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Land Investment

Growing Green: An Investor’s Guide To Investing In Land Real Estate

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We believe investing in land real estate starts with the why. For a broker to serve a client well, they need to understand why a client wants to start investing in land real estate. Often, the why has little to do with financial issues. Why do they want to invest? What is important to an investor? Are there are financial, emotional, and recreational benefits to investing in land for them?

Once we understand the why, then it’s a matter of figuring out the financial entry parameters for the investment – total dollars to be spent, desired geography, the target rate of return, etc. After we learn the big picture parameters, we can help shape expectations. Setting expectations at this stage is critical. In all areas of land investing, so much of the long-term financial success hinges on how well we do in helping a client achieve realistic expectations to purchase an asset. Buy low, sell high isn’t a complicated idea, but it’s very hard to execute (especially on the buy side).

investing in land real estate

It is important for the broker to discuss this and help the client consider the liquidity of the land investment. This discussion will help the client keep in view the ‘long-game’ with the prospective sale of the asset, which may be years down the line. As brokers and trusted advisors to our clients, having that exit strategy/discussion is important. Take notes, and make sure the client knows and remembers how and why they chose to do what they did.

Investing in land real estate is one of the oldest investments in the world. The significant wealth of the world originated with land ownership. Land is also traditionally one of the most conservative investments, with land held by families for generations. Institutional investors have named land as a new asset class.

Changes in technology, world demographics, and government policies have caused land income and land prices to increase. The financial performance of land as an investment has offered financial stability, steady earnings, and diversification from other investments. Land earns well compared to other assets.

Our team of farmland professionals helps individuals, families, and organizations buy, sell, and own income-producing land – primarily for those who do not provide their own labor or machinery. We professionally manage 2,400 farms with 550,000 acres for our clients.

asset return characteristics chart for investing in land real estate

Land is a stable investment. However, there is risk to managing it. An investor manages risk through the selection lease or operating arrangement, farm location, soils, crops, water quality, and quantity. Each of these factors is predicated on geography. Buying land in the corn-belt has a different risk profile than buying land in the West, Delta, or Southeast.

Our team of farmland professionals helps individuals, families, and organizations buy, sell, and own income-producing land – primarily for those who do not provide their own labor or machinery. We professionally manage 2,400 farms with 550,000 acres for our clients.

Land has unique characteristics, compared to other real estate and securities:

  • Land has the potential for perpetual income. If owners are good stewards of the land and maintain and improve the land, the land will produce income
  • Land produces tangible production – something Whether the land grows commodity crops, veggies, livestock, or timber, it is real production.
  • Quality land builds and maintains value through a combination of soil, location, water, climate, logistics, and community. Selecting land for investment allows the investor to hand pick the location and characteristics that help maintain value and position for future growth in income and

Government policies shape and influence the land use, ownership, and potential future uses. Land ownership offers stability with changing government policies. Many of our governments have difficulty managing their economies and lack the fiscal discipline to balance their budgets. There are few investments which offer financial performance based on producing food and tangible commodities that adjust for inflation and economic changes.

The technology revolution is impacting land efficiency, water management, genetics, cultural practices, and food safety – all which impact land values. Land production and income is a result of improving yields, quality of production, production efficiencies, and demand for food, fuel, and fiber for a growing world population. Examples include average corn yields increasing by 400% from the 1930s to today, and productivity improvements with labor content today for an acre of corn or soybean production of less than one hour per acre per year. One American farmer now feeds an average of 116 people.

Land values are directly correlated with the benefits received from the land. As productivity, yields, and prices have increased, so have land values.

Finally, investing in land real estate can provide additional benefits beyond pure financial rewards. In addition to producing something for the world, you have an environmental benefit and the recreational components of hiking, hunting, fishing, and pride of ownership.

How do you participate in land ownership? You do not need to live on the land and operate and manage it yourself. There is professional assistance and an active land rental market. Professional management of your land investment is available. There are thousands of little decisions to make while managing and improving the value of your land, all of which can make a larger difference among land investment results than people would imagine. The relationship between an owner and their manager/operator is special. They share a connection to the land and a relationship to making the world a better place.

