125 – Land Prices and Land as an Investment

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farm land prices investmentI believe the topic of land prices and land as an investment is worthy of taking a chance.  I am a real estate broker so I follow land prices pretty close.

I look at what land prices have done in the past few years.  Hunting/brush land in the Midwest has gone down a lot in value.  The spread between good land and poorer quality land is getting wider.  Old saying “you pay for a good farm once,but a bad farm you keep on paying for it.  High quality land that is easy to farm continues to bring real good money.

I talk about how some in the ag media always mention the high land sale prices, but not the bargain buys.  Headlines sells media.  They always mention the extreme highs.  Generally you have to dig into the article to glean the information.

I discuss why a young farmer may look at a poorer quality tract to get started.  And, what are you going to eventually do with that land.  Occasionally at a land sale you can get a great bargain, but you may have to attend a hundred sales to get that bargain.  With today’s technology the cost to farm hard to farm ground is not as high as it used to be.  Beginning farmer programs also generally have a loan limit.

A central place of operations.  A “home” base if that describes it better.What does it need to be attractive?  Why a poorer piece of ground may work for that.  Things to consider: drainage, road access – is it 80,000# year around, type of electric delivery, 3 phase or not, natural gas, internet high speed availability school district, either high or low taxes, or if you build a home there, where the kids will go to school?  Is this place centrally located to your enterprise?  Remember to plan for expansion.  Shop, machinery storage, grain storage, grain drying, house, pond?

A cattle farmer is thinking about several tracts that lie next to each other, have cheap “brush” land, some tillable land and some abandoned pasture on it.  What he sees as an opportunity.  Skid steers, bulldozer, track hoe can clean up a farm real quick these days.

Biggest mistake I made when I was young was not buying more farmland when it was cheap.  It may not be cheap now, but equity in land will save several older farmers in these lean years.

I think at some point in your farming career I believe a farmer or rancher needs to get a tract of land bought and paid for.  Especially as a base of operations.  A place that is yours and you can run your operation out of that place.

As land prices have come off their highs, the spread between good ground and poorer ground has widened out.  So when land was at its high the spread was closer and the poor quality was not a good as buy.  At the bottom in the 1980’s poor ground was half the price of good ground.

Higher interest rates will affect the price of ground.  Lots of pressure to raise the interest rates so savers get a better rate of return.  Investors will put some of this money in the bank instead of land if interest rates rise.

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