Meet the Opposite of Socially Responsible Investing
A few investors avoid companies that sell products like beer or cigarettes. Some take it further and avoid companies that sell products that have a lot of caffeine or produce unhealthy junk foods; Islamic investors won’t even invest in a bank that charges interest on loans or in a company with a lot of cash on its balance sheet that is likely earning interest.
While many look at those types of self-placed restrictions as counter to their goal of making money, it’s also fair to say that the vast majority of investors would never invest in something like a strip club or adult movie company. For those who have no social consciousness filter whatsoever, legal brothels in Nevada are probably the most morally questionable industry where someone can legally invest their money.
In Nevada, counties with less than 700,000 residents can license businesses to legally sell sex. This rules out the population centers of Las Vegas and Reno/Tahoe/Carson City. You’ve heard of an investment idea being not for everyone. This one is for barely anyone.
Reasons Not to Invest in a Brothel
• SOCIAL PARIAH – You will become a social pariah. Most brothel owners are looked down upon by society like pimps and sex traffickers, even though the evidence seems to indicate that women are 100% participating in this industry on a voluntary basis (and there seems to be no shortage of applicants).
• GEOGRAPHY – Nevada brothels are in rural counties. Outside of Pahrump which is about an hour from Las Vegas, many of the brothels are 3 to 5 hours away from a major city. Many are in very rural areas like Ely, Battle Mountain, and Mina. Unless you want to get away from it all, these probably aren’t most people’s first choices of a place to live. This will also be reflected in the customer base which is likely to consist of truckers and locals, and not very many city slickers.
• HEAVY REGULATION – Brothels are heavily regulated. You have to deal with numerous laws related to sex, liquor, hotels, advertising, medical testing, employment, taxes and on and on and on. You could face stiff civil and criminal penalties if you do anything wrong.
• MANAGEMENT INTENSITY – You will be robbed blind if you do not keep a close watch on a cash business such as this which does not necessarily have morally straight-arrow customers or suppliers involved. If you are going to be an absentee owner, you better have a manager that you trust with your life.
• STIFF COMPETITION – while it isn’t terribly expensive to buy a rural brothel, the larger brothels like Sherri’s Ranch in Pahrump and Dennis Hof’s Moonlite Bunny Ranch in Mound House, are quite well-financed and benefit from an estimated $20 million in capital improvements in the case of Sherri’s Ranch and extensive publicity. A very small number of brothels employ many more prostitutes and capture 80% or more of the market.
• QUESTIONABLE FUTURE – Brothels may not exist in 10 years. The industry’s once popular chief lobbyist retired and the newer, younger legislators being elected to the Nevada haven’t shown any interest in preserving the industry. Influential former Senator Harry Reid proclaimed in 2011 that, “The time has come for us to outlaw prostitution.” Brothels are still around in 2021 but obviously struggling due to the COVID pandemic.
Reasons to Invest in a Brothel
• PROFITS – They make money – many brothels charge nightly rent to their independent contractor/prostitutes plus keep half of the income they bring in. This type of high commission, recurring income model will produce income if the owner can do a reasonable job of controlling costs.
• BARRIERS TO ENTRY – A brothel license is tough to get and most of your competitors (street prostitutes, escorts, pimps, etc.) are illegally competing against you and subject to prosecution. Even though a brothel license is tough to get and brings recurring regulatory requirements with it, it does effectively form a moat (in the words of Warren Buffett) around your business.
• ALL EYES ON ME – You want to be THAT GUY that owns a brothel.
Where Can You Find a List of Brothels for Sale
Brothels are occasionally listed for sale on Craigslist, or business for sale websites like BizBuySell or BizQuest. One recent listing on BizQuest listed a brothel & massage parlor with 6 working rooms in rural Ely, Nevada, for sale for $195,000 (the listing has sold and been removed). You can also contact brothel owners directly. Many are older and might be looking to exit the business if the right offer came their way.