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Finding/building a new facility12/13
I am starting a new business and could use some advice on locating a new facility. The heart of the business is a new, very low impact logging technique. It relies on low volume cutting and therefore a vertically integrated model, adding as much value as practical to the wood that I harvest, seems appropriate.
I am now in need of a facility to store and dry lumber, locate a solar kiln as well as a high temp finishing kiln, store equipment, and construct a conditioned shop space to do secondary processing, manufacturing, and kiln dried wood storage, as well as a shop to build and repair equipment. I have a strong preference for owning rather than leasing.
As far as I can tell, there are basically two property types, and three approaches, that could work for me in my area. Industrial land which seems to be the most expensive, but provides the greatest potential for expansion and the most flexibility in terms of various manufacturing/processing activities, and "impacted forest" land which is potentially significantly less money but seems to limit my options some. On the impacted forest land I can build an unregulated agricultural building and conduct primary forest product processing in it, or, if the property is appropriate, my wife and I could live there and start a home occupation (limit of five employees), which would provide much more latitude to do other manufacturing activities. The caveat is that we like where we live now and don't really want to move out of town onto forest land.
From what you've heard of my story, which of these options seems most compelling? What am I missing in all of this? I would like the facility to stand as a decent investment by its own right, so that if the business fails I won't lose my shirt. I have essentially unlimited access to "free" (I have to work for it) high quality lumber and timbers. Should I be looking to build a new facility on raw industrial land? Would building a new facility be a good investment on it's own? I can't buy premium property because I just don't quite have those kinds of funds available. My family has offered me a $200k loan, and I have about $50k in cash to add to that, and I would like at least 2 acres. That doesn't seem to get much around here. There are 4.8 acres of rural industrial land in the area and the asking price is $230k, but it has a high water table and therefore does not qualify for septic approval. Red flags?
I know this is a long post, but I have a lot on my mind, and would love to get some good advice from experienced folks. Thanks for reading.
Two thoughts on any non industrial land purchase. What's it gonna take to get 3 phase electric and can the big rigs get in/out easy enough. I wouldn't be concerned with out growing the facility because if you reach that point then likely you have the means to do something about it.
Shaun, thank you for the reply. There are places available with adequate access, so I believe that would be workable. The power situation is another story. As of yet I don't have any experience with 3 phase. Are phase converters a reasonable solution? Or is the expense and inefficiency a deal breaker? The largest piece of equipment I see in my near future would be a small moulder and the necessary associated equipment. So maybe 50hp or so.
Are you going to have employees? Check with the county. They may have incentives for new businesses including low cost loans and infrastructure improvements. Around me there are all kinds of vacant industrial real estate available. Can't imagine building would be cheaper.
Rich, my attitude on employees currently is not yet. I will hire an employee only after I have demonstrated that the cash flow is there for that. At this point I am keeping my job, so I don't have the time to keep things moving at the rate that would be necessary to keep an employee busy, paid for, and not leeching my finances. If I am able to get the operation up and running employees would become necessary.
The real estate environment here (Western Oregon) may be different than where you are located. It seems like there is not much available and folks are asking half a million and up for places that would meet my criteria. One nearby property has an 8000sf concrete shop/warehouse on 3 acres, pretty close in to town with good access, and power...it would be perfect, though the building is a bit bigger than necessary, but they're asking 775k for it. Way out of my range. Perhaps that is just the reality of this kind of endeavor and I am in need of a reality check.
Industrial property is a whole new thing for me. Would a facility framed out of wood even have much value? I'm sure people would generally prefer a steel or concrete structure, I know I would, but the wood is virtually free so it seems like the more practical solution.
It would definitely be my preference to find a place that was already improved, but I'm not willing to take on more debt than the family loan. So far all equipment is payed for and I intend to keep it that way. It's a quality of life issue for me.
No doubt building a shop would be an expensive endeavor on it's own, but the way I'm looking at it, at least the land would provide some immediate benefits in the form of space to stack and air dry the wood I cut, and a place to store my equipment. I could then develop it at my own pace, as funds became available from my job as well as from my fledgling operation. I need to dig into the details to see exactly how much constructing the buildings I need would cost. I wouldn't be surprised if it led me right to what you are saying in terms of cost.
Thanks for the tip on incentives. I will look into that, a trip to the county is in order anyway.
Are you in an area where building codes must be met? That might add a major cost to your wooden structure. 3 phase power will be a must if you plan on anything past a hobby. "Free wood" isn't free! It will cost to get properly equipped just to move it to your location. As a business you are starting out under financed. As a hobby it will never provide a ROI. Good luck.
I really appreciate all the great responses. Thank you!
Larry, is your comment on 3 phase intended to communicate that phase converters are not a viable solution, or just that the issue will need to be addressed in some way? The building permit issue is something I am currently researching, I have mostly pursued the impacted forest option in which building permits are not required. Seems like a big benefit, but alas 3 phase power is unlikely to be provided from the utility on those sites.
In terms of "free wood". I am far enough down the rabbit hole with all this to have worked out the logistics of the wood. Sawmill, truck, trailer, and basic log moving equipment are all present and paid for. Swing blade sawmill means blade cost are pretty low, so the wood mostly just costs me the diesel to move it, the fuel to run the mill, a little equipment maintenance and my time. Of course the time part is not insignificant.
Rotary converts work but by the time you get one big enough to operate a small molder it is going to be expensive. I have a small Weinig 5 head. Total motor power is 65. It is served by a 300A 3 phase 208V breaker. Even if you are only running a total of 40 hp (molder) you need a175A, 230V breaker. You have to have good dust collection or you get bad moldings. 10 hp 60-70A breaker, 5 hp compressor 30A breaker. Even a small log saw will need 200A. Diesel electric system?
Maybe just a nutty idea here....what's wrong with renting an appropriate space where you would have access to 3 phase power, easy in and out for trucks and so on? Seems to me like that would solve a bunch of issues while you determine if you can make it all go and produce a profit.
Take all that "free wood" and sell it instead of making a building out of it and having the potential of starting up your business with some very significant debt for a very long time. Most businesses do start up in rented quarters...even those in this industry.
Dave, that does sound pretty sensible. Let me explain what led me toward owning over leasing, not because I think it's right, but just to share my reasoning. My business is not really ready for prime time yet, I don't have an established product, but plenty of ideas (non proven), and I have a lot of R&D left to work out the kinks on the products and services I would like to offer. I have a good job with flexible hours, so as long as I keep that I won't have a problem making payments, and I can keep developing on the side. Basically, my reasoning was that if I lease, I will have money flowing out with very little coming back for a little while yet, probably not until I quit my job in any event. If I buy, I would have a similar amount of money going out, but I would be building equity, which feels better to me than just watching the money disappear. I feel like I would have more psychic space to really do things properly and develop products that I can be proud of, without the pressure of knowing that time spent at this phase was money lost.
I guess this maybe makes my endeavors sound more like a hobby than a legitimate business plan, and there may be some truth to that. But, when I feel that my offerings are mature enough to take to market, I would very much like to make a go at it as a more active/legitimate business. I guess the question that I am toying with is weather the land/facility can stand as an investment on its own, even if the business fails. If not, then developing a location could also represent money lost if the business doesn't come together, and the benefit of owning would be negligible or worse.