Having read the comments on this I see a lot of good information. And I would agree that before anyone gets involved in any financial adventure that they investigate it fully. My question on this subject which I am having a diffcult time getting is this.
If we could use this as an example it would make it a lot easier on me and maybe someone else. For the sake of this discussion, let's say I purchase a railroad car, say a hoppper car for $20,000. I get a loan for that amount and I am going to let a leasing company handle the leasing of that hopper car. My questions are; on the $20,000 loan what would be the normal length of the loan, 10 year, 15 years or what? And my next question is what would be the normal rental/leasing rates on this car?
I am just looking for the answers to those questions, I know there are a lot of other facts that come into play, insurance, maintenance.
If anyone can give me a straight answer I would appreciate it.
Andrew Falconer Carefully look at all the tank cars in modern freight trains. A large majority of them are very well maintained. The most abused freight cars are gondolas. Andrew Falconer Fixed
Carefully look at all the tank cars in modern freight trains. A large majority of them are very well maintained.
The most abused freight cars are gondolas.
Andrew Falconer
Fixed
The least maintained freight cars are gondolas.
Watch my videos on-line at https://www.youtube.com/user/AndrewNeilFalconer
Unless you're very wealthy and have expertise in the rail car leasing field, you should avoid this. You would be much better off with a business that requires very little input capital and no borrowed money.
Same plan works in racing!
zugmann Or the other one: How do you make a small fortune on the railroad? Start with a large one.
Or the other one:
How do you make a small fortune on the railroad?
Start with a large one.
Never too old to have a happy childhood!
It's been fun. But it isn't much fun anymore. Signing off for now.
The opinions expressed here represent my own and not those of my employer, any other railroad, company, or person.t fun any
As someone rich and famous once said about boats (yachts, actually):
"If you have to ask, you can't afford it."
- Paul North.
No thanks, it's your money though.
What about Covered hoppers? I've been thinking of starting a leasing company with 1 4,500 cu ft., 3 hatched covered hopper that was built in the late 60's & was rebuilt in 2006-2007 & how much would I need to lease it for?
This article gives current information. Also, what hasn't been touched upon in this thread is that idle rolling stock owned under private marks must be stored somewhere when not in use. The car owner is responsible for paying all the storage charges including switching charges to and from the storage location, liability insurance and insurance against losses to the cars, all repair charges to maintain the car(s) in compliance with AAR Rules, all taxes on the cars levied by each state the car travels through, and dealing with all the railroads handling the car. You will also need to find a home for the car, either a railroad, shipper, or management company needing your car to haul product. You will need to compete against all the railroads having cars first. Railroads, especially Class 1s like to supply cars to their shippers and those of their short line connections. Next you will be competing with large leasing companies including General Electric, GATX, and numerous Banks.
The Per Diem days of the 70s are long gone. The AAR rules have been changed years ago which wiped out the ability to earn per diem on private marks. Railroad marks can still earn per diem while private cars only earn mileage. Many of the major leasing companies make deals with short lines to use their reporting marks on cars and some even own their own short lines to make sure their cars can earn per diem charges.
Also, note that railroads have the right to repair your car to AAR specs whether the owner likes it or not so long as the railroad charges the AAR rates (See AAR Office and Field Manuals for details). Larger lessors control their costs by having contracts with railcar repair facilities and mobile repair companies. As a small lessor you won't have that option.
In summary, I'd stay clear of trying to earn a living in the car leasing business unless you can raise enough capital to buy a portfolio of significant size. Likewise leasing locomotives is becoming a much less lucrative business of late for similar reasons.
LC
http://www.progressiverailroading.com/prdailynews/news.asp?id=25875
Reality check...
Thanks guys. In my research I did find other companies that sell, lease or manage railcars, but it's always good to hear from people who have been watching the industry for years. I agree, doesn't seem like a very good investment, except perhaps for someone with very unusual income circumstances (a period of high income followed by much income) who could take advantage of the accelerated depreciation.
Paul_D_North_Jr What's the name and website of that outfit, by the way ? - Paul North.
If you google Empire Railcars, you'll find it.
I worked for a large leasing company managing railcars of all types at one time. I managed cars belonging to the small guy and large companies. I'm still in railcar maintenance but in a different area.
Tank cars are the ones you really want to stay away from. Even the simple cars such as corn syrup cars are major headaches.
A tank car costing $114,000.00 appears to be a pressure tank carrying LPG, butane and such. These cars have tank jackets which drives up costs.
Small leasing companies and small investors get the dickens beat out of them when it comes to lease rates. Large companies can wear you down to where your losing money each month. If they manage your cars, they will lease there cars before yours. I know people in sales at large and small leasing companies and they tell me lease rates are horrible. Even pulling cars out of storage, they are not even breaking even.
Tank cars must be inspected every (10) years (HM201) per AAR and FRA. There is no short cutting allowed. Shops will not short cut per your instructions since they are liable for the tank intergity. Labor rates at tank car certified shops is about $75.00 per hour in the US and higher in Canada. Right now the going rate for a 6 1/2 x 12 journals with 36" wheel plates are quite high. A second hand axle,two reconditioned roller bearings and two new wheel plates is $1,400.00 and changes quarterly. The AAR labor rate this quarter is $104.17. The FRA and AAR are battling over whose going to control tank car regulations. Rules/regulations are constantly changing.
