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Rachel Kosmal McCart is a lifelong horsewoman and the founder of Equine Legal Solutions, PC, an equine law firm based in the Portland, Oregon area. Rachel is a member of the New York, California, Oregon and Washington State bars and is admitted to practice before the U.S. District Court for the District of Oregon and the U.S. District Court for the Central District of California. Rachel currently competes in three-day eventing.

Saturday, August 14, 2010

Buying a Horse Boarding Stable in Foreclosure or Financial Distress

At Equine Legal Solutions, we receive a lot of calls from folks buying horse boarding stables.  Given the difficult economy, many of the facilities are in foreclosure or otherwise in financial distress.  Here are few key points to consider before you close escrow.

Congratulations:  You Just Bought a Money Pit

So the horse property was a bargain?  That's good, because you're going to need cash - and plenty of it!  Be prepared to start fixing things right away.  Usually, a horse property in financial distress means "deferred maintenance" (otherwise known as letting the property go to hell in a hand basket).  The first time it rains, you'll discover the barn roof leaks, the gutters need replacing and there are a lot of areas in urgent need of gravel.  When you're the one checking horses every morning, you'll notice that half the automatic waterers leak or don't work at all.  The stall doors don't all open and close smoothly, and one of the barn doors leaps off its track at the slightest provocation.  The electric fence shorts out, and there are numerous baling twine fixes scattered throughout the property.  If the arena needs resurfacing, you're in for a big job with a big price tag.

Even if you're really careful about inspecting the property prior to purchase so you have a good idea of what you're in for, horses are really hard on a facility.  They lean on fences, chew on stalls, pull up rubber mats, and break automatic waterers.  And you'll find the existing boarders have a wish list of fixes and improvements, and they'll expect you to hop to it and do them all right away.

And there there's the equipment you'll need.  Unless you already have one, you'll need a full-size tractor to drag the arena, load and unload hay, mow the pastures, maintain the manure pile, and other routine barn tasks.  And tractor attachments are generally sold separately.  At a minimum, you'll probably need a mower, a manure spreader, a set of forks, a bucket and an arena drag.  But, you say, can't I do all those things with an ATV?  Short answer:  Everyone I know who started out with an ATV upgraded to a tractor within two years.

One unfortunate (but very common) fact of buying a horse boarding facility in financial distress is that some of the essentials may sprout legs before you close escrow.  There's a strong resale market for used pipe panels, rubber stall mats, fence chargers, etc.  The seller may conveniently assume these items aren't fixtures because they can be easily removed.  And unless it's in your contract, you can expect that there won't be any hay or bedding on the place when you move in.

About Half the Current Boarders Will Leave

At the same time you're incurring a lot of extra expenses, you'll have a steady stream of existing boarders who depart.  In fact, you can expect that at least 50% of the current boarders at the facility will leave within the first six months.  Yes, 50%.  Sobering statistic, isn't it?  Surely, you'll do such a good job and you're such a nice person that your barn will be different.  Ah, read on, you optimist you! 

A good percentage of boarders will leave for financial reasons.  Horse properties in financial distress often undercut their board prices to attract more boarders, even when it doesn't make financial sense.  If that's happening, you'll quickly realize you need to raise your prices to cover your expenses, maybe significantly.  When you do, boarders will leave, some because they can't afford the increase and others because you had the audacity to raise prices to market rates (and they'd been paying the same board amount since 1982). And because it's very unusual to have a boarding facility where all the boarders' accounts are current, you'll discover that some (or a lot) of boarders are significantly past due, or they habitually pay late, and you'll need to evict them.  Horse people are generally horse people first and (maybe) business people second.  Remember, if the existing owners and or managers had done a great job of making the place profitable, it wouldn't have been available for you to buy.

Most of the boarders who leave will do so because people don't like change.  The existing boarders are there because they like things the way they are.  When someone new buys the facility, it means change, and even positive changes aren't always welcome.  If the previous owners didn't run the place like a business, and you have to make a lot of significant changes, such as implementing contracts and enforcing rules, you can probably expect most of the boarders to leave.

Generally, one or more trainers work out of a horse facility, and if they leave, boarders who train with them will often follow them to another facility.  Just like the boarders, the trainers are there because they are comfortable with the way things are.  When the facility changes management, some of the changes may not be to the trainers' liking. Or, you may find that you can't live with the existing trainers, either because they don't work and play well with others, or because they don't pay their bills (or both).

Attracting New Boarders Takes Time (and Marketing)

Because you've run the numbers (and adjusted them after you moved in and found out what the place really costs to keep going), you know how many boarders you need to be profitable.  Chances are excellent that because of boarder departures, you'll need to attract new boarders to reach that number. 

Expect it to take at least six months for new boarders to come, because the best way to advertise in the horse world is word of mouth, and that takes time.  If the stable was poorly managed and in need of repairs, you have reputation repair work to do.  You'll need to convince influential horse people that the facility has changed for the better.  The most important thing you can do is get the word out that the facility is under new management.  Call the editors of all of the regional horse publications, introduce yourself as the facility's new manager, and invite them out for a tour.  They might be willing to write a feature article on your place, and even if you have to place some paid advertising to get the article, it will be worth it, because a good percentage of the local horse community probably reads it.  Plan an open barn day and invite the general public.  Host clinics and horse shows so attendees can see what great changes you've made and help spread the word for you.

Good luck with your new horse property, and please visit the boarding section of our website for more horse boarding business tips.

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