Investing in Land

Real Estate has had its ups and downs over the last 10 years. Inthe Northwest (Idaho, Oregon, and Washington), we have seen both skyrocketing prices, to bottom-of-the-barrel prices with the bubble, in residential, residential development, and recreation land. Over the last few years, we have seen a leveling out of the market, as well as good growth in many sectors. Larger metropolitan areas are seeing very strong residential and commercial markets. Farmland has seen a steady, healthy growth during the high crop and cattle commodities’ prices in recent years.

Producers, cattle operators, single investors and recreationists have been reentering the farmland market over the last several years, which has kept the demand for all types of real estate strong. Additionally, a more recent player in today’s land market is the Farmland REIT’s (Real Estate Investment Trusts). Between 1995-2013, the National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index had an average return of more than 12%. While NCREIF’s Commercial Property Index and the S&P 500 Index each had an annualized return of around 9%. Investment grade corporate bonds had an annual return of around 7% during that same period, according to the Bank of America Merrill Lynch U.S. Corporate Index. This has helped keep the demand for larger farms strong.

However, with the recent drop in commodity and cattle prices, we anticipate a slowing or a leveling off period for farmland and ranch land prices. Even with lower commodity prices, the current supply remains low; therefore, keeping the demand for quality farmland strong. A driving demand in the Northwest has been buyers moving their farm or ranch operation to the Northwest from states where they are struggling with over-regulation and drought conditions.

In the Northwest, we have seen growth in land value over the last several years. Below are some graphs from data gathered from the USDA’s Land Values Report published August 2016. These averages show a continued growth over the last four years. Pasture/ grazing land and non-irrigated farmland has seen less growth than cropland.

The land value prices can vary quite a bit from the average. Many factors come into play when figuring the value of each parcel of land. For example, in Southwest Idaho, prime farmland that is level and has good water rights, can reach up to $10,000 per acre, where lesser-quality, irrigated ground with sloped terrain may be closer to $4,500 per acre. Because of the transportations costs, the distance from the market can also keep prices lower. Type and quality of water rights can also affect the value of irrigated cropland. Rainfall and quality of soil are main factors in non-irrigated farmland. Quality of grass, other vegetation, and access to stock water affect the value of pasture/grazing land. Land values are cyclical, and a good real estate broker can help you with the purchase, sale, management and stewardship of the land you wish to attain. It is best to seek the advice of a trusted real estate broker that is knowledgeable of the area in order to determine if the property is listed at a fair price.

There are many reasons land is a good investment. As populations in the United States and around the world grow, so does the demand for housing and other urban uses. Cities were often originally built near, or at locations of quality soil used for food production. As larger cities expand and develop infrastructure onto that agriculturally rich, fertile land, the demand for fertile farmland grows stronger, in order to keep up with food supply in the growing population and Investing In Land to replace that land. Agricultural technology is improving everyday on how to make the land more productive, and how to turn land that has never been farmed into more fertile land.

For investors looking to purchase, quality farmland ownership can provide steady cash flow through cash rents. Farmland rents are traditionally thought of as secure, with plenty of demand from potential renters. However, there are also risks in owning land. Items such as government policy, droughts, poor management, changes in mother nature, and other variables that can be difficult to manage or plan for.

You may be in the circle of producers, a farmer or rancher, and understand the value of owning your land. Or, you may be that investor or recreationist that has already invested in land for the future. Maybe, you are the beginning producer or investor that wants to buy your own property. Whatever category you fall in, you understand that there is value of land ownership. Owning property is a tangible asset, and, one of which cannot be reproduced. We only have so much of it. Additionally, land ownership means many different things to people. It is very diverse, and provides the opportunity for everyone to find the piece that is just right for him or her.

Investing in land does require knowledge of the market you are looking to purchase. You will want to become familiar with how farming and ranching practices work there. Some important factors to research are water rights, BLM and State permits, and land use regulations. Buying land also requires more cash at closing than if you were just buying a home. You will also want to do a great deal of due diligence and thorough site selection research.

This is where Knipe Land agents and brokers can help. Knipe Land Associates come from farming and ranching backgrounds. They have up to 30 years of real estate experience, mostly dealing in land transactions throughout the Northwest. The company has been serving clients since 1944, and is here to help you in your research and purchase of that parcel that fits your needs and desires.

Call or email us today (208) 345- 3163 or info@knipeland.com, and search our website to see all of our properties we have for sale.