I can go on but I think you get the point. If you have deep pockets, right now is the time to buy but not lease. Even if a tank car sits in storage, the clock is still ticking on testing.
Of course with all of the 'stored' freight cars still being seen, you have to factor in this times when you will not be generating any leasing income! It seems that yo ucan invest $100K in a lot other more fluid investments with even better return....
Jim
Modeling BNSF and Milwaukee Road in SW Wisconsin
Thanks for that correction, clarification, and the additional 'real-world' info, Matt.
Let's see here - from July 1974 to today is about 36 yrs. 7 months - so the 37-year old cars that you're scrapping would likely be pre-1974 cars that are old, subject to the 40-year rule, and so have only around 3 years of service life left in them, without a rebuild or waiver, and so are not worth much - so yeah, that makes sense.
Thanks again.
Per Rule 88 of the Field Manual of the AAR Interchange Rules:
"Cars built on or after July 1, 1974 are limited to 50 years of service from month and year built."
Car built prior to this date are limited to 40 years unless rebuilt as you stated. The practical service life of a car seems to be in the 35 to 40 year range depending of type of service the car is used in. We scrap a lot of cars in the 37 year range.
Our company also leases some cars, most are older cars between 20 and 30 years old. What determines if a used car is a good candidate for our lease fleet is condition of car and AAR mileage rate. Some cars get scrapped even if they are in good condition because the mileage rate is too low, which limits the amount of the monthly lease price.
Matt
AAR standard life for railcars is 40 years, I've been told, unless rebuilt or a waiver is granted. So right there is a possible "material misrepresentation" . . .
At least 1 member here did own a boxcar, as I understand it. But I'll let him speak from his own experience, if he chooses to disclose anything in that regard . . .
If you had to borrow or use the $114,000 of your own money, at nominal 6% interest rate over 30 years(as a minimum Internal Return On Investment Rate) the payments would be about $6.00 per $1,000 per month, or about $684 a month, leaving about $16 a month for their management fees, repair and maintenance costs, insurance, taxes, etc. Even with a lower interest rate, that's not much left over to compensate you for the various risks involved.
Why and how do you think you - as solo owner of a lone car - or even them and their 'managed fleet' can successfully compete against and survive against the giant railcar leasing outfits that are mostly affiliated with banks and have fleets of thousands of cars ?
As mentioned by others above, a lot of this got started in the 1970's. Short version is that car ownership was especially attractive to people with high taxable incomes as a 'shelter' from US Income Tax because of the Investment Tax Credit and faster depreciation of the car's value to offset that income, especially when they borrowed ("leveraged") a lot of the money to buy the car - get all the benefits without having to put up all the money. Also, many railroads back then didn't have much capital of their own to buy cars, nor the taxable net income in large enough consistent amounts to be able to use those tax benefits themselves. Several books and lengthy articles have been written from time to time - one of the best from the late 1970's is Railroad Equipment Obligations by Michael Downey Rice (a lawyer who specialized in same), and privately published by the then Salomon Brothers investment bank. But "the rules changed" starting in the 1980's, and it wasn't so lucrative anymore - in fact, there have been lots of cars of all kinds stored as surplus over the past 2 -3 years, earning no income . . .
What's the name and website of that outfit, by the way ?
In a 1978 issue of Rail Classics magazine, there was an article about an attorney in California who had set up a business along these lines. Her name was Lucille J. Boston and the company was LUCX, INC. I don't know if she is still running this. A quick Google shows her practicing international law, no mention about the rail car company.
A relative had approached her about setting up an investment and tax shelter. It worked and she expanded from there. You bought the car and let her company manage it. They would put her company's reporting marks (LUCX) on it. The cars mentioned in the article were mostly tanks and covered hoppers and her company usually leased the cars to specific shippers. (Carl this may be of interest, she said the C&O was going to lease some of Lucx's cars around June, 1978.) The cars made the per diem, or if they didn't make a minimum miliage, the shipper who leased the car made up the difference.
Jeff
This sounds similar to an investment fad in the 1970's involving the leasing of unequipped boxcars to short lines to generate per diem payments. I believe that incentive per diem payments were the driving force behind this practice. The whole thing petered out when per diem rules were changed.
I don't own any railcars and never will, but 50 years for a tank car? I don't think so. The NTSB and/or FRA have very specific time limits on how many years a rail car can be used in interchange service.
If you're really serious about this, I would suggest that you check the law very carefully on how long a tank car can be used.
Hello all--I love trains and am new to this site. I'd like to hear from anyone who knows about railcar ownership as an investment. I'd like to know how railcars are leased out and how the market for them is.
There's a website I've seen which claims that they will help you buy a new tank car for $114,000 which you can then lease out for $700 per month and that will last about 50 years, less management and repair expenses. It's an intriguing idea for a someone who likes trains but it also sends my antena up that something is not right or too good to be true.
Anyone here own railcars or know about the business?
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