This article was originally published in the Summer 2019 Terra Firma magazine.

Randy Hertz, ALCAbout the author: Randy Hertz, ALC, is CEO, broker, and farmland professional with Hertz Farm Management and Hertz Real Estate Services, specializing in land brokerage and management. He is a senior instructor for the REALTORS® Land Institute’s LANDU Education Program who has a bachelor degree from Iowa State and an MBA from Harvard Business School.

How and Why To Invest in Farmland

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OVERVIEW: INVEST IN FARMLAND

From the beginning of time, farmers have been an integral part of feeding the public. Many technological changes have impacted the farming industry, from the invention of the plow to more modern advances, such as GPS technology, irrigation, and drought-tolerant seed varieties. Many facets have changed but one has not, the dirt. Investing in land is a “simple” process of purchasing property and creating value through: revenue, appreciation, or tax benefits. Although it sounds that many “simple” investors don’t understand the difficulty in selecting properties that make sense for their investment goals when they invest in farmland, for example investing in farmland for retirement.  Listed below are a few short items to look at before investing in farmland.

FIND A PROFESSIONAL

 

Many investors both large and small make the mistake of not employing a professional that has the knowledge of the industry/market and can care for their money. Many times, throughout my real estate career, investment experience and as a farmer myself, I have seen investors not use the correct professional with knowledge of the land. When looking to diversify with farmland, seek a real estate professional with historical and proven confidence in the area.

Accredited Land Consultant land transaction expert farmland

Typically, land professionals are part of organizations like The Realtors® Land Institute where land is the single most asset class, they deal in. To go further, Accredited Land Consultants are trained and accomplished in the industry, of which only a few hundred agents have acquired the designation worldwide.  I use the quote, “I will not go to a heart doctor to get my hip replaced.” A Realtor® who sells homes in an urban area would not have the specific expertise to know the farm and ranch industry and understand the investment quality of a property. A farm and ranch real estate agent would not know about condominium prices in downtown. Use the Find A Land Consultant tool and look for an ALC Designated agent (see why) to make sure you are using a qualified land professional.

BENEFITS

One of the best benefits known to investors is the ability to have land as a tangible asset when you invest in farmland. This is especially important when a portfolio is heavily invested in the stock market.  Another benefit we see in farmland is the tax deduction in relation to depreciation.  Many farms contain improvements that depreciate such as grain storage, irrigation pivots, shops, barns and etc.  An owner can depreciate some of these assets each year to offset yearly taxes.  Always ask your favorite CPA for more information.

invest in farmland

“The United States has some of the best potential farmland for investment…”

Another great benefit to owning farmland is the ability to lease, farm, or share crop your property, to make money.  The value of farmland has increased over the last several years due to an increase in demand for food and fiber globally.  The United States has some of the best potential farmland for investment because of our democratic government and the infrastructure it possesses; ie, railroads, rivers and highways. Other countries have very fertile soil but have no roads to deliver products to a port, and it makes for a hard harvest.  Also, some foreign countries have great land to grow crops but have a corrupt government and/or the state owns all the ports of exchange.  Not all international investments are bad, they just can be more volatile than the U.S.

SELECTION

When selecting a farm to purchase an investor needs to keep three simple points in their process.  Do I have the capital to make the investment? Do I feel comfortable in a long-term project? Can I leave emotions aside when purchasing/selling?

  1. Knowing your buying potential, aka how much can you spend, is key when purchasing farmland. Some investors move capital into property with no debt and many move some capital and acquire debt through lenders.  Lenders are everywhere and, in my opinion, choose a lender that understands farmland and its characteristics.  There are options for government loans through the USDA and other government entities as well.  Consult your land professional to direct you to lenders that can help.
  2. Farmland investing for the most part is a long-term project. Many investors buy land and hold it for extended periods of time to get the most return.  Many large investors may hold land for as long as 10+ years to see the returns.  The farm economy goes in cycles much like the economy, which as a whole goes up and down.  To see real potential in farmland, one must be ready to hold on through at least 5+ years.
  3. Emotion is always on the table when it comes to tracts of land. Throughout my career I have fallen victim to getting emotional towards a piece of property.  This is a definite thing to remember when it comes to you and your family’s financial future.  Leave emotions at the door.  The phrase, “time is money”, can go both ways. Waiting two years to purchase because it makes more sense financially or selling now because you have a willing buyer, may factor into your decision. Remember, “A Bird in the Hand is Worth Two in the Bush”.

