Small-scale car rental - is it a good investment?

Trains Magazine General Discussion
1

If someone had enough money to purchase 4 -8 railroad cars, and rent them out, how would it compare to other investments? For instance, Wall Street, bonds, or compounding interest in a bank account?

How much would a grain hopper, chemical tanker, steel gondola, or a box car cost?Would the price-per car be much cheaper if you bought them in lots of 10 or 20?

What kind of car would constitute the safest or most lucritive investment?

What are the risks involved?

My father-in-law was an investment banker. He told me that, when he had a business in the 70s, bonds for rail cars were one of the saffest investments that he could find. As rail traffic is picking up, I wonder if this is still the case?

Thanks,

Gabe

2

Used rail car prices are very high for the last 2 years.

Box cars cost from 10,000 - 20,000 ( not to many people ask for these )

The other cars you asked for cost 20,000 - to 30,000 per car.( much in demand )

Not to many of these available for sale.

These cars were less than half that price a few years ago.

The price of these cars have drove the lease rates very high.

If you purchased cars a few years ago you can do pretty good right now.

Risks you can have some one who does not pay you each month and you can

out of pocket many thousnads of dollars by the time you get the cars back.

You will not make much money when you fist start out,you try to get a long term lease 5 - 7 years.after 5 years your cars are paid off and the last 2 years you start to make a few bucks.

3

You will also need to check out some of the possible costs to replace a pair of flat wheels which come about more now that the train crews are reduced to just a couple of ground people. What is the cost of a deadhead move of the mty car if it is not rented. What will it cost to store the car if it is not rented. Switching charges to store and retrieve the car.

This can be a very expensive part time business.

4

Gabe:

Better questions to ask is, “who is my competition” and “who is my customer”? You’d be competing against some big, experienced, sharp players such as Helm, First Union, GATX, and Greenbrier. There might be some opportunities on the margins but these opportunities would likely be ephemeral. Freight car leasing is largely a commodity business.

Business opportunities that make money generally are either counter-market moves (contrarian positions), recognizing an opportunity that everyone else has overlooked, or controlling something that is scarce – the classic example of scarcity is real estate. Freight car scarcity does occur but it is usually short-lived as it’s not hard to build more and the barriers to entry for lessors or builders are low. Freight-car leasing is a well-understood business. You might find a small and naive client that is willing to take an overpriced lease, or a seller who doesn’t realize the value of the equipment he wants to sell. Absent either of those rare occurances the thought of competing against the market power of the big boys is nothing I’d wish to contemplate.

If you want to be in the business you might look at the equity instruments of the principal players.

S. Hadid

5

At work a few of us are considering buying and updating an SD60 and then leasing it out.

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Gabe

Seems to me that your father-in-law is refering to holding the paper, rather than outright ownership. I don’t know if it is used any more, but the vehicle used for rail car financing was an “equipment trust”. I don’t know the details, but rather than relying on the general credit worthiness of a railroad, each car became collateral for the notes in the trust. As I recall, banks were trustees and primary lenders, but perhaps there was a secondary market where one could pick up the paper on a portion of the cars in any given trust series.

I think the arrangement gave a high priority to the note holders if the railroad was having a liquidity problem. In a default situation, one acquired the car, but could probably get the ownership changed to another carrier for the balance due and at the terms of the original deal.

7

Gabe -

Railcar’s pricing is pretty good in terms of current car prices. I doubt you could get much in the way of tank cars now as most of the general service tanks are in very short supply due to the surge in ethanol production. If you can find them prices will be brutal.

In terms of a comparison between now and the 70s much has changed in how car owners are compensated. First, per diem payments on private mark cars (anything ending in an “X” like GATX for example is a “private” mark) is limited to mileage. In this context the term of art “private” means a car not owned by a railroad. Railroad mark cars “NS” for example are paid both time and mileage. Car service and payments are governed by the rules of the Association of American Railroads in the U.S. All railroads that are part of the national system are signatories to the AAR Interchange and Car Serivce Agreements.

A few years back the car rates that were set or “prescribed” by the Interstate Commerce Commission in the 1950s and 60s which allowed so much money to be made in the 60s and 70s on car ownership were rolled back or in industry terminology “deprescribed”. D

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I do not know much about railcar leasing, but understand a bit about truck/trailer leasing. I believe the small scale would kill you for many of the reasons stated above. The overhead costs of marketing (who are you going to lease these cars to), billing and collections, repairs, and utilization would be difficult to handle as a one man shop.

Perhaps the largest consideration would be the insurance costs.

As suggested the best play on this would be thru GATX at this time. If the Pritzgers offer UTLX as an IPO later this year, that would be a better play. While they do have considerable manufacturing, a high percentage of their manufacturing is geared toward their lease fleets of UTLX and PROX cars.

Other than that, put together a syndicate and putting a fleet out there would be an option, but rather expensive.

ed

9

[quote user=“Limitedclear”]

Gabe -

Railcar’s pricing is pretty good in terms of current car prices. I doubt you could get much in the way of tank cars now as most of the general service tanks are in very short supply due to the surge in ethanol production. If you can find them prices will be brutal.

In terms of a comparison between now and the 70s much has changed in how car owners are compensated. First, per diem payments on private mark cars (anything ending in an “X” like GATX for example is a “private” mark) is limited to mileage. In this context the term of art “private” means a car not owned by a railroad. Railroad mark cars “NS” for example are paid both time and mileage. Car service and payments are governed by the rules of the Association of American Railroads in the U.S. All railroads that are part of the national system are signatories to the AAR Interchange and Car Serivce Agreements.

A few years back the car rates that were set or “prescribed” by the Interstate Commerce Commission in the 1950s and 60s which allowed so much money to be made in the 60s and 70s on car ownership were rolled back or in industry terminology

10

How are you planning on updating it ? I’m guessing you already considered the 300k price tag for a decent runner.

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To say nothing of the EPA compliance upgrades which will be needed to run it on a Class 1…

LC

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[quote user=“Randy Stahl”]

[quote user=“Limitedclear”]

Gabe -

Railcar’s pricing is pretty good in terms of current car prices. I doubt you could get much in the way of tank cars now as most of the general service tanks are in very short supply due to the surge in ethanol production. If you can find them prices will be brutal.

In terms of a comparison between now and the 70s much has changed in how car owners are compensated. First, per diem payments on private mark cars (anything ending in an “X” like GATX for example is a “private” mark) is limited to mileage. In this context the term of art “private” means a car not owned by a railroad. Railroad mark cars “NS” for example are paid both time and mileage. Car service and payments are governed by the rules of the Association of American Railroads in the U.S. All railroads that are part of the national system are signatories to the AAR Interchange and Car Serivce Agreements.

A few years back the car rates that were set or “prescribed” by the Interstate Commerce Commission in the 1950s and 60s which allowed so much money to be made in the 60s and 70s on car ownership were rolled back

13

Gabe,

The following news item might help illuminate just what you’d be up against, things the railroaders won’t convey…

http://www.tri-cityherald.com/tch/business/v-printer/story/8753794p-8655251c.html

14

40 year cars are not cheap any more.

Covered hoppers are from 10,000 to 15,000 per car.Box cars are the cheapest.

Then a rule 88 and repairs to bring the car up to speed 5,000 plus.

There you go you got about 20,000 in a car with 10 years of extra life.

Keep looking for a 50 year car.

Also every one is looking for the bigger car and 100 ton is not good enough they want a 286 car.Now if you beef the car up to 286 add $ 10,000 to 15,000 more per car.

But again you need to find cars.Every one who leases cars is always looking for a deal.

I will not buy a car until the paper work is done.It takes from a month to 2 months to even

get a small deal done.Most of the time the cars have been sold by the time you can get the deal done.

The big guys like GE,GATX,CIT etc wont even look at you unless you have very good credit,

that why there guys like me who are willing to take a chance.You need deep pockets.

I am from the mech dept ( Car )which helps,I drive over 40,000 mile per year,i inspect my cars

I can repair my cars.

I purchased cars,when the price was low and i had available cash when i was bought out by a railway.This is not a part time job.i put in over 14 hours per day I have not been on AV for over 3 years.I am still in my 40’s and just building it up to retire on or let my kids run it.

This is not a get rich quick game as some people think.You need lots of money to get in the game and be prepaired to take a loss and a customer who has gone under and your cars get locked up by there bank and you take a bath on $ 70,000 on car rentals until they release your cars. ( only 20 cars tied up for 5 months,loss of rent,repairs,and Lawyer )

15

Railcar , can you please E Mail me off the forum ?

16

Thanks for everyone’s assistance.

FYI, Randy, if you are doing what I think you are doing and are looking for investors . . . well, you have my e-mail.

Gabe

17

Yes , one step at a time. Maybe you would rather dump a half a million into an SD-60 that’s gonna come back off lease in a basket ?

18

Railcar -

There are plenty of us out here who like 263,000 or 268,000lbs cars just fine. A lot of short lines can’t and won’t accept cars loaded to 286K. Also, I gather by your address that you are located in Canada (BC). As I’m su

19

Buying locomotives without a willing lessee is a bad idea unless you plan to shop them and you have a large fleet and don’t mind some real downtime. My Alco is still waiting for certain work to be completed and sometime next year it will begin revenue service. Before you laugh, this unit was remanufactured in 1987 by a Class 1 and has had all new TMs installed and a new radiator and oil cooler as well as several recently replaced PAs within a year of its sale to me. It has been sitting for almost 9 years now (mostly indoors) and we work on it as we get time. At least it is worth more than I paid for it…

Also, with the locomotive market at historic highs this is at least as poor a time to buy locomotives as it is cars and locomotives don’t earn per diem unless they are leased. If I had to buy another locomotive I’d be looking at GE four axles if any can be found or EMD 4 axles of newer vintages. NS has been selling GP15-1s in great shape but at $250K+ per unit they are too rich for my blood.

LC

20

Right that’s if you can even find them . Then the other issue is finding out who they actually belong too. I have run into 6 different brokers trying to sell the same 4 locomotives.