As of today, there are more than 23.8 million golfers in the United States alone. This goes to show that golfing is a relatively accepted sport that can has the potentials of earning millions for an entrepreneur if the business is planned well.
One sure way to capitalize on the golfing industry is to buy a golf course. That being said, 737 golf facilities have closed since 2011, so success in this business is not that guaranteed. You have to work hard to earn it. Blindly running into ownership of a golf course can often be very risky, so you need to carefully select where you will invest your money and how you will operate your course.
But before you think of how to invest your money, you need to have the money to invest. So, what if at the point of conception of this business you have no money of your own, will you still be able to go ahead? Let’s find out.
How to Buy a Golf Course Without Your Own Money
The purchase of a golf course is a straightforward transaction that becomes uniquely complicated by the circumstances of each golf course. The fact remains that you cannot buy a golf course without money, but you can buy it without your own money.
One way you can buy a golf course without your own money is to get a loan. You can equally get financing options where a lender would be willing to finance part of your operation. Your main loan and financing options include:
- Hard money loans
- Conventional financing
- Small Business Administration (SBA) loans
- Life insurance companies
- CMBS loans
- Private equity financing
- Bridge loans
Table of Content
- Hard money loan
- Conventional Financing
- Small Business Administration (SBA) Loans
- Life Insurance Companies
- CMBS Loans
- Private Equity Financing
- Bridge Loans
- Financial Analysis
- 2. Contracts and Leases
- 3. Equipment to check
- 4. Issues regarding the Facility
- 5. Staff and employment conditions
- How to buy a golf course
Hard money loan
Hard money loans offer quick closing and lower LTVs, but are typically repaid over just a few years, which can be difficult for some borrowers.
The benefit is that they accommodate less conventional loan scenarios and require less documentation than a bank. In some cases, the borrower can use bank statements instead of tax returns and can qualify with a FICO score as low as 500.
In exchange, the lender will offer a higher interest rate but may be able to close in a matter of days or weeks. Hard money loans are equity-based, meaning that LTVs of 50% to 65% are common.
With conventional financing, banks will typically offer you a recourse loan to help get you started on your golf course. Conventional financing offers more flexibility in both pricing and your loan structure along with a more personal relationship with your lender.
This personal relationship allows your lender to better customize your loan to meet your specific business goals and provide ongoing loan management support as your needs evolve.
Small Business Administration (SBA) Loans
You can choose between an SBA 7a or SBA 504 loan. While the SBA 7a loan is more popular, both loans are relatively more versatile compared to other loan options. If you need more than to simply buy up property to start up your golf course, SBA loans allow you to purchase equipment and bankroll working capital.
SBA loans also tend to have lower interest rates which is helpful when trying to get your business off the ground. While SBA financing has a lot of benefits, it also has stricter requirements than many other loans, including increased credit score requirements.
Life Insurance Companies
You’ll find that life insurance companies commonly offer non-recourse loans, meaning that you won’t be liable in the event you default on your loan.
So, while you can breathe a sigh of relief if things don’t go according to plan, in exchange for eliminating personal liability, life insurance financing tacks on more loan restrictions, fees, and prepayment penalties for their protection.
You’ll also have less flexibility on the types of properties you can purchase. Life insurance companies avoid ground-up construction, distressed properties, or renovation projects. But, if your golf course or resort is high quality, and in a major metropolitan area, you’ll have better results with your life insurance loan.
Similar to life insurance companies, CMBS or Commercial Mortgage-Backed Securities loans, also commonly offer non-recourse loans where you can avoid personal liability in the case of loan default. However, unlike life insurance companies, CMBS loans are even more restrictive.
Your loan will be standardized, leaving little room to tailor the loan to your particular needs. Additionally, there will be far less personal involvement in the oversight of your loan as the ongoing management will be handled by a third party.
Private Equity Financing
This is one of the most popular financing options for businesses. Private equity financing allows you far more flexibility than traditional loans.
With few stipulations, private equity lenders are free to lend on whatever they see as a viable business opportunity and set their own loan parameters. Essentially, they have a lot of buying power and are willing to take on more risk than other lending sources.
For golf courses that may not qualify for permanent financing, a bridge loan may be the ideal solution– especially for courses that are looking to undergo a speedy rehabilitation process. In some situations, this is done to add value to a golf course property before an intended sale, while in other cases, it’s more of a stop-gap used in the transition to permanent financing.
