How to Make Money With Rural Properties

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I’m excited to share with everyone an interview I conducted with Allen Shannon, founder of LandsofAmerica.com. The site was created 5 years ago to bring together buyers and sellers of rural land for sale. Shannon spent 2 years as a Senior Software Engineer at Ebay before dedicating his time and energy into this website. Today, LandsofAmerica consists of a network of 90 different websites with over $8 billion worth of properties for sale.

Rural investing isn’t something most investors traditionally think about, but there are many opportunities in this field. I set up this interview in hopes of educating you all about the many possibilities that exist.

BP:
What exactly are rural properties?

SHANNON:
We leave this up to the discretion of our members. The guideline that we try to follow is defining it as property outside of a city limits and with acreage. Most of these acreage properties include farms, ranches, lake and river front, timberland, and mountain properties. It’s a part of Real Estate that not many investors think about because it’s not a part of their everyday lives in larger cities. It’s amazing to think about how much “rural land” there really is.

BP:
What are the biggest concerns for rural property owners?

SHANNON:
The concerns are mostly prioritized by the use of the land. Some of the biggest concerns in general are trespassing, weather, neighboring property values, and revenue streams via the property.

BP:
What are the tax benefits of investing in rural properties?

SHANNON:
There are two benefits that most people take advantage of. One is an agricultural tax exemption — which means if you or someone else manages livestock then you only have to pay a fraction of the property taxes that your neighbor might pay. Another benefit is if your property is being run as a business than anything you buy for it can be a tax deduction. Of course, state to state these laws are different and there are other ways that a rural property can assist you tax-wise.

BP:
Are there grants or subsidies available for purchasing or maintaining rural properties?

SHANNON:
There are certain government programs that can assist you in owning rural property. One of the major ones is a government program called the Crop Reduction Program (CRP). This program was started years ago because there was an overabundance of crops being grown. The government started paying land owners not to plant their crops and is still continuing to pay them. Buying land in CRP is another way to make instant returns on your rural land investment.

BP:
If investors want to buy rural properties near developing areas in the hope of selling/subdividing, where would they best find them?

SHANNON:
Well these properties tend to be a good distance from the typical real estate investor so the best place to start is online searching. This is what sparked us to build a website that focuses on rural property, www.landsofamerica.com. Currently, we have just about 13,000 rural properties for sale across the U.S. I would recommend narrowing down your search to a specific state, and then a specific county. Get to know the price per acre in that area and get a feeling about how much you want to spend, if you want raw land or some kind of shelter on it. Then just get out and drive to see a few places. You have to just get out there. The more you see the better you’ll know what’s best for you. Personally, I think the best investment is to find rural land that has the potential of becoming commercial property. This seems to be where the best bang is for the buck.

BP:
What alternate revenue sources exist on rural properties?

SHANNON:
There are many ways to have the land provide you with extra income. Here are a few ways: CRP, wind generating farms, quarry rocks, lease for hunting/fishing, harvesting timber, livestock management, growing crops, billboard leases, lease highway frontage to businesses, rent housing, gas and oil production, and cell phone tower leases. The tax breaks don’t necessarily provide you with cash flow, but will help out financially.

BP:
Has the growth in ethanol affected the rural farm market?

SHANNON:
I have not seen growth yet resulting from this specifically. It will depend on what the whole energy sector ends up selecting as it’s primary fuel source besides gas. If it’s corn-based ethanol than I can’t imagine anything other than corn producing farm land to dramatically increase in value.

This could be a really interesting turn of events considering how difficult it is for farmers and ranchers to make it by financially these days. If ethanol produced in the U.S. gains popularity you’ll see a lot more “city-folk” becoming farmers.

BP:
Tell us a little about recreational land properties? Are these good investments?

SHANNON:
I love the outdoors, so naturally I am a big fan of investing in a property that can also be used recreationally. This doesn’t necessarily set actual properties apart much, but it does help to define what exactly you’re looking to purchase. It’s so great that someone can buy the right piece of land for sale and while it accumulates value, you can use it for hunting, fishing, photography, rock climbing, biking, kayaking, camping, and teaching kids about nature. Try doing that with a stock!

BP:
Do you see the value of rural properties climbing in the future? What is the outlook for farms as cities continue to expand?

