Are we at the top of the land market?

I recently received an email from one our newsletter subscribers. It contained a link to an article in the Des Moines register about how land prices had gone up 24% in just one year in the state of Iowa. The writer was understandably concerned about whether we had hit the top of the market when it comes to land prices. I thought I'd share my response to him with you.


Thanks for sending that article from the Des Moines Register. It's always the conundrum in a time like this isn't it? Given that the article was written by an Iowa paper it reflects the situation as it exits in Iowa. I think there are a few other issues one has to consider when deciding whether or not to invest in farmland. If you'll indulge me I'm going to list them here as this is a common and important topic of conversation.

The first is the issue of whether or not it makes sense to borrow money to buy land at this time. To a degree this is no issue at all in the current run up of prices. Unlike in the late '70's and early '80s when farmland was being purchased by taking out mortgages on existing farms very little of this land is being bought by people going into debt. As the article points out farm lenders are working hard to find anyone wanting to get loans. The vast majority of these purchases are being done by investors and farmers who are buying with cash. So that means comparisons to the housing crash are meaningless. The housing collapse was due to unfettered, almost unregulated credit that put too many unqualified buyers in the market. Any agricultural lender will tell you that's not what is happening now. And that leads to the second point.

People feel this run up in land prices is due to the current high commodity prices. That is only a part of the issue. The bigger issue is people wanting to get out other investments that they fear are going to be made worthless by anticipated coming inflation. That's why people aren't borrowing to buy, they are liquidating other assets to buy "real" assets such as gold and real estate. I have found that people buying land are less interested in the yearly ROI from rental than they are from the anticipated appreciation, or at least the fact that they don't think an investment in land is going to be degraded as assets that are subject to inflation will be.

As one of the comments to this article put it:

It is not high corn prices that are driving land values, it is the deterioration of the value of the dollar which makes American agricultural products cheaper than any other place in the world. The driving down of the dollar, the deflation of the currency, and the financial condition of the United States has caused a rush into hard assets that hold value and will be here tomorrow when TEOTWAWKI arrives. It would be better to own a bottle of wine than hold a dollar bill earning one half percent interest in a bank. The goal right now is preservation of capital not return on investment and land, residential property, grain in bins, and "real" assets instead of paper is where one wants to be. Farmland has always been a conservative long term asset which held value, or at least never evaporated in hard times. The farm crises drove down land prices but it took the FED to raise interest rates to 17% to break the farmers and destroy land values, today interest rates are so low and the dollar depreciating so fast a rush into farmland is one of the best options. That is why land prices are rising, corn has nothing to do with it! If you bought land and own land then you are now being rewarded for accepting that risk. But . . . it is never real unless the asset is sold, it is only on paper which makes one feel good, but does not put money in the bank. The dollar is buying less and less, that is why there is a rush into real assets.

Next I think looking at Iowa is to be looking at the most extreme example of what is happening across the spectrum of agricultural land prices. For example if Iowa land at $8,000 acre can produce 280 bushels of corn, then by that measure Missouri land that can produce 200 bushel corn ought to be worth $5714 per acre. But you can still buy land like that in Missouri for $2500 per acre,although it's admittedly getting harder to do. So while there is risk in any investment, it seems to me that to buy land in MO or KS rather than Iowa carries with it a lot less risk and a good chance of strong upside. Frankly if I owned land in Iowa I'd sell it, and then come down here and triple my holdings by purchasing land in this area. Ok maybe I wouldn't really do that. Iowa land has provenn to hold it's value over time. But I do think that if someone is searching for appreciating land values there are some outstanding opportunities to do so in this area.

Finally I think there are some simple questions you can ask yourself that may clear up the question of whether or not this is a good investment for you.

1. Do you believe that there is any reason to think the demand for agricultural commodities is going to drop significantly in the future?
2. Do you think they are going to be producing any more land?
3. Do you have concerns about future inflation deteriorating non "real" assets?

After you answer those questions for yourself you may decide that it's not a good idea to buy land in Iowa, but that does not mean investing in farmland somewhere else is not in your best interests.

  

Thanks for letting me ramble on. I've been wanting to get these thoughts on paper and your email gave me the reason to do that. I apologize for being so lengthy.
 