Conventional financing maybe your best option if you’re looking to invest in distressed properties or new construction. If you’re looking to buy an existing property or need to purchase equipment to jump-start your project, an SBA loan might be a good choice.
However, if eliminating personal liability is your main priority, working with a life insurance company or a CMBS lender might be your best bet. And finally, for the most flexibility and access to liquidity, you’ll want to seek out a private equity lender to get your golf course off the ground.
Checklist for Buying a Golf Course
The first thing to do when you want to buy a golf course is to carry out a financial analysis on the business. A potential buyer’s first analysis of a business will likely be numbers-driven. Buyer will evaluate income and expense in gross, by categories, by trends, etc. If you are interested in the business, you should ask for detailed financial information.
Depending on your operation, that list might include the following, as examples. Evaluate your operation and decide if there is additional important financial information that you should have organized and available.
- Three years actual financials
- Current year’s budget with year to date actuals
- Next three years’ budgets
- Last three years’ tax returns
- Rounds summaries
- Membership statistics and summaries
- Property tax records
- Fixed Assets Lists
- Depreciation Schedules
- Insurance Policies/Coverage
2. Contracts and Leases
When buying a golf course, a buyer should review existing contracts to determine which can and which must be assumed by the Buyer.
When leases expire and whether Buyer can negotiate more favorable terms with lessors will factor into Buyer’s analysis and the purchase price. There may be some contracts you will require a Buyer to assume, and you need to have your list of deal points prepared before negotiations begin.
3. Equipment to check
(a) Golf carts
(b) Maintenance equipment
(c) Cars, trucks, and trailers
4. Issues regarding the Facility
- Office equipment
- Computers and Software
- Plan Administration
5. Staff and employment conditions
Generally, a buyer wants to know who the employees are and what the general terms of their employment are. Transactions are often structured when buying a golf course so that employees are terminated at closing and re-hired by the new buyer.
The buyer on his own part should find out the employees’ expectations (prior salary and benefits), etc. He or she should also review;
- Employee contracts
- Employee handbook
- Employee lists
- Benefit programs/information
6. Licenses and Permits
The buyer should also find out the current licenses and permits of the golf course. He or she should investigate whether they can assume the licenses and permits or if they will need to apply for new ones. You should add any additional licenses and permits not listed here that apply to your facility – for example, many facilities do not have child care or spas but might have licenses related to catering, or fireworks displays.
You may require the following licenses and permits;
- Liquor license
- Catering license
- Childcare facilities license
- Use and sales tax permit
7. Facilities Information
The buyer will investigate your sources and uses of water, whether there are potential environmental issues, the condition of the assets, etc. You may elect not to provide all of this information and to require the buyer to obtain their own inspection, but it will help you and your advisors evaluate your options if you have the existing materials assembled.
8. Water information
- Evidence of water rights
- Evidence of historic use
- Back up water plan
9. Environmental Information
(a) Copies of existing environmental documentation, state filings, reports, correspondence, and Phase I ESAs.
(b) All soil reports, engineering tests, environmentally hazardous substances and geotechnical reports, and similar reports and all correspondence relating thereto.
(c) Details, correspondence, and reports on existing dumpsites, wetlands, endangered species, and sewer treatment ponds, or any other contaminated ponds or wetlands.
(d) List and description of environmental permits and authorizations.
(e) Descriptions of hazardous substance treatment, storage, transportation, and discharge policies and any conditions or practices presenting compliance issues.
- Title insurance policy
- As-built drawings
- Inspection reports
- ADA audit
- Reserves Report
- Termite Inspection
- Fire Marshall Inspection
- ALTA Survey
- Aerial photographs
10. Programs and Promotions
You will need to make immediate disclosure to the buyer if you participate in any reciprocal or prepaid programs that will impact their financial projections. In addition, the buyer will evaluate your marketing programs as they develop their business plan.
11. Contact Information
For your convenient reference and to provide ready access to your advisors, you should have information on all of your advisors assembled including your;
- Benefits representative
- Banks and financial institutions
- Insurance agent
How to buy a golf course
- First things first
If you’re buying an existing golf operation, it’s very likely that all of your legal paperwork is already in place and any necessary documents have been filed. Be sure to go through everything to make sure the previous owners didn’t miss out on anything. A lawyer will come in handy here as they’ll ensure you that everything is in order.