“To see real potential in farmland, one must be ready to hold on through at least 5+ years.”

DIVESTING

After the asset has reached potential or maybe you are ready to buy a new investment, it is time to liquidate. When you invest in farmland, selling the property is as important as the day you purchase. I cannot express the importance using a qualified professional. Visit the Realtors® Land Institute to find a qualified agent when it comes time to sell your investment. The right professional can elevate your sales price, alleviate hassle, and supply you with confidence to the day of closing. When selling farmland, a land professional must qualify buyers and must advertise to the masses. This requires a tailored marketing program and someone with whom has the skill set to vet buyers and make sure qualified candidates can meet or exceed the requirements to get to the closing table.

CONCLUSION

Investing in farmland is very rewarding, if done correctly. The key to remember is to surround yourself with qualified people to help you make decisions. This is your money and your future, happy hunting!

About The Author: Clayton Pilgrim, ALC, is a licensed real estate agent with Century 21 Harvey Properties in Paris, Texas.  Throughout his career he has been in production agriculture from on the ground operations to large scale management.  Pilgrim is involved in private investing in farms, ranches, and recreational tracts throughout East Texas and Southern Oklahoma.  He is a member of the Realtors® Land Institute, an Accredited Land Consultant and on the board of the Future Leaders Committee.  He resides in Paris, Texas, with his wife, Kristy, and daughter, Caroline.

land real estate investing

Hottest Markets For Land Real Estate Investing

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Land Real Estate Investing: Warmer… Hotter! ON FIRE!

This piece was originally featured in the Summer 2018 Terra Firma magazine.

Land real estate investing can be as intimidating as it is exciting, which is why it is so important to get all the information you need to make the right decision. The 2017 Land Markets Survey*, released by the REALTORS® Land Institute (RLI) and the National Association of REALTORS® Research Group earlier this year, showed that 25 percent of recent U.S. land buyers and 12 percent of U.S. land sellers were investors. This indicates a strong investor demand, up five percent over last year – and for good reason! Right now is a great time to be investing in land real estate. If you can find the right property, adding land real estate to your investment portfolio can be a safe bet with a steady return, especially over the long term when investing for retirement. However, finding that right property requires expert guidance and a wealth of information to ensure the best property is found to meet the investor’s needs. Figuring out which markets are hottest can start to feel like a game.

Bear with me a moment, I promise this has a point, but I’m going to throwback for a minute here to when I was younger. On the playground we would play a game where you had to close your eyes and try to find something a friend hid – sometimes another friend. All the while, they would yell “Warm… Warmer… Hot… Hotter! ON FIRE!” until you navigated your way to the hidden item and it was found. After reading the results of the latest Land Markets Survey, this game came to mind because it seems like there are quite a few markets getting “warmer…,” some that are “Hot!” and a couple that are just plain “ON FIRE!” As I dug into the data further, this became more and more true — so let’s take a look at what the hottest markets are for land real estate investing.

Time to Plant Seeds – Warmer…

seedWhen most people think about land real estate, scenic landscapes of sprawling farmland are often the first images that come to mind. Most in the land business know that agricultural land has taken a bit of a hit and is only now starting to rebound in many areas. Despite the overall trends, experts in the field say the demand for agricultural land hasn’t decreased much and that there is often a shortage of quality farmland for sale on the market which is driving prices of good, quality land up. Basic economic theory on the law of supply and demand explains why the survey results show a one to two percent increase in the price (or value) of the agricultural land that is on the market, depending whether the land was irrigated or not. So, now is actually a really good time to be an agricultural landowner or investor. And according to RLI’s survey, the price per acre of agricultural irrigated land sold rose two percent, while the price of agricultural non-irrigated land sold rose one percent – a rebound from the price decline reported in the previous survey. Respondents are also predicting a continued increase in agricultural land prices, alluding to a promising future as the market continues to rebound. While the market may not be “ON FIRE!” yet, now could be a good time to plant some investment seeds by grabbing-up ag land as it starts to heat up.