SHANNON:
I can see land values start to slow down – a little bit – not now – but in the next couple years. As our country’s population continues to grow it’s a fact that more land is needed to accommodate that growth. There is only so much land so just like everything else, supply vs. demand will eventually force the price up. There might be an occasional dip, but overall we’ll see the trend steadily continue to go up for the value of land.

It’s interesting too because of the value of our dollar. Right now, investors overseas are seeing property in the United States on sale, so they are buying up land too. It’s a lot easier to manage a piece of rural America from overseas than it is to manage an apartment complex. These overseas investors also drive up the land values. As these values rise and the cities grow larger, it’s difficult for farms not to sell their land; this is because the taxes go up along with the property values.

BP:
What are the hottest trends in rural land right now?

SHANNON:
The two hottest trends being seen right now are recreational buyers purchasing and developers purchasing. The recreational buyers are purchasing both to hold long term instead of putting money into the stock market, and to reinvest a previous property’s proceeds that they’ve sold. The developers are purchasing because of the demand for “country living” that has risen and because of cities expanding into rural areas.

BP:
Thanks for taking the time to share your thoughts with us. Good luck to you. We send you our best wishes, Allen!

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About Author

Joshua Dorkin (@jrdorkin, Google+) is the founder and CEO of BiggerPockets.

14 Comments

  1. Excellent interview. Most all sentiments expressed are sentiments of my own. It’s only a matter of time before savvy investors will recognize that modern demographic pressures are snowballing, that big city dwelling will eventually become oppressive, and that any future quality of life style will be rural in nature.

  2. Bill Burruss III on

    Like any commodity the value of land will change. Currently, I serve as a representative for the Realtors Land Institute for the National Association of Realtors Research Subcommittee. Research on land has been more difficult to achieve than other commercial types, i.e. retail, industrial, hospitality, office …This is because in major metropolitan areas like New York, they acquire land by the removal of existing buildings. If you are a farmer in Nebraska, you don’t have this problem. Even in smaller metropolitan areas where Multiple Listing Associations (MLS) collect data, it is only done for residential sales. If you are looking for professionals that know land one of them would be the Accredited Land Consultant© (ALC). This person would be a Realtor© and would have the highest designation that Realtors© offer.

  3. Excellent and enlightening. It’s more and more difficult to find rural land, in the UK or anywhere else. There definately is less research on land versus the other types. We’re seeing that Americans are investing in UK land alot more.

  4. I agree, in my observation there are many people heading for the country. I am one of them. It’s a time for self preservation and many people recoginize this and are quitely moving in a certain direction.
    If anyone out there knows of 50/100 acres for sale in the East Tennessee area, I am a buyer.
    Two years ago I bought several pieces in this area, but, my criteria has changed and that type of property does’nt suit my needs any longer, so it’s for sale and I am looking more for farm land then mountain land. If anyone can help please email me. Also, look at the different properties on my web site I have for sale. Good hunting. Thanks Pat

  5. Yeah I have to agree, there is a growing “green” trend which is accompanied by a self-preservation attitude. Many people wish to become farm or rural land owners particularly with the woes of city life and the problems in the housing market and economy.

  6. “It’s amazing to think about how much “rural land” there really is.”

    Take a drive through PA, and you won’t be amazed any longer, you’ll be astonished.

  7. The demand for land will continue to be strong in the next few years especially compared to other forms of real estate. In fact, the major media is reporting a strong, positive message in recent articles about land:

    http://www.LandFlip.com – the premier land website, recently conducted a poll asking “When are you likely to purchase land?” 73% responded said they plan to purchase land in the next 12 months!

    USA Today – According to a poll commissioned for the National Association of Realtors, 60% of Baby Boomers want to retire to a small town. The article concludes that Boomers have “an almost insatiable desire for real estate….they see real estate as a way to build and protect a nest egg.”

    Why vacant land? “For a lot of people, it’s a dream to have a second home, but they really can’t afford it, so, they buy a lot.” Many Boomers are buying land with hopes and dreams to one day move on the property.

