BiggerPockets

A elderly family member has a 1,300 acre ranch that she's looking to sell. She claims it's worth at least $1M, but she's willing to sell for $750K to family, in exchange for a minor concession (i.e., another family member gets to keep his job there for at least 3 more years). I have looked at a few commercial listings of similar land in the area, and based on price per square foot of the *list* price, it looks like the land should conservatively be worth anywhere from $1.5M to $7.5M. However, I admittedly know nothing about ranches. How do I go about finding a better estimate of the value? How do I find out if it can be divided and sold in smaller increments.

I obviously have a lot more research to do. Where do I start?

It's a cattle ranch. I guess that would have been important to mention.

The land is divided into 12 plots. All of the plots have water, but some have it in an inconvenient way. The owner wasted something like $30k on a dry well right by her house and then paid to run a line over to a really good well a couple miles away on a different plot (that she owns). I'm not sure if this water issue could cause problems if we try to sell it in 12 separate plots rather than all together, since some of the individual plots do not have water. I'm not sure what exactly you mean by "water rights", but I'm assuming it has to do with having access to water.

Depending on where it is located, sometimes it is not possible to divide agricultural land.

Water rights: every drop of water is owned by someone. In dry areas, you probably won't be able to buy water rights, which means no water. You won't be able to sell a parcel with no water, unless you can trick some city slicker from back east.

(In Western Oregon, with all the rain, every drop of weater is still owned by someone.)

In most western states, you can't sink a well without a permit, because the water table water is all owned by someone.

A cattle ranch should be valued by how many head of cattle it will support. Plus the board footage of any timber growing on it.

Some ranches sell for high prices as hunting ranches, if the terrain is exceptionally attractive and there is a lot of game.

Ranches generally don't generate much income. You'd have a big payment with not much coming in.

The old joke is: if I had a million bucks, I'd just keep ranching until it was all gone. Cattle ranch is a lifestyle, not a money maker.

I grew up farming, and we ran a few cattle, too. There's an old joke for that business.

A farmer dies and by some miracle actually has some money. It gets divided up among his three sons. The lawyer asks them what they're going to do. The first one says he's going to the city to become a lawyer. The second says he's going to the city to become a doctor. The third one says "I guess I'll stay here and work the farm until I run out of money."

You may have answered the water problem with the property two miles away. Is it included in the original ranch or can it be purchased with the right to supply water at a cost, if the main ranch is divided?

You do have your hands full of research. Ask professionals around you ie; Realtors, Ranch owners, etc... without disclosing the property you are interested in of course.

But do let us know.

Hi again, not to complicate your life, but your employment issue as well as the value to be ask, might be found my talking to a good trust attrorney. Usually, elderly folks who own land like that will really get kicked by taxes due to the basis. You might get rid of the employment issue and reduce taxes significantly by looking into a charitable remainder trust, which will then determine a more marketable asking price. Good Luck, Bill

Yes, some good points there, as an income approach. You're buying an ongoing business, then by all means. Many who buy a "ranch" in my area are usually buying it after operations have come to a grinding halt. Grandpa died, or the family couldn't keep it going, mostly distressed sales. Others are being converted to mini-farm estates.

Good point was that land and real estate is one thing....but, if a ranch is going to be kept in service, improvements such as out buildings, fencing, ponds and pasture go up in value, as we always look to the highest and best use, so if it's going to remain an Ag business, those amenitites have much greater value than if the use were to be changed. So you do have land valuations, but with and without special considerations and the valuation of the business, if you get it too.

Good post Jon and finding that article.

V. peppermint is a plant, stockers=cattle, winter desert=non-productive land and HO pasture is fertilized pasture or highly productive. CA, is out of my area, but from the context, that's my take.

It's odd too that Denny does not finance stock and wants to increase the heard by 50% in 5 years. Denny must be able to turn the heard, many like to keep reserves for the unforseen and finance that inventory, he must have a cash cow!

LOL, got a story;

Examined a Ag bank in Arkansas and a guy had a high concentration ($$$) of loans in cattle. I thought the amount was high considering the price. I went out to that "ranch" and counted heads, about 70 on the place. I got the address from the legal description and checked the plat map in the file.

I went back to the loan officer and asked why he loaned so much on the collateral, he claimed it was based on 200 head, so I asked where they were. He took me out there and stoped along the road and showed me a good looking heard and he took out binoculars to count his collateral. We took a different route to get out there, but as we left, I saw the house and asked him, does your borrower lease any pasture? He said no, then I informed him he was at the wrong palce and was counting the wrong heard.

He disagreed and said that's where the borrower took him and that was the same heard......hmmmm?

We got back and I showed him on the plat map where the subject was located.....yep, the borrower had snowed him!

So, Jon, Take care in financing things that move and don't have ingraved indentification numbers or plates on them!

Cattle are tagged, but those can be changed. All the paperwork in the world won't tell you if your collateral was moved or how many spots it has.

I have also seen loan officers count head in one pasture, say the south range, starting just before the day runs out and have to come back the next day to finish, when they go to the north range......and the borrower moved the heard, so many were counted twice! Good luck cowboy!

Bill, the article said that the investor does not finance cows but will finance stockers. That's why I was confused.

From your explanation, it appears as if the article is referring to the high desert areas near the Mojave desert near Palm Springs.