Bang For Your Buck – Hot!

buckIf you are thinking about investing in land real estate, it can be hard to decide where to put your dollars to get the best bang for your buck. Speaking of bang for your buck (hunting pun intended!), recreational land is also a solid type of land to invest in according to the survey. Prices of recreational land went up two percent since the last survey and are expected to go up another three percent. Recreational land sales dollar volumes are expected to increase four percent, second only to residential land at five percent, after already having gone up three percent in the prior period. All of this shows a very strong current market that is only expected to gain steam. Just make sure to ask the right questions when trying to find the perfect hunting land.

Chop, Chop – Hot!

timberIf you are looking for a solid long-term investment, chop, chop, because timberland is where you need to be; so much so, that there is a whole piece in the Summer 2018 Terra Firma magazine written by expert LANDU Instructor Rick Taylor, ALC, on investing in it. So where do the numbers from the survey fall on timberland? The average change in price of timberland sold increased one percent and is expected to increase another two percent. However, a more telling stat from the survey is the three percent increase in expected change in dollar volume of timberland sales compared to only a one percent increase in the previous period. Also, as the demand for new home construction continues to increase, it will continue to drive up softwood timber values/prices. Now, before you purchase yourself some timberland and start chopping away, make sure to read Rick’s article and check out the other pieces on our blog about timberland real estate investing.

Groundbreaking – ON FIRE!

residential land homeAccording to the latest Land Markets Survey, commercial and residential land are taking the industry by storm as potential investment options. In the time between the 2016 and 2017 surveys, the dollar volume of residential land sales grew five percent while commercial land sales followed closely behind at a four percent increase. Another great indicator that these two types of land investments are ripe for the picking is that while land prices are expected to increase by three percent across the U.S., commercial and residential land prices are expected to exceed average with an increase of four percent. Plus, 52 percent of respondents said that residential land has become less available in the last five years. Remember our lesson on supply and demand when we talked about ag land prices? Same law applies here. So a decrease in supply and increase in demand means we should continue to see an increase in price for residential land. You may notice this aligns perfectly with the increase in land prices predicted by survey respondents mentioned earlier. If you are interested in learning more about this hot market, there are some great pieces on the RLI Blog about the increase in demand for residential land real estate.

Hopefully, this piece revealed some valuable information you can use to help make your decision when it comes to land real estate investing.  Finding success in the playground game I mentioned earlier was a combination of needing expert guidance, reliable information, and, of course, a little luck — a lot like investing in land! So, keep in mind that land transactions require specialized expertise making it necessary to find a qualified, experienced, and educated agent –like an Accredited Land Consultant (ALC) – to provide reliable guidance and information when investing in a property. Then all you need is a little luck!

*The Land Markets Survey is conducted annually each fall by the REALTORS® Land Institute and the National Association of REALTORS® Research Group as a tool for real estate land professionals in all sectors of the business to use for bench-marking and as an informational resource when conducting business.

The survey is designed to reveal current trends and the current state of land markets across the US. RLI encourages all land real estate agents to participate in the survey to ensure it is accurate in representing the actual state of the land market each year.

All data included in this article are pulled from the 2017 Land Markets Survey and reference the time periods outlined within.

 

Jessa Friedrich, MBA, Marketing ManagerAbout the Author: Jessa Friedrich, MBA, is the Marketing Manager for the REALTORS® Land Institute. Jessa has a Bachelor of Science in Business Administration and Marketing as well as her MBA specializing in Marketing. She has been with RLI since March 2015 leading their marketing, branding, and communications efforts.