Many golf courses that are on the market have been underperforming for some time. Take a look at how the previous management was running the operation, including how they handled:
- Customer service
- Day-to-day operations
- Food and beverage operations
Once you’ve evaluated all of the aspects of the previous operation, you need to make a detailed business plan that takes into account all of the improvements that need to be made.
- How to bring in the bucks
If you’re considering buying a golf course, knowing how you’ll make money is probably your main concern. Maximizing each revenue stream is key to getting a good return on your investment.
Private, semi-private, and public courses all make money in different ways. Private clubs focus more on selling memberships and then bringing those members back year after year. Public courses focus mostly on selling green fees, reaching new players, and keeping existing customers coming back weekend after weekend.
When it comes to your pro shop, you need to at least sell the essentials like balls, gloves, and tees. You can charge a high price for these products because of how convenient your location is to golfers who lost, forgot, or ran out of them. Golf carts and club rentals are also a staple revenue channel for golf courses.
- Decide on selling food
Food sales can be a great way to grab some extra revenue from your visitors while offering a more complete experience that will entice those customers to keep coming back.
Buying an existing golf course usually means that buildings will already be in place on the property. However, you can always build a new clubhouse or expand any current buildings if there’s a large enough market to drive enough revenue.
The interactions that people have with each other, your clubhouse, and your staff will create a fun and relaxed atmosphere and build a culture around your golf course.
- Look out for a golf course in a good location
Businesses in the service sector need to worry about where they’re located. A golf course needs to be close to as many current and prospective golfers as possible so it can take its share of the largest possible market, without being in an area that is too competitive to stand a chance. To pick a location, you’ll need to look at a number of factors, including:
- Population density
- The number of other courses
- The number of golfers
- The number of people you can target to play golf for the first time
- Weather conditions
- Accessibility from major roads
- Golf trends in the area
- Buying a golf course
If you’re not a seasoned golf management expert, get the help of someone who is. Golf course consultants know the industry inside and out and can help you make the best business decisions at every stage of your journey. They’ll also have a good feel for the local market and how to attract golfers in that area.
The fees that a consultant will charge you will be a lot smaller than the losses you incur by making a bad decision. You can also look at working with a management company. They’ll be able to guide you through every step in the process and make sure that you’re making the decisions that will make you the most money.
Be careful when you select which company to partner with; you want someone who understands your local market without being in direct competition with you.
- The kind of costs you should be looking at
Buying an existing golf course is often less expensive than building one from scratch, but you need to carefully evaluate the design of the course and its systems. If the previous owner decided to cut costs in important areas, you might be the one to take the financial hit.
If the land that you acquire isn’t already a golf course, you’ll need to hire a team to design and build the course. This will cost a lot of money, but any cutting corners will lead to massive headaches. Poor architecture, insufficient irrigation, and bad agronomy systems will seriously hurt the experience that you offer your customers and can lead to higher maintenance costs and lower revenue in the long run.
The cost of a business doesn’t stop after you acquire it. If you want your golf course to grow, you’ll need to constantly invest in it. Customers will keep coming back to your facility if you provide them with the best experience possible, but to do that you’ll need to put your money towards things including:
- Course maintenance
- Your online presence
- Management tools
- Maintenance of your buildings (upkeep and cleanliness)
- Adding practice facilities, simulators, games
Many new business owners make the mistake of trying to minimize every cost. This method may increase your profits in the short run, but the lack of money flowing back into your operation will lead to a sub-par customer experience and will end up killing your business over time.
- Marketing your golf course
If a golf course is up for sale, chances are that it wasn’t making a lot of profit. This doesn’t mean that you can’t breathe new life into the operation, however.
With clever marketing, you can retain any previous customers while targeting new segments of golfers and growing your sales. Data analytics are crucial as they’ll keep you on top of what’s happening and give you insights into customer behaviour.
If you’ve got your finger on the pulse of your golf course, you’ll be able to make day-to-day decisions on where, when, and how you should send out marketing messages.
For example, if you notice a lack of public players, you might want to offer golfers in your area a discount on their first-round in exchange for their email. You can target them using their emails on platforms like Facebook Ads, which allow you to segment your advertisements based on many aspects, including interests, demographics, and likes.