Land investment question

[Matt D]

Have been looking at putting about 10% of my investment dollars in to a land purchase. The land is currently in a crp contract with 7 years left on it. The current crp contract returns about 3.5% annually so that would be 7 years at that rate. Land historically in that area has increased 8% annually. So figuring 3.5% from crp and half of the 8% annual increase,to be very conservative, gives a 7.5% effective annual yield over the life of the current CRP contract. Thoughts on this as a pretty secure addition to investment portfolio? This would be my only bare farm ground I own and it is located in another state although not sure if that matters. Appreciate others input and thoughts. May have some follow up questions to this depending on replies. Thanks in advance.

[NitroZ7]

If it is in the CRP program is the land environmentally sensitive to a degree that it could prevent a different use? I know in Florida when a developer develops lands and part of it consists of wetlands they have to mitigate that by building wetlands or paying money. I would definitely get a good real estate attorney in the state where you are buying to go over any restrictions that land may face. If you want to sell it to a developer down the road any restrictions in use could affect its market value. Are you planning on leasing it for farming or cattle or anything like that or just holding it for an investment? In some states you get a tax break if you use it for agricultural purposes. Another topic you can discuss with your attorney.

[Matt D]

Great questions. It’s a quarter section of land. 111 acres tillable. 49 acres in WRP so can’t be farmed or messed with. This is farm land and with the location of it I would say development opportunity would for all practical purposes be zero. 15-20 years ago this would be grazing land. With the advances in seed technology this area has been raising some very good bean and corn crops so if removed from the CRP at the end of this contract then it would be cash rented. In reality the income from cash rent would be higher than the CRP payment but my preference would be to keep it in CRP because of the hunting opportunities it offers.

[NitroZ7]

Great questions. It’s a quarter section of land. 111 acres tillable. 49 acres in WRP so can’t be farmed or messed with. This is farm land and with the location of it I would say development opportunity would for all practical purposes be zero. 15-20 years ago this would be grazing land. With the advances in seed technology this area has been raising some very good bean and corn crops so if removed from the CRP at the end of this contract then it would be cash rented. In reality the income from cash rent would be higher than the CRP payment but my preference would be to keep it in CRP because of the hunting opportunities it offers.

Sounds pretty good if you can make income from CRP and use it for hunting land or rent it for farming. Just need to dig a bass pond and you are all set. Would you be allowed to build a small hunting cabin?

[Matt D]

Sounds pretty good if you can make income from CRP and use it for hunting land or rent it for farming. Just need to dig a bass pond and you are all set. Would you be allowed to build a small hunting cabin?

Yes would be able to build that any place on The 111 acres. I’m struggling to find a reason this doesn’t make sense to be honest. Then my next question is whether to pull cash out to buy or take advantage of the low interest rates and finance it?

[CatFan]

If you are anywhere close to average CRP rent, that would be under $3000 an acre selling price to get a 3.5% return. People would be lined up at the seller’s door with buckets of cash to buy it here.

Consider things like taxes, fence maintenance if neighbors want one, availability of utilities and any easements on the land. If there isn’t a relatively current survey on file, have one done. The price will shock you, but the problems brought about by not having a survey will shock you more.

[NitroZ7]

Yes would be able to build that any place on The 111 acres. I’m struggling to find a reason this doesn’t make sense to be honest. Then my next question is whether to pull cash out to buy or take advantage of the low interest rates and finance it?

Don't quote me on this but my recollection is for vacant land the loan to value is usually 50% or less so you will have to come out with cash to close. I'm not sure what the interest rates are on vacant land so that could be a factor in your decision. Then there are closing costs etc. which are higher with a loan. Just some things to consider in you decision.

[Matt D]

Typically for tillable land 25-30% down or equity is the norm. For non income generating “Rec” land 50% is more common. Agree on some additional costs with going with a loan.

[haftafish22]

I say roll with it, build a cabin, a lake and a dock. Invite only bbc members in the stock and investment forum. I’m in, hell, I’ll even pay gas to get there

[Matt D]

I say roll with it, build a cabin, a lake and a dock. Invite only bbc members in the stock and investment forum. I’m in, hell, I’ll even pay gas to get there

😁😁🍺🍺😁😁

[digthemup]

Matt D,
I hope the land is not in NYS, or the taxes alone will kill you. I am the type of person that I don't like to own property out of state, unless I have a trusted person near by to CK on it periodically.
Look into the closing costs and all other expenses associated, and if it works for you, it seems like a good deal.
Currently, I have @28 acres final section of old subdivision that I am selling, and asking 375K for it with all utility stubbed on site.
Don't seem to be any cheap land any more any where.

[Matt D]

Matt D,
I hope the land is not in NYS, or the taxes alone will kill you. I am the type of person that I don't like to own property out of state, unless I have a trusted person near by to CK on it periodically.
Look into the closing costs and all other expenses associated, and if it works for you, it seems like a good deal.
Currently, I have @28 acres final section of old subdivision that I am selling, and asking 375K for it with all utility stubbed on site.
Don't seem to be any cheap land any more any where.

You bring up some good points. Not in NY. Those taxes scare the hell out of me. Taxes extremely cheap. Have friends about 30 miles away and there is a local guy that has helped the current owner keep an eye on in exchange for hunting permission which would be my plan also. Will see how things shake out but still kicking it around. Thanks for the thoughts!

[digthemup]

You bring up some good points. Not in NY. Those taxes scare the hell out of me. Taxes extremely cheap. Have friends about 30 miles away and there is a local guy that has helped the current owner keep an eye on in exchange for hunting permission which would be my plan also. Will see how things shake out but still kicking it around. Thanks for the thoughts!

Seems like a lot of positives, so time to get that commitment in and get it under contract.
My best to you