The $650,000 truck, and the number I should have known before I bought it
A few years ago we bought a Kenworth T880 with a Palfinger grapple saw on it. $650,000. It was, by a wide margin, the most expensive piece of equipment Alpine had ever owned, and I’d be lying if I said we had the whole picture when we signed. I’m not sure we thought much past which jobs we’d be able to take, how much faster we’d be able to work, and how awesome this truck looked.
If you’re not in tree work: a grapple saw is a crane with a claw and a saw on the end. One operator, sitting in the cab or working a remote, can cut and lower pieces of a tree that used to take a climber, a ground crew, and most of a day. It changes what a crew can do. It also needs a CDL driver and a trained operator, so before the truck showed up we picked one of our guys, got him trained in advance, and had the manufacturer’s trainer on site the day it arrived. That part we did right.
The part we did late was the math.
Months after the truck was already working, we finally sat down and figured out what it actually had to produce. Not the payment. The whole thing: the financing, the overhead it carried, the labor on the crew it ran with, and the repairs and maintenance that come with operating a machine that complicated, especially with a novice operator. When all of that was on one page, the answer was this: with a four-man crew, that truck had to bring in a minimum of $8,000 a day. With a three-man crew, $6,000. And that’s on a four-day work week, which is how we operate.
$8,000 a day, four days a week, every week, just to make it worth operating. Not to get rich on it. To justify its existence.
Would we buy it again? Yes. It earns its keep, and it does work we couldn’t have sold otherwise. But if I had it to do over, I’d have run those numbers before the purchase, and made sure we were ready for it, with the field employees and the type of work to keep it busy, instead of months into owning it. We bought the truck because we could see what it could do. We should have bought it knowing what it had to do.
The same mistake, smaller
Here’s why I’m telling a tree-company story on a page that’s supposed to be about apartments.
A $7,000 HVAC replacement, or a $1,500 water heater, is the apartment version of that truck. Smaller number, same mistake available. In an older building, those units go out, and when one does, the money is spent whether you planned for it or not. The question isn’t whether you’ll replace HVAC or water heaters. It’s whether you figured out what that does to the numbers before you bought the building or after.
On buildings built before 2000, which is almost everything I look at, I rarely get a seller’s report of which mechanicals were replaced and when. What I get is “as needed.” So until I have a list in hand with the year on every unit, or I’ve verified it myself on a tour, I underwrite as if I’ll be replacing about 25% of them a year, and I budget for replacing half of them over the hold. That money goes into the capital reserves line of the model, not an expense line, because it sits in an account earning interest until it’s needed, and the model should capture that too.
The truck taught me to do that math before the check clears. Every piece of equipment, and every building, comes with a number it has to produce to deserve the money you put into it. Know the number first. The purchase will still be exciting. It’ll just be a thought-out decision instead of a roll of the dice.
