This is Part 2 in the Residential Land Development series showing you how to find, price, and develop land for residential single family property.

If you’ve followed Residential Land Development Part 1 you’ve put together your development team, done a little research into the type of property you want to build and the market you will farm for potential land purchases.  You’ve determined the highest and best use, researched zoning and other legal matters, and now need to determine  the economic feasibility of the project.  We do this by estimating the overall costs of the project. The results of your down and dirty, quick economic feasibility analysis will determine whether you move forward with your project, or whether you dump it and move on to the next piece of land. Here’s what you’ll do:

1. Set your profit
2. Estimate unit size
3. Estimate project cost
4. Estimate project revenue
5. Determine overall return
6. Make your first go / no-go decision
7. Refine numbers (if necessary)

Set Your Profit

When developing land it is preferable to set your desired return before you start building.  This is how smart developers, builders, and investors do it.  Don’t wait until you’re done and at the whims of the market to figure out your numbers.  That’s the fast track to bankruptcy and development jail!  IF you plan to use bank money to finance your development, your profit will need to be at least 15% of total project cost.  Banks want to see at least this much built in to account for possible downward movement in the market when sales time comes around.  I like to see developers setting their profits in the 20-30% range.  In our example, lets assume you’ve found a square lot, roughly 1/2 acre in size.  Let’s say 20,000 sf.  You’d like to make a 30% return on the overall project costs.

Estimate Unit Size

Your demographic research and neighborhood profile will determine what amenities are required in your market and this will determine your unit size, measured in square feet. If your market area is made up primarily of senior citizens that don’t like stairs you’ll need to develop a ranch style, one story home, which might limit the size of your home if you are working with a small lot.  If the prevailing style in your market area is a three story town home style building you might be able to go up three stories. Continuing with our example introduced above, let’s assume you’re going to build a single story, ranch style home about 2,000 sf in size.

Estimate Project Cost

Your project cost can be estimated by calling local contractors, builders, and architects.  What you want here is a quick all-in number that includes lot development and vertical construction costs on a $/sf basis.  Costs can be tiered based on finish quality of the home.  Again, you’ll go back to the neighborhood style to figure this one out.  If your neighborhood is mainly craftsman style homes built in the 1950’s you’ll probably not want to build an ultra-modern home with windows from floor to ceiling.  Higher end finishes might cost as much as double than a simple build and that can affect your downstream profit margins.  For our example, let’s stick with the craftsman style home, average level finishes.  We’ve called a few contractors and architects and got a few free quotes.  They’re happy to do this for free because we will eventually call on them when it’s time to build.  We were quoted at $150/sf all in.  This means our total development cost will be $300,000 (2,000sf  x $150/sf).

Estimate Project Revenue

Again, we’re doing a down and dirty analysis for the first trial run here.  Your estimated revenue will come from a comparable sales report for your area.  This can be accomplished easily if you have MLS access.  If not, make a phone call to one of your agent or broker team members to get this report.  Make sure it lists recently sold and truly comparable properties.  If you’ve paid attention to neighborhood style and amenities you should developing a home that fits in well and has a wealth of similar comparable data to draw from.  Once you have that comparable data in hand you want to take each home’s sale price and divide that by it’s size in sf to determine its sales price per sf.  When you have this done for each home in the comparable report you can determine your averages sales price per sf for your immediate area.  This is the average sales price per square foot you would expect to receive if your home were built and you were selling it right now.  That’s a good starting point for us to estimate revenue.  Let’s assume the comparable report determined our average sales price/ sf was $300/sf.  We can apply that to our home and expect a completed sales price of $600,000 (2,000 sf x $300/sf).

Determine Overall Project Return

We’ll take everything we’ve analyzed up to this point and apply it to determine whether this project will meet our 20% desired return requirement.  It helps to have a piece of software like Microsoft Excel to help you with these calculations.  It’s easy to change numbers quickly and you don’t’ have to worry about losing numbers in a hand calculator.  We start with the price of the land which the seller is asking.  We add to that the cost of development to estimate the total project cost.  Now we multiply that number by our desired profit margin to determine our required profit dollar amount.  Put that number aside for a moment.  Now, we take our expected revenue and subtract selling costs from that number.  I always assume 10% for selling costs, which covers a 6% broker fee, local excise tax, title and other third party costs that might come up.  That number is subtracted from expected sales price to determine our gross revenue.  From that number, we subtract our total project cost to determine our net project revenue.  If that number is higher than our required profit amount then we will move forward with the development.  Let’s look at the numbers for our example:

Asking Price for Land: $100,000

Development Costs: $300,000

Total Project Cost:  $400,000

Desired Profit Margin: 30% = $120,000

Expected Sales Price = $600,000

Sales Costs = 10% = $60,000

Gross Revenue = $540,000

Minus Total Project Cost = $400,000

Net Project Revenue = $140,000

Desired Profit = $120,000

Net Project Revenue > Desired profit = Project is a GO!

Project is a GO…now what?

You’ve proven your potential development is physically and economically feasible and you’re ready to move forward.  What do you do now?  You do the numbers again.  Really.  This time, you’re going to get even more detailed.

You will now go back to all those contractors and architects you spoke with earlier and ask them to submit actual bids.  They should be able to so this without having detailed architectural plans.  If the contractor you want requires plans, then you’ll have to get the architect working and you may have to start spending money here.

Once you have the detailed bids in hand you will replace your estimates of project cost with the real numbers.  You will then run the analysis again to make sure the project can return you’re desired profit.  This will help you make your second go/no-go decision.  If the analysis is confirmed you move forward.  If costs went up  in the actual bid and the numbers don’t work anymore you have to go back and change something.  Start with the contractors costs.  Ask them to lower their fees.  If the numbers still don’t work after lowering their fees you will have to start cutting into your profit.  Again, try not to go below 20% if you don’t have to.  If you can make the numbers work by reducing your required profit to 25%, it might still be worth moving forward.  If you have to drop your profit to 10% to make the numbers work you probably shouldn’t go forward with the development.  Another area where you can cut back is on the land price.  Taking a holistic view of the project costs, including land price, will help you arrive at your max land price offer.

If you’ve gotten to this point, congratulations; you’ve found a great piece of land with really good potential for development.  The next step in the development process is to go back to the drawing board once again and really hone in on the actual design.  This will require you doing some zoning research and narrowing down your final home design.  We’ll get into that in the next part of this article series.

Photo Credit: Vincepal via Flikr

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Residential Land Development – Part 2: Determining Economic Feasibility

Last week I wrote an article describing how to price and develop offers on land purchases.  While that information is an important part of the overall development process, it is only a small fraction of the work that needs to go into developing land for residential use.  As such, I’d like to explore the residential land development process in a more thorough manner, which will include this article, and several to follow.

With that said, this article will focus on the process of land development, risks and rewards, and a few things you’ll need to get started in the business of Residential Land Development.

Land development is the process of preparing raw land for the construction of improvements.

It can include:

• Demolition of existing improvements
• Clearing and Grading
• Rezoning if required
• Installing utilities, sewers, streets, and sidewalks
• Constructing Improvements like driveways, foundations, and building pads

Although developed land creates no more income than raw land, it is nevertheless brings land one step closer to its ultimate use; a home, apartments, office buildings, hotels, etc.

Like any profession, you need the right tools to succeed, and without the right tools, failure is often the result.  Among the most common reasons for failure of investors who try their hand at development are:

• Insufficient finances
• Not planning for contingencies
• Analysis Paralysis
• Inability to Seek Advice

There are few investors who can successfully make the transition to development, but those who do are able to create extreme wealth for themselves without risking much of their own capital, if any, and sometimes working only a few months out of the year.

There are six steps in the process of development.

1. Feasibility
2. Acquisition
3. Design
4. Financing
5. Construction
6. Marketing

The first few require much more research and planning than the rest, and each one builds on the step before it.  If done properly each consecutive step gets easier to complete.

There are three things every developer needs to begin; a development plan, a personal financial statement, and a good team.

The Development