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Benefits and Drawbacks Of Different Types Of Land Investing

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In articles about investing, “land investments” are often all lumped together, as if investing in a commercial property is the exact same as investing in a vineyard. There are many different types of land, and not every land type is right for every investor. Let’s take a look at the benefits and drawbacks of investing in some of the different types of land.

Disclaimer: There are more benefits and drawbacks to investing in a single land type than we could ever fit in a single article, so we are going to focus on some of the most important pros and cons of each land type.

Timberland

Pro: Less Risky Than Stocks

Historically, timberland has had much less risk and volatility than stocks, but timberland returns were similar to those of stocks.

“Over the last twenty years, according to the National Council of Real Estate Investment Fiduciaries, returns from timberland have been almost equal to returns from equity investments as measured by the S&P 500.” Said Bob King, ALC in his article The Basics of Timberland Investing.

Pro: Moves Against the Stock Market

Not only does timber have less volatility than stocks, timber historically moves countercyclical to other asset classes. That means even during bad markets where many other investments types take a dip, your portfolio will have a safety net.

Con: Timber Is Delicate

The elements can impact all types of land, but timber is especially susceptible to the elements. Pests, natural disasters, wildfires, and other forces of nature can have long-lasting impacts on the value of your land.

Con: A Pricy Down Payment

When timberland is priced as the “highest and best use”, often by sellers marketing their land towards people looking to build their second home, the price can skyrocket. The exact same property can double or triple if it is reclassified. The best thing you can do, is work with a land expert in your area to make sure you are paying the right price for your investment.

Vineyard

Pro: Quick Returns

If you invest in a vineyard that is already producing grapes, you will likely see a return on your investment quickly. In fact, vineyards are one of the land investment types to see the fastest return on investment (ROI).

Pro: Tax Advantages

From the immediate expensing of replacing diseased vines to tax breaks based off the depreciation of a trellis to cash-only accounting, vineyards are ripe with tax advantages.

Con: The Down Payment Might Be More Than You Think

Depending on where you buy, investing in vineyards might cost a pretty penny. In the past decade, wealthy buyers have started investing in vineyards, so the prices have skyrocketed up to over $400,000 an acre in some high demand areas.

Con: High Operating Costs

Vineyards can be very expensive to run, making it harder to turn a profit on smaller vineyards. If you are buying a vineyard that hasn’t started producing yet, it won’t produce a profit for at least the first two years, so that can add extra financial burden to an investor.

Farmland

Pro: Tax Breaks Based Off Of Depreciation

Similar to vineyards, farmland can also offer tax advantages to investors, as pointed out in the article How And Why To Invest In Farmland by Clayton Pilgrim, ALC.

“Many farms contain improvements that depreciate such as grain storage, irrigation pivots, shops, barns, etc.,” says Pilgrim. “An owner can depreciate some of these assets each year to offset yearly taxes.”

Pro: The Ability to Lease Out Farmland

Sharecropping or leasing your land can help bring in some extra income. It’s minimal effort on your end, and it brings in some extra cash.

Con: High Risk

There are many risk factors to take into consideration with farmland. The market is unpredictable and can change on a dime. And it’s not just the market – the weather, natural disasters, pests, and dozens of other factors out of your control can take a serious toll on your investment.

Vacant Land

Pro: The Freedom

The possibilities of what to do with vacant land are endless. You can transition the property to its highest and best use, hold the property until the value goes up, add solar panels or wind turbines, and more. The choice is yours!

Pro: More Affordable Than Developed Land

Since it often doesn’t come with structures, vacant land often has a lower price tag than other land types meaning the financial barrier to entry is usually a lot lower than other land types.

Con: Less Tax Advantages

Unlike some of the other land types on this list, vacant land doesn’t have much to offer when it comes to tax advantages.

Orchards

Pro: More Money Per Acre

Trees don’t need much space, so you can squeeze lots of trees onto your property to maxamize your returns.

Con: Time To Grow

There’s an old Chinese proverb that says “The best time to plant an orchard was twenty years ago. The second-best time is now”. The meaning behind it is if you want a successful future, but in the hard work now, but it can be taken literally. Trees are a slow grower, and can take three-to-six years to start producing money. If you are looking for quicker returns, consider investing in an orchard that is already producing.

Con: Fruit Rot

Fruit that falls from the trees needs to be picked up quickly or else you run the risk of fruit rot. Rotting fruit can impact the health of your trees and the land.

Recreational Land

Pro: Sentimental Value

It’s not as easy to have fun on timberland! Recreational land is an investment that you can enjoy with your family and friends.

Pro: Can Handle More Wear And Tear

Unlike other land types (we’re looking at you, orchards!), recreational land is hearty. It’s meant to handle foot traffic. If you don’t want to spend time fretting over the impact of people or weather, this might be the right investment for you.

Con: Animals (And People) Can Be Tricky

If your recreational land is used primarily for hunting, you’ll need to keep a close eye on the habits and health of the animals on your property. Attracting and keeping game on your property can take a lot of time and money.

It’s not just animals you need to worry about – poachers and trespassers can steal animals, destroy the animals’ habitats, and scare animals off your land. Be sure to have clearly marked signs and limit access points to reduce the risk of trespassers.

There are lots of benefits to land investing, regardless of land type. Tax advantages, diversifying your portfolio, and saving for retirement are all great reasons. No matter what land type you invest in, investing for your future is always a good idea.

About the Author: Laura Barker is a freelance writer based out of California for the REALTORS® Land Institute. She has been with RLI since October 2017.

Summer Agritourism: How To Make Extra Money Off Your Land

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Agritourism — The word sounds like a trendy food you might find at a health food store between acai and kombucha. What agritourism actually is is an activity that brings customers to your land. While this concept might sound confusing, you may already have agritourism happening on your land today. Do you rent your land out for fruit picking, hunting, camping, or fishing? Congratulations, you’re already an Agritourism pro!

Summer is a perfect time for dipping your toes into agritourism. Here are some ways to use agritourism to bring in some extra money this summer.

Horseback Riding

If you have a lifelong love of horses, sharing it with others might be a great way to bring in some extra cash this summer. Renting out horses for trail rides, teaching lessons, or boarding horses on your land are all lucrative options.

While horses can be a huge draw, they can be expensive if you don’t already have most of the equipment. You’ll need:

  • Horses (of course!). Depending on how many riders you are expecting, typically you should have between two to twelve horses
  • Trails or an area to ride the horses in
  • Hay, grass, concentrates, and treats
  • A shovel and wheelbarrow for mucking
  • Saddles, blankets, helmets, and bridles
  • An unlimited water supply (did you know horses drink at least eight gallons of water a day?)
  • The time to feed, care, exercise, and groom your horses
  • Equipment for hoof maintenance (every six to eight weeks)

If you don’t have seven out of eight in that list, horses might not be the most financially-sound agritourism opportunity for you. Once the business is running, you can make extra cash by setting up a shop for visitors with branded gifts and common-sense needs for a day out (like water bottles and snacks).

Camping Land

If you have vacant land that you don’t need to keep in pristine condition, you might consider renting it out for camping. Camping is one of the most minimal-effort ways to rent out land (except for getting calls from that one person who gets lost every five seconds on their way to your property), and many are willing to pay top dollar for beautiful camping sites. You can charge extra for forest, mountain, or waterside property.

Using land for camping does come with its drawbacks. As mentioned above, you shouldn’t rent land out for camping if you need it to stay in perfect condition. Campers can leave behind lots of trash (plastic bags, old food, and even human waste!). Not only can this be bad for your land, it can attract predators like bears that you wouldn’t want near your family. Consider investing in a Porta-Potty and looking into the waste management options needed to run a campground. 

Tours

Visiting farm land has always been a popular field trip for school children, but there is also a growing interest from hip foodies who want to know how their food is raised. Giving tours of your land is a great way to teach people about farming and sell some of your crops along the way. If you sell your local grown food at a farmers market or local restaurant, those would be great places to promote that tours of the farm the food came from are available.

U-Pick

People are happy to pay extra for the experience of picking their own apples, berries, or other fresh crops. In summer, crops like corn, cucumbers, melons, and tomatoes are all in high demand.

U-Pick crops come with some surprising benefits. There are reduced labor costs, no transportation costs for the U-Pick crops, and entry fees ensure income even if people don’t pick anything.

If you are willing to work weekends and don’t mind the extra clean-up from people on your land, U-Pick could be a great way for you to make some extra cash this summer.

Vineyards

Who doesn’t love a nice, cold glass of wine during the summer? We could use a glass right about now! Wine tours are a summer staple. If you own a vineyard, consider tours, tastings, or interactive events to get wine lovers to your property. You can also pair your wines with your own cheese, fruits, or vegetables. Double the sales!

Even in the most well-planned agritourism plans, accidents happen. Tourists who aren’t used to rural life have the potential to injure themselves on your land. Because of this, you should have guests sign a waiver that protects you and your land. For a more in-depth look into the legality of agritourism, here’s a helpful PDF.

Agritourism is on the rise in America. Farming video games such as Stardew Valley are getting young and urban people interested in agriculture. A rising interest in how food is grown is also bringing more people to the farms. Hopefully, this article jump-started your creativity into thinking of how you can incorporate agritourism into your land this summer. If you are interested in purchasing a property to be used for agritourism, make sure to near you that is qualified to advise you on the transaction.

About the Author: Laura Barker is the Membership and Communications Specialist for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and has been with RLI since October 2017.

How To Start Your Own Vineyard

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Who hasn’t secretly (or not so secretly) dreamed of opening their own vineyard? The idea of walking through rows and rows of plump purple grapes sounds heavenly. Plus, all the free wine you can drink! Pour yourself a glass of merlot or chardonnay and let’s learn all about starting your own vineyard.

What Do You Want Out Of The Vineyard?

Before you start looking into grapes, ask yourself what you want out of the land. Would your vineyard be more for personal use, or would you like to make enough wine to sell to local stores and restaurants? Do you want to just grow grapes or produce your own wine on site? These questions can help you figure out how much land you’ll need and how much you can expect to spend.

Pick The Grapes

There are dozens of types of grapes, each with their own unique aroma, taste, mouthfeel, and climate where they grow best. Here are a few popular types of grapes and what they are best for:

  • Riesling grape. These grapes do best in cool climates. Vineyard owners love the flowery, sweet scent these grapes give off.
  • Cabernet Franc grape. This is a popular black grape around the globe. It can be used to make its own wine, or to be blended into other wines for a more complex flavor pallet.
  • Cabernet Sauvignon grape. This is one of the world’s most used red grapes. This late-budding grape is able to avoid most frost. It can do well in many climates with the taste varying based off of the climate. For example, in cooler climates, you can expect more crisp flavors like mint and cedar, while the grape takes on a sweeter, jam-like flavor in warmer climates.
  • Chardonnay grape: This grape produces a mild flavor and is easy to grow, making it a fan favorite among growers. It can thrive in many types of soil, but does best in chalk or clay.

How Much Can You Spend On Your Own Vineyard?

If you want to open a vineyard just for fun or are planning on growing grapes in your backyard, this step might not be as important for you. If you are planning on making money off of your grapes, this is important. It’s hard to give a general estimate of how much you can expect to spend, because there are dozens of factors that are different for every single vineyard owner. Here are just a few of the many things to consider while making your budget:

  • timing of the first harvest
  • when you can expect to see an ROI
  • labor costs
  • irrigation needs
  • machinery needs
    • fruit crusher, distilling, sanitizing, siphoning, bottling equipment, etc.
  • shipping costs
  • overhead to run the business and marketing costs

According to a study from Sierra Nevada Foothills, the average twenty-acre property can cost anywhere from a few thousand dollars to hundreds of thousands of dollars. Here’s a comprehensive budgeting plan for those of you interesting in opening a vineyard of fifty acres or more.

Prepare The Land

When choosing the property for your vineyard, be sure to pick a plot that is on a slope. Grapes do well on slopes because of drainage. You’ll also want to make sure the property has plenty of access to sunlight, because too much shadow can be deadly for budding vines.

You’ll also want to do a soil test. The soil should have a pH between 5.5 and 6.5, but no higher than 7. Vineyard vines are unique because they struggle to produce grapes in soil that is rich in nutrients. Because of this, you’ll also need soil that has quality drainage.

One Last Piece Of Advice

Patience is the name of the game when it comes to owning a vineyard. It can take at least two years for a vineyard to produce fruit, and turning a profit on wine can take even longer. Similar to green energy or timber, vineyards require a lot of money up front and can take many years to start making money.

Owning a vineyard doesn’t have to remain a daydream. If you start setting aside money and grow grapes on a property where you can maximize profits, you can make the American dream of owning your own vineyard into a reality.

If you want to learn about the art of buying and selling vineyards, check out these great RLI articles from the Summer 2017 Terra Firma magazine written by expert Accredited Land Consultant Flo Sayre. And if you are looking for a qualified agent to help you buy or sell vineyard land, be sure to use our Find a Land Consultant tool.

Laura Barker is a Marketing Assistant Intern for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and has been with RLI since October 2017.