    New York Times – “The real estate market may have cooled, but investor demand may soon be heating up for at least one type of property: land. Skip to next paragraph“ The time is ripe to start looking; I haven’t seen this market in 20 years,” said Jaime Raskulinecz, a real estate investor from NJ, who wants to buy land in the hard-hit market of Cape Coral, FL. She found lots for sale on or near the water at about a third to half below their peak prices of two years ago. On a larger scale, Ray Alcorn, an investor in VA, is picking up parcels of land after two years on the sidelines. He has bought more than 100 acres throughout VA this year, much of it at reduced prices.

    http://www.Bloomberg.com – “…farmland is having its biggest revival in almost 30 years as demand for corn and soybeans from Asia and the ethanol industry drive commodity prices to record highs. From Iowa to South Dakota to Wyoming, gains in rural land prices have ranged from 78 percent to more than 200 percent.”

    New York Times – “Farm values probably will rise at an annual rate of 6 percent to 10 percent in the next five years,” said Murray Wise, of Westchester Group Inc. manager of $550 million of global farm tracts. In comparison, the median U.S. home is forecast to gain 1.2 percent through 2010, the Mortgage Bankers Association in Washington said. “It’s just crazy out there right now,” said Mac Boyd, 65, a real estate broker in Arcola, IL, who has sold farms for more than three decades. “The land market has never been stronger.”

    http://www.DailyWealth.com – “Timberland has actually beaten the stock market since 1960 (as far back as data goes). Stocks did extremely well in that time… up nearly 12% a year. But the total return on timberland was even better, at nearly 14%. Another nice thing is timber is completely uncorrelated to the stock market. It makes sense… the trees have never heard of the Nasdaq bubble… and they don’t know what a War on Terror is.”

    http://www.LandFlip.com – Emily Wilson, a realtor in Shelbyville, TN (south of Nashville) was asked to comment on land sales in her area. She stated “acreage is selling better than homes in our area. We sell a lot of horse farms and high dollar properties…but if I were depending on starter home sales for a living, I’d be crying hard times. Instead, our company sales are up $1 million over this same time last year.”

    Buy Land. They’ve stopped making anymore – Mark Twain

    There is an amazing demand for land in many different shapes, sizes and types.

    Here’s to your success in real estate.

    Russell Ward

  8. Interesting article…but you have some misinformation.

    CRP stands for Conservation Reserve Program, and its intention was for soil conservation. By keeping a native grass cover on your land it reduces soil erosion. True, the end result is crop reduction. But, that is not the official name or purpose.
    People and towns across west Texas were helped tremendously by this program, as anyone that has ever experienced a Lubbock dirt storm can attest to.

    see this link.
    http://www.nrcs.usda.gov/programs/CRP/

  9. Before you all get excited, I would advise you to put it on ice and do some real research and cogitate on the following: How will you protect your property from trespassers? Will you have the property managed? Are you willing to put up with country life? For example, getting snowed-bound during winter? You expect peace and quiet in the country? think again. What about farm machinery noise? or those ever annoying ATVs, especially when they are trespassing on your property! what about the smell of the country? Are you ready for that.? Are you also ready for the hard work and maintenance that country living requires? Do you require close access to emergency services? Living out in the country would be you at a disadvantage there. I suggest you read the following guid to country living published by Webster county Iowa: http://www.webstercountyia.org/Publications/CountryLiving.htm

  10. Very interesting article. Our uncle is leaving us 350 acres of farmland in Virginia that has been in our family since the late 1700’s.
    We are not quite sure whether to keep it all, divide it up and sell partials or what. It is suitable and currently used for livestock and a beautiful stream runs right through the pasture with the Blue Ridge Mountains in the back drop. Currently hay, corn, soy are raised along with about 80 head of cattle.
    My inclination (which must be agreed upon by four other siblings) is to lease out the pasture and crops, farm a little timber, lease out the two dwellings, lease to hunters and manage the hay sales in the summer. To hang on to land that’s been in the family for generations is not something as revered in the USA as it is in the UK. My inclination is to hang on and pass down. Any thoughts to help me provide persuasion to my siblings would be appreciated.

  11. My family started buying land in 1977 in Canada and we have yet to see a decrease in value my modo is if it is covering itself ie taxes upkeep etc. there is no reason to sell as it is as good an investment as any and a true hard asset. Buy, hold, buy more when you can and pass it to the next generation. If you look at Europe the truly wealthy are the ones that held on to their land through generations. Your uncle has given u a real gem don’t let it go. If times get tough borrow against it as inflation hits your debt will get smaller and your farm will increase in value. Good luck

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