Own a Piece of America
June 21, 2010
Chicago, IL, February 29, 2009: Whether you’re buying that perfect site for your future retirement home or investing in crop or timberland for a stable financial return, land offers a great place to keep your money safe and watch your investment grow.
And buying land is easier than you think—with the help of an Accredited Land Consultant of the REALTORS Land Institute.
The wide range of options under the “land” umbrella makes land an accessible purchase for almost every potential investor. Recreational timberland offers a good choice for long-hold investors since it combines periodic income from timber cutting with appreciation and the opportunity for personal enjoyment, says Benton Gibson, ALC, president of United Country Gibson Realty, McComb, Miss. Recent yearly returns on recreational timberland have averaged 8 percent in Gibson’s market, which are in line with national returns calculated by the USDA National Agricultural Statistics Service.
If one of your land-buying goals is purchasing a site for your future retirement home, now is a perfect time to take advantage of the market pressures on home builders to find a well-located lot at a great price. Rural land prices are also likely to accelerate as Boomers retire, notes Gibson. He cites a 2006 study by the National Association of REALTORS that found half of Boomers who live in an urban area would like to retire to a small town or rural area. Buying the land separately and not building until you’re ready to retire also helps keep costs down.
Developers’ financial distress may also produce some significant price reductions on land near the edge of current urban development, says Ray L. Brownfield, AFM, ARA, ALC, an associate broker with john greene Land Company in Oswego, Ill. But these investments—although they have strong upside potential—are only for those with deep pockets and patience, since “there is little viable income compared to the total cost of the land,” he says.
Speculative development land also carries higher risk than many land investments since it’s difficult to predict when and where new home construction will occur, he adds. But if you buy right and have patience, this type of land investment can have a tremendous amount of upside, he says.
For investors seeking low volatility and reliable cash flows, Brownfield and many other land experts suggest concentrating on farm land.
“Good agricultural land in our market can yield a consistent 4 to 5 percent annual return. And since prices have stabilized this year after several years of appreciation, it’s a good time to invest,” he says.
Despite the ongoing financial crisis, funds are available for qualified farm land buyers. Interest rates remain near historic lows, and lending sources such as local community banks in rural areas and the Farm Credit System (www.farmcredit.com), a federally chartered network of borrower-owed lending institutions, are still offering loans for as much as 85 percent of purchase price with a 20-year amortization in early 2009.
If you already own other real estate investments, you can use a 1031 exchange to acquire land, says Brownfield. These exchanges permit real estate investors to trade one real estate holding for another but deter any capital gain taxes until the second asset is sold. (Note that 1031 exchanges have stringent rules, so consult an expert when considering an exchange.)
Another ready source of funds for land purchases is a ROTH or SEP IRA. IRS regulations permit individuals to use retirement funds to purchase real estate, including land, through an IRA custodian that offers real estate investments along with stocks and bonds.
“Several of my investors have contacted me recently to thank me for suggesting they diversify their retirement accounts into land holdings,” says Lou Jewell, ALC of Dan River Real Estate Inc., in Pilot Mountain, N.C. “Others have told me that they wish they’d diversified before they lost their money in the stock market. I tell those people that it’s not too late to invest in land. There are still great opportunities today.”
But while there is almost certainly a land investment to fit any investor, finding the property that fits each individual’s goals requires expert knowledge and experience. That’s why the smart first step in making any land purchase should be consulting with a professional land broker, preferably one that holds the Accredited Land Consultant (ALC) designation from the REALTORS Land Institute (RLI).
The ALC designation is conferred only on those land specialists who complete a rigorous education program and achieve a volume of successful land transactions, says Dan Hatfield, ALC, 2009 RLI president-elect and owner of Hatfield Realty in Medina, Texas.
As a professional membership organization, the REALTORS Land Institute serves the unique constituency of real estate professionals who broker, lease, sell, develop, and manage land assets. RLI offers superior education through its RLI Land University and professional development programs, an array of services that encourage networking and referral opportunities, and legislative advocacy on land-related issues through the National Association of REALTORS.
“One of the real benefits of the REALTORS Land Institute is that whatever type of land you’re seeking, there are RLI members who are expert in that area,” says Gibson. “Whether your interest is shale oil leases, timber, or ranches, RLI members have the knowledge and resources to find the answers.”
For more information on locating an Accredited Land Consultant in your area, contact RLI at 800.441.5263 or go to www.rliland.com.
Land hedges both inflation and systemic risk
June 21, 2010
On Thursday, May 6th, the Dow Jones Industrial Average fell almost 1,000 points, a little more than nine percent, in 16 minutes, and no one knows why. At day’s end, the DJIA was down only 342 points, and everyone didn’t think that was too bad…considering the place it had visited.
Fingers of possible blame pointed in many directions—Greeks bearing debt, Jihadist glitches, automatic computer-trading programs, a trader’s “fat-finger” mistake, jitters about financial-reform legislation, too much sugar in Wall Street’s afternoon power drinks, a Madoff mole wreaking revenge.
A thousand point drop got me to thinking.
I’d been talking to my daughter, Molly, a few minutes before the DJIA’s dipsy-doodle. She works on the speed desk at Bloomberg News in Manhattan, feeding headlines and financial news into the company’s terminals. She’s up to the minute on this stuff; I’m a lagging indicator, often intentionally so. We were talking about the future and how to prepare for it.
I said I thought people in their 20s and 30s were going to have a much tougher time earning livings and preparing for retirement than Baby Boomers, because the global financial system — and the American end of it, in particular — seemed increasingly volatile, increasingly fragile and increasingly vulnerable to system-breakups, from both internal and external sources. System risks, in short.
This got me thinking about hedges.
Gold is often touted as a hedge against inflation. But when I looked at gold price and the Consumer Price Index, I saw that inflation had risen with reasonable consistency year to year while gold was volatile—spiking in 1980 and during the last several years, but lagging the CPI for most of the years in between. One study I reviewed showed the average annual rate of return on gold between 1979 through 2008 was 5.37 percent, most of the gain coming during the last decade, compared with stocks at 11.9 percent, 3-month T-bills at 5.9 percent and rare coins above 10 percent.
Gold is a fear purchase, not an inflation hedge. If you think it’s likely that the world will fall apart, you put gold in your bedroom safe so you can buy guns and toilet paper. If that time comes, inflation will have solved itself through collapse.
Gold doesn’t behave like a commodity, because people buy it for reasons other than consumption and utility. It’s a non-renewable resource like oil, but it doesn’t get used up like oil, coal and natural gas. It seems to me that people use it as a financial worry bead, fingering it more in times of high stress.
When Molly set up her retirement account last year, I gave her the conventional advice about index funds and broad baskets of stocks and bonds. But what I wanted her to do was to set up a real-estate IRA to buy land, which she couldn’t do.
An inflation hedge should track inflation…and do a little better.
Between 1999 and 2009, the average annual inflation rate has been 2.6 percent. For the 10 years preceding, it was 3 percent.
It’s difficult to measure national returns on timberland investments, because tracts vary so much in size, management, types, length of ownership and other factors. The database at the National Council of Real Estate Investment Fiduciaries is widely used for comparing investments, but it’s skewed toward large tracts and tax-exempt investors, primarily pension funds. The same bias is found in NCREIF’s farmland index, all of whom are tax-exempt investors.
Nonetheless, the NCREIF average annual timberland return in the 20 years between 1990 and 2009 was 2.76 percent. The average annual return for farmland between 1992 and 2009 was 2.74 percent.
Using the NCREIF indexes, farmland and timberland returns did a bit better than inflation during the last two decades. These types of land investments as measured by NCREIF are reasonably good inflation hedges.
A 2009 study from Jeff Mortimer at J.P. Morgan Investment Analytics & Consulting found that timberland “…has provided an annualized return of 14.60%…” over the past 22 years while correlating “highly with inflation….”
Looking ahead, I see nothing that would suggest that stocks and gold are getting less volatile, and the financial system in which they function seems to be looking more vulnerable, more risky. Whether systemic risk is reduced in the future is anybody’s guess; mine is that it will not.
Gold may be the coin of last resort, but short of total collapse, farmland and timberland appear to be better hedges against both less-than-catastrophic events and inflation. If nothing else, land prices will appreciate due to population growth over the long term. And if the toilet-paper choice is between gold bars and leaves, well….
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Article from From: LandThink.com Sent: Monday, May 10, 2010 9:07 AM
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