By Anna Mercury
Thanks to one of our commenters, Frank Report has learned about and is pleased to offer our readers a unique opportunity: Invest in a private prison. And no, I do not mean a dungeon in the basement to lock your slaves in like Keith Raniere did. I mean a real, genuine prison, not unlike the one where Raniere is residing.
Mr. Dallas Liam is our investment guru. His Twitter handle is @prisoninvestor1.
He can show you how to make crime pay. I had the pleasure of interviewing him, and it was informative and inspiring.
Private prisons are the single most outstanding real estate investment vehicle around. I’ve owned and operated private prisons for over two decades. Owning a prison gives an investor a recurring and predictable high-margin revenue stream. The government contracts are long-term in nature and very lucrative. I have managed to make over $35k per prisoner annually.
A little financial breakdown will help readers determine if this is a suitable investment.
I purchased the Eagle Nest Facility in 2008. The total cost was $30 million with 25% down ($7.5 million).
I entered into a perpetual contract with the United States Marshall Services at $20 million with 5% escalators per year. As a result, we generated $5 million in free cash flow in the first year, a 67% cash on cash return.
That’s a coup getting the US Marshal’s Office to run a state prison. Can you tell us about profit margins?
Prison owners get paid per person. The more people, the more money. Here are the economics per person:
– $100/day per person in revenues
– $25/day per person in variable cost
– $35/day per person fixed costs
– $40/day per person in straight margin
To increase my cash flow, I spent a significant amount of money on lobbying efforts to win a judge who was hard on crime. This investment paid off by the end of year two. The judge sent most young men (higher margin than older men) to my facility to pay me back. As a result, cash flow went up 3x.
By year four, cash flows were $15 million at 95% occupancy. To maximize my investment, I started to market the facility to outside investors. We sold the facility to private equity for 10x cash flow or $150 million halfway through year four.
I turned $7.5 million into a clean $150 million in four years.
I reinvested in other prisons across the southern states. As a result, today, I manage an investment portfolio of over $1.5 billion in prison real estate.
What does one need to know when choosing a prison?
Focus on states that are “hard on crime.”
Are there any premiums for the death penalty? Or because death row prisoners can’t work, are they less profitable?
You have to utilize the prison labor force to generate ancillary revenues with incredibly high margins. Death row prisoners are inert. Costs are too high.
Have you ever thought about putting prisoners on treadmills and using the electricity to mine bitcoin?
If we could get a 110-125% of cost government grant, it might make sense as a low-risk, high reward enterprise.
What advice would you give someone looking to buy their first prison? Other than don’t try before you buy.
All prisons get their mandated calories with refined carbohydrates and sugar. But when we took over one of our prisons, the old administration was spending $3 per person a day for meals, and the commissary was making less than $75,000 per month. Substitute soy for chicken. Five meals per week consisting of a bologna sandwich and a piece of fruit. Our costs went down to $1.75 per day and our commissary began to net over $100,000 per month.
But sometimes there is a tradeoff. In one of the southern cities where we had a prison, the local judge had an interest in a catering company and we arranged for his company to get the contract for food even though it increased our cost to more than $4 per day per prisoner. Yet convicts getting probation became non-existent in his court. Sentences went up 40 percent. You are nothing if you do not work with judges and the local sheriff. It is amazing how many lazy deputies lag behind in arrests.
But everything is dependent on tenancy. What does one do to ensure they have a high occupancy rate? Get local radio stations to play gangster rap?
Become best friends with judges. For example, if a judge sentences 100 convicts a year and gives them just two more years each on their sentence, that’s 200 extra years of prison at $35,000 per prisoner. That’s $7 million.
Private prisons are one of the most overlooked and undervalued real estate vehicles. Yet, with a bit of sweat equity and American entrepreneurship, you can become extremely wealthy through this passive investment.
The greatest thing about this business is that I have never paid taxes on any of my millions because of the unique U.S. tax law of depreciation on real estate and 1031 gains. In addition, I received $35 million in PPP loans that were forgiven. Greatest business ever.