Investing in Rural property, farm land and ranch real estate as investment property

Rural Investment Real Estate.

I work with hundreds of real estate investors, I help them find investment property, purchase it, manage it and eventually sell it. As a real estate broker and a property manager it is my job to see that my clients prosper in their investment choices. Most are looking for immediate cash flow, cash flow is certainly nice but long-term investment can be much more profitable.

One often overlooked type of investment property is farmland, ranches and rural property. Here are some facts. Unfortunately as with most statistics we must rely on old data, as the last census was made in 2000.

Facts: According The U.S. Department of Agriculture; Since 1987, average U.S. farm real estate values have rebounded 102%, from $599 per acre to $1,210 per acre in January 2002. In real or inflation-adjusted terms (1982 dollars), this amounts to a 39-percent gain, 39%!

More recent reports from The U. S. Department of Agriculture show Farm real estate values, a measurement of the value of all land and buildings on farms, averaged $2,160 per acre on January 1, 2007, up 14 percent from 2006. The $2,160 per acre is a record high and $260 more than a year earlier. Both cropland and pasture values for 2007 are record highs. Cropland values rose by 13 percent to $2,700 per acre, up from the previous high of $2,390 in 2006. Pasture value rose by 16 percent to $1,160 per acre.

The increase in farm real estate values continues to be driven by a combination of many factors, which include strong commodity prices and farm programs, outside investments, favorable interest rates and tax incentives, and continued commercial and residential development. Livestock prices and recreational use remain the predominant influences that increase pasture land values.

Are your investments gaining that kind of value?  So how do you cash in? First of all you need to know the market.

The values increased differently by region and by land type IE Cropland vs. pasture land. In fact it can be broken down by state and property type too. (data source) Since I work with Kansas and Missouri real estate I decided to focus there. 

 Change in land values in dollars per acre

State:    MO                                                                                                                  State      KS.
2003     1,470                                                                                                               2003       685
2004     1,580                                                                                                               2004       715
2005     1,790                                                                                                               2005       735
2006     1,980                                                                                                               2006       840
2007     2,280                                                                                                               2007       961   
% 06-07            15.2%                                                                                % Change 06-07         14.4%

According to a study from Yale.edu the average compounded annual return for the stock market over the period 1926-2000 is 10.70%. That's right the stock market average is only a little more than 10%.

So again how can you make this work in your investment portfolio. Wealth does not always come from cash flow. Real wealth is derived from assets. Buy and hold! As asset increases in value you can borrow on that asset to continue your investment strategy; leveraging assets.

Finding the land, requires knowledge of an area, I stick to Western MO and Eastern KS. Find a broker or Realtor who knows the area and can help you find those listings. Like any other investment you need a real estimate of value before making the leap. You can get this from comparable sales and you would always be wise to invest in an appraisal if one is not available.

How to make the land pay for itself:CRP, Hunting and Recreation, Crops, Leasing, Utilities, Communications.

CRP, Conservation Reservation Program; The government may pay you not to farm!

Hunting and Recreation, There are literally hundreds of organizations who will lease land from you for hunting and recreation, One of my favorites is Hooks Hooks and Triggers hooksandtriggers.com is a local franchise of the American Wildlife Association. They will lease your land for hunters to use. They will often, also carry liability insurance that will protect your assets.

Crops, many American farmers, lease land on which to plant crops. With the increase in value of crops like corn and soy beans. Many farmers are looking to expand their operations. Crop producers rely heavily on rented land in their farming operations. In a survey of producers belonging to the Kansas Farm Management Associations, one study found that nearly 90 percent of the operations used rented land.

Leases, Utilities and Communications: It is not uncommon for utility companies and now cell phone and communication companies to pay to lease land from an owner, cell sites can easily pay $500 a month or more. 

By tying all of these elements together, and considering the low cost of insurance and taxation, your return may well pay you to own that land. With the statistical increases in value seen over time you could soon be gaining significant equity.

An often overlooked part of this equation is pasture leasing, that coupled with the leasing of any improvements to the land like the house and barn can bring in additional income. When hay prices increase due to drought, flood or other natural causes, livestock owners start looking for new sources of hay and pasture to graze.