The Real Deal on Land Deals: Separating Myth From Reality
It’s undeniable; we are living in challenging times. Unemployment is up, business is down and the economy is at best uncertain. Interest rates are at an all-time low, oil is high (for now) and the real estate market has “tanked”. The market goes up for two months then gives all the gains back in a one day sell-off. Investors are on the sidelines or in and out of stocks trying to make back their losses. The financial community is wringing its hands one day and celebrating the next
It used to be that property buyers could either afford to buy or they couldn’t. They asked “how much” did some quick back of the envelope math and came up with either a “yes” or a “no”. They knew what they had to work with and they made decisions accordingly. Their financial future was more certain; or at least they thought so.
Today, it’s different. There are plenty of buyers with plenty of money but there is not the same degree of confidence. It seems like potential buyers are relying more and more on third parties like a financial planners or accountants to give them “permission” to spend the money on a property. In a sense they wind up “subbing out” the decision to so some “financial resource” person.
Unfortunately, these “experts” sometimes give advice not fully understanding the dynamics of the recreational property market. For instance, some “experts” are gun shy of anything that even smacks of a real estate deal. They hear of the “tanked” real estate market and want their clients to stay out of it. The news can’t stop braying about underwater mortgages and foreclosures and it is rubbing off on some of the so called “experts”.
While this might be true in certain markets and caution and due diligence is always good advice, there is no reason to stay out of the hunting property market. It is stable and defiantly worth a look. We have watched this market for some 20 years and have found land to be a pretty solid and safe place to park our money. In fact, we have significantly added to our personal land holdings over the past 10 years and are very happy to have done so (our stock market record should be so good).
Others seem a little more self serving. They get paid to manage money for people and will make a whole bunch less if their customer takes a half million dollars or so out of the game. Forget the fact that one of their client’s goals has been to be able to own their own hunting property, a guy has got to worry about his own business and managing other people’s money he how many financial planners make a living. Besides the market is on it’s way up (again).
We have also seen a trend of financial advisors trying to keep their clients in investment vehicles including a super volatile stock market. It’s as if they were asleep under and old oak tree since the recent market meltdown(s) and recession (anyone for 10 pins). Are they serving their clients well or are they giving bum advice? It’s hard to say, especially without full understanding of a person’s financial circumstances.
One thing for sure, in the past 10 years we have seen it all. We’ve seen prospective buyers advised to “stay in the market and earn your money back” only to have the bottom fall out and wind up deeper in the hole. A few years ago they could have bought 300 acres, now they can barely afford 10 acres and a 600 sq. ft. camp and an outhouse. We’ve seen people “sell high who bought low” and two weeks later sign a contract on the hunting property of their dreams. Today that property is worth 15% more than they paid for it. And, they are having a great time hunting it.
The last thing we want to do is push someone into a property they can’t afford but of late, more and more misinformation seems to be turning up about purchasing recreational property. The following are some of the more common myths being advanced by some of the so called “financial experts”.
Everybody is selling land(myth). Times might be uncertain, but hunters and recreational landowners are still holding on to their land. Beach houses, Florida condos, and storefronts may be for sale everywhere but not good hunting property. We are always looking for it and it is very hard to come up with.
In some states like PA, IL, IO, NJ, WI and VA good hunting property is either impossible to find or impossible to afford. Fortunately there is still some good hunting property left in a few states like NY, OH, KY, MI and some parts of the South.
The recreational property (hunting) market has “crashed” (myth). There is still plenty of demand out there for good hunting property. In fact in our experience, good hunting properties are very difficult to find and very few individuals have lost money on good solid property investments. Every year hunters eager to realize their dream of owning a place of their own show up at the buyer’s table with money to spend.
Land prices have plummeted (myth) In almost 20 years of tracking hunting property prices we have seen a steady increase in land values of approximately 5%. Sure, speculation land and enterprise property in S.Florida, or Arizona or Las Vegas, has plummeted as have mortgage bubble inflated home prices but recreational property suitable for hunting has steadily risen in price.
You’re better off investing in stocks and bonds (myth) Take the 5% annual appreciation of raw property and add roughly 2% per year for whatever timber asset your land may possess and you are looking at roughly a 7% annual appreciation in land value. If you improve your property with food plots and other enhancements your property can easily appreciate even more. Barring a major catastrophe this beats any “low risk” bond you will ever look at and given the “up down” nature of the market is a whole lot safer. Remember the guy advising you to stay in the market is generally is making money by doing so.
The taxes will kill you (myth, unless you let them kill you). Yes you will be facing property taxes but they can be reduced (up to 70%) by enrolling your property in any number of conservation and/or timber management programs (like 1040-A). Some programs reduce taxes some pay you directly. You can also lease portions of your property to croppers and realize significant revenues from a timber sale every 10 years or so. Gas and wind power leases are also yielding tremendous revenues to some land owners.
You can also permit others to hunt on your land and charge for the privilege. Your property tax burden can be reduced significantly with little to no negative impact to your hunting enjoyment by taking advantage of the various programs available.
The banks won’t give you a mortgage. (myth) We can’t get you a 0% down “bubble loan” but we can help you get a no frills solid band financing package. If you have 30% to put down, good credit and some assets to back up the loan a 10-15 year mortgage should be no problem.
Land is not liquid (fact). Non-liquity is a characteristic of land. It is not impossible to sell land in a hurry but even the smoothest transactions with a seller and willing buyer take a month or so to get done. If you are looking for the fast action, stay in the market or head for Vegas.
If you ask a fair (non losing) price you should be able to sell a good hunting property within a year of putting it on the market. And, this isn’t all that bad. Land deals shouldn’t be done in a hurry. Most good ones never hit the market and are scooped up by neighbors.
You’ll be sorry, you can’t afford it (myth). Only a golfer or an idiot could make a statement like this. We deal with hundreds of hunter/landowners each year and very few would trade their land for anything. To the contrary, they wonder how you can’t afford to own property. Sometimes they want to upgrade but seldom do they want out of the land owning business.
Unlike boat buyers who are as happy the day they sell the darn thing (we should know) as the day they buy it, most landowners would sooner cut off an arm than cut 10 acres out of their land. Once you get dirt under your fingernails it can never be washed out. Land brings peace and tranquility and a sense of order to ones’ life. You’re buying a lifestyle not making an investment.
Exceptions would be in “fancy” deer hunting areas like Iowa and Pike Co. ILL and Buffalo County WI where prices have skyrocketed due to big buck fever.
Most experts agree that the economy is not likely to settle down any time soon. Advisors urging you to “wait till things calm down” or “wait till the market comes back may not be aware of the economic safety and pure pleasure of owning land.
If you are wondering if you can afford your dream property by all means talk to everybody and anybody you can but be careful of what you do with the advice and much of it may be more myth than reality.