As always if you have any questions or concerns feel free to contact us by phone at 913-837-4665, email at info@RuralKC.com, or just leave a comment after this article.

Ten Things You Won't Find In City Folks' Homes

STRAIT FROM THE HORSE'S MOUTH.........

10. Sick Calf fecal samples more-or-less safely zip-locked in the referigerator.

9. A rifle tripod mounted on the front porch for possum/coon/coyote population control.

8. Binoculars hanging on the living room curtain rod so you can keep an eye on the bred heifers.

7. Livestock wound spray in the medicine cabinet.

6. Herbicide rate metric conversion chart on the refrigerator door.

5. Carburetor parts spread across the kitchen table.

4. Soil samples stacked on top the dryer in the mudroom.

3. Container full of bent nails, rusty bolts, pocket lint and unidentifiable items next to the washing machine.

2. Local Co-op company calendar on the kitchen wall.

1. Shivering baby calf in the bathtub.

Until next time..........HAPPY TRAILS!

10 tips for buying rural property

With a tip of the hat to our friends at LandFlip we are repeating a nice article we found there on how to buy rural property.

If you are a buyer in today’s market, you may be feeling a bit overwhelmed by all of your options. You may be finding it difficult because there are so many listings that you think you need to look at prior to making a decision. Just when you think you have it narrowed down, there’s a whole new crop of listings. All of this leads to market paralysis, and leads you to missing that great deal you have been so adamant to find. You second-guessed, thought there may be one just a little bit better, and you failed to act…even though your instinct, research, and the agent you have been working with all told you it was a good deal. Back to square one all over again. Maybe buying land isn’t for you? Does this sound familiar? Here are 10 steps to help keep you same.


1. Stop worrying about what you are going to miss. You can’t have it all. Somebody else WILL get a better deal than you. I’m not saying throw your money at the first property you see, I’m telling you to focus on variables that you can have some control over. You cannot control the entire land market.

2. The market may go up from here, or may go down from here. A little research, and time investment will show you that there is currently much more room for land to go up than to go down. We are at or near the bottom of the market. Interest from REAL buyers has picked up, and I am beginning to see some competition for good properties. Land is generally a long-term investment. The ups and downs of the near-term market are merely blips on the radar screen of the entire land market. Sometimes the view from 50,000 feet is more accurate than the view from 10. Long-term trends will guide how your investment in land performs. Don’t get caught up in the day-to-day sensational media stories. Familiarize yourself with the TRUE market.

3. Narrow your focus, geographically, to the location that works best for you. Generally the nearer to your primary residence, the better. You will be more apt to visit the property and maintain it if it is nearby. There are enough properties on the market today for you to find something suitable and not drive 18 hours to get there. Closer is better, even if it costs a little more. Find the center point of a location that works best for you and narrow your focus to within 25 miles of that point. Figure out what your geographic focus should be and stick to it.

4. Once you have narrowed that focus, find a good agent who specializes in rural property. Find an agent that works with buyers of land and farms, someone with knowledge about those types of properties. Are they going to know about all of the properties in the area? Probably not. They will know about most, and should have enough market knowledge to advise you on a good deal when they see one. Communicate with that agent. Write down what your ideal property looks like from an aesthetic, geographic, size, use, and investment standpoint. Write down those things which you absolutely do not want. (If you make this list too long, you will scare off good agents). Once you know what that ideal is, be flexible. You probably will not find something that fits ALL of those criteria.

5. Budget. Figure out what your budget for the investment is. If you need to borrow money, go ahead and check into that. The agent will probably have some local sources they can send you to. Talk to these people, see what type of loan products they offer, see if you will qualify for those products. Make sure you can meet the expected down payment and closing cost requirements. Then narrow your search to properties that fit within the financial guidelines that your budget allows.

6. Notice that we are on step 6, and have not looked at a property yet. It will come. The exciting part will get here, I promise. Won’t it be better to look at properties that will work for you instead of spending every Saturday for a year looking for the perfect place? Now, on with step 6. Search the web for properties that fit your geographic criteria from step 3, your written down criteria from step 4, and your budget criteria from step 5. If you have done a good job on the previous steps, this one becomes much simpler. Instead of 500 potential properties, maybe you have it narrowed to 10-25 potential properties. Look at these individually, and toss the ones that have aspects that you really dislike.

