I& #39;ve owned and operated private prisons for over two decades. Private prisons are the single greatest real estate investment vehicle around. Here is what I have learned.

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Owning a private prison gives an investor a recurring and predictable stream of high margin revenue. The government contracts are long-term in nature and very lucrative. I have managed to make over $35k per prisoner annually.

Let& #39;s breakdown a deal.

I purchased the Eagle Pass Facility in 2008. Total cost was $30 million with 25% down ($7.5 million). The facility has 1,200 beds implying a cost per bed of only $25,000 (building a new prison is in excess of $150k per bed).

I entered into a perpetual contract with the United States Marshall Services at $20 million per year with 5% escalators per year. In the first year we generated $5 million in free cash flow, a 67% cash on cash return.

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 paid off by the end of year two. To pay me back the judge sent most young men (higher margin than older men) to my facility. 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. Halfway through year four we sold the facility to private equity for 10x cash flow or $150 million.

In four years I turned $7.5 million into a clean $150 million. I took this money and reinvested it into other prisons across southern states. Today I manage an investment portfolio of over $1.5 billion in prison real estate.

Tips:
- Get financing from individual investors
- Focus on states "hard on crime"
- Prisoners = money. You need crime to profit
- You can use prisoners to generate ancillary revenues at dirt cheap wages (incredibly high margin)
- Become best friends with judges

Private prisons are one of the most overlooked and undervalued real estate vehicles out there. With a little sweat equity and American entrepreneurship you can become extremely wealthy through this passive investment.

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