fact that while we were talking about the oil field and oil prices he also let this nugget slip out "oh well I'm only making about $190k instead of $500k per year". What? You made $500k per year for at least 2-4 years during the boom and you don't have $12k sitting around? I know if I was making $500k per year for 2-4 years working would be the last thing on my mind now because I'd be well into FIRE by now.
On to the Roundup
In case you missed them, here's the posts from Passive-Income-Pursuit over the past week.
- Net Worth Update - April 2017
- Opening Option Positions from the Week of May 15th
- Options for Income Week of May 15th
Once again I'd like to say thanks to each and every one of you that read, commented, and shared posts from here this past week. This dividend growth investing and financial independence community is amazing and the openness from everyone is awesome. Thanks again!
Now on to the links!
Are Some People Predisposed To Embrace The FI Mindset? by Our Next Life
A Rant And A Change by Income Surfer
The Real Risk With Dividend Growth Investing by Dividend Growth Investor
Knowing Where Your Financial Destination Is by A Wealth of Common Sense
Seek Adventure While Your Money Works For You by Retire Before Dad
The Stock Market Is At All Time Highs (Or Crashing)! by Mr. 1500
Stock Buy - Cisco Systems by Investment Hunting
Consistency Is The Key by Tawcan
An Update On My Startup Journey by Financially Integrated
Cryptocurrencies - The Wave of the Future! by FI Fighter
Lanny's Recent Stock Purchase - W.W. Grainger (GWW)X2 by Dividend Diplomats
8 Dividend Increases: May 15-19, 2017 by DivGro
Year Three A.D.: Three Lessons About Life And Money I've Learned After Retiring At 32 by Mr. Free at 33
Are You Really Crazy Enough To Buy A Quadruple Leveraged ETF? by Jason Zweig
Activist Investors, Special Prosecutors and Inconsistent Posting by Dividends in Hand
If you're looking for investment ideas, A Frugal Family's Journey maintains a list of stock analyses and recent buys from fellow bloggers.
I hope you all have a great weekend!
Image courtesy of Gubgib via FreeDigitalPhotos