7. Once you have that list down to 10 or fewer properties, send it to the agent you have chosen to work with. Get their opinion on the properties. They may have been to the properties and know a great deal about them, or maybe not. Just because they do not know a particular property does not make them a bad agent. Narrow your list once again down to 5 or 6 properties that best fit your goals. Print out the information, maps, directions…anything you can find on these properties. Organize these in some fashion that works for you. Leave room for notes.

8. It’s TIME! Call your agent and make an appointment. You are going to look at land! Dress Appropriately! Shorts and flip-flops are not appropriate attire for walking through fields and forests. If it’s hunting season, put on your orange cap. If it’s summer, then insect repellant is appropriate.. While you are there on the properties, take notes. It will be hard to remember those aspects you want to remember after looking at 5 or 6 properties. You will get the properties confused after looking at this many. Good notes will help keep that straight for you. If you do not like a property, promptly tell your agent that you have seen enough and are ready to move on. They WILL appreciate your honesty. Tell them why you do not like it and it might save you a trip to a similar place. Agents will like burning less $4.00/gallon gas…I promise! Take out the printed material on that listing that you do not like, crumple it into a tight ball, and throw it away. (Recycle if you are particularly green) You no longer need this.

9. If you found a property that works for you, it’s time to act. If you did not, don’t worry. Just wait about a month and repeat steps 6 through 8. Avoid getting caught up in the trap of endless analysis. Do enough due diligence to be prudent, but don’t miss the forest for the trees. This is a logical process to help you not become overwhelmed. For those that have found a property, ask the agent what the appropriate next steps are. Generally, you want to know what similar properties in the area have sold for recently. There may or may not be good information on this available. This is a market condition, not an agent’s ineptitude. This can help guide you in making an appropriate offer. Make an offer that is harmonious with your financial criteria set out in step 5. Make the offer with a little negotiation in mind. I seldom recommend sellers to have no negotiation room in a listing price, and I certainly never advise buyers to offer all that they can on an initial offer.

10. Once you have a “meeting of the minds”…meaning a valid purchase-sale agreement, it’s time to close. Your process will vary from location to location, by your financial criteria, and by the type property you are buying. A good agent can lead you through these steps. Generally it will take 30-60 days to get it done. If you are a cash buyer, it can be done more quickly.

Congratulations! You are now the owner of a rural property investment. A property that is a good fit for you, and probably a sound investment for your future. Reducing the process of finding and buying a property to a few logical steps will help you cut through all of the clutter in today’s market. Following the plan above will help you retain your sanity while you are finding that place in the country to relax on!

If we can help you with this process give us a call at 913-837-4665, or email us at info@RuralKC.com.

Our greatest successes are when we lose.

Now I know the title of this blog makes little sense, but what I’m referring to is the fact that it is our responsibility to protect our buyers and make sure that they don’t buy a poor piece of property. In particular we are concerned when purchasing cropland for investment purposes. It’s pretty easy to look at the aerials, read the historical crop insurance record, and even view the land and be fooled by a piece of cropland.


So how do we protect our buyers from making that type of a mistake? Well let me give you a couple of examples.

Example one was a nice piece of bottom ground with good soils that lay very level, had a good track and had a good track record of productivity from crop insurance reports. But as it turns out had gone from being a good piece of land to a bad one because of frequent flooding. Land upstream that used to be pasture land had recently been turned into cropland and as a result the grass that used to filter rainwater and flow slowly into the creek now was channeled to drain off the cropland quickly. As a result the stream through the property which used to flood infrequently now flooded regularly making it a far less attractive piece of ground.

Example two was of a property that was approximately 40% but that looked as if another 40% could be turned from pasture back into cropland. In fact at one point in the past it had been cropland. But instead of being an attractive piece of ground it was determined that even though the soils were good they were too thin and the rock layer was less than two feet beneath the surface so that any erosion at all would make the land worthless except for pasture.

So how were we able to keep our clients from purchasing these properties and making a mistake? It’s because part of our process is to make sure either before the offer is made, or after using a contingency that we have a local farmer agree to rent the property at a fair price. If we can’t find a local renter then the contract is cancelled.

In both of the examples mentioned above it would have been very difficult for someone unfamiliar with the area to know about the problems of these properties. But of course the local farmers know all about these issues and we use them to filter any cropland properties to avoid these kinds of mistakes. So we don’t recommend a buyer purchasing any property where we haven’t already identified a local renter, or we make our contracts contingent on us finding a renter who will give his blessing to the property.

While we get a big kick out of making a sale, we get a bigger kick out of knowing that our clients can rely on us to help them avoid making a mistake. And in both cases we were able to help those same clients find other properties that are more than satisfactory for them. Those clients also referred other buyers to us so in fact “losing” a couple of sales actually led to us making several more as a result.

Email Info@RuralKC.com


Phone 913-837-4665


If you want live updates or want to know when we come across a particularly hot property you can follow us on twitter. http://twitter.com/#search?q=ruralkc

Top Ten Ways To Use Your Horse As A Weather Gauge

STRAIGHT FROM THE HORSES MOUTH.........

10. You are walking across the pasture and run smack-dab into a Shetland pony........heavy fog in low-lying areas.

9. The horse swishes his tail and knocks you unconscious.......icy conditions.

8. A 14 hand horse appears to be about 16 hands tall..........snow with possible accumultion up to eight inches.

7. The ground looks wet but the hoofprints are dry...........light showers.

6. Your horse bites and kicks you.........well, this just really means that you are an idiot for buying him.

5. The horse looks hungry because his big round bale floated away...........possible flooding in some areas.

4. Your sorrell horse has turned roan.........snowfall with little or no accumulation.

3. He's slow to leave the hedgerow even though you are rattling the feed bucket........excessive heat warning.

2. The horse is hanging onto the fence with his teeth........bustery winds.

1. The front half of the horse is wet and the back half is dry.........isolated showers.

Until next time.........Happy Trails.

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What does the housing market hold?

Below is a link to a Wall Street Journal article on the current state of affairs when it comes to the housing market. It would seem as if they feel the end, or at least the very bottom of this decline is very near. They point out how it now takes fewer months of income to buy a home than it has in many years. For example in Los Angeles it used to take 4.5 years worth of income to buy a home, and now you can buy it with just 26 months of income.

On the more somber side is the fact that they think prices could drop another 5% or so before the actual bottom is reached. Of course that will vary from market to market and here in the midwest we are not usually subject to the wild swings that are seen on both coasts.

Also we often hear from sellers in particular, "when will the market get back to normal?" Well it probably has gotten back to normal. Many people still expect or long for the days of double digit appreciation in the value of their homes. When will those days reappear? We don't think they'll reappear until all the bankers, appraisers, lenders, and real estate agents who have lived through the past three years have retired. Only then when a new generation of professionals who have not gone through this come on the market will you see the mistakes repeated that have led us to the current state of affairs.

So how do you invest your money now? Have we ever talked to you about cropland?

http://online.wsj.com/article/SB10001424052748703796504576168822497423738.html?mod=googlenews_wsj

Missouri Cropland sets a new record high

Well we don’t have to take a backseat to Iowa anymore. I just talked to an eyewitness who was at an auction for 160 acres of Saline Co. Missouri farmland. It went for a record price of $10,700 per acre. Even more amazing to this witness was the fact that there were still 5 bidders at the $10,000 level. Now it’s true that the soils in that area are especially good, but I’m willing to bet that no one anticipated seeing Missouri farmland go within $3,000 per acre of a price like this.


We also are having difficulty keeping up with inventory changes. As the planting season is now just a few days away there are a lot of final decisions being made. That does not mean that you cannot still by cropland this year, or that it will stop coming on the market. But the number of new properties being listed will fall off and some accommodations may have to be made regarding the income and rentals from this years crop.

But it does not seem as if there is anything on the horizon that is going put a crimp in the escalating prices of cropland. It still looks to be an outstanding investment for both the short and long term.

Email Info@RuralKC.com
Phone 913-837-4665

If you want live updates when we come across a particularly hot property you can follow us on twitter. http://twitter.com/#search?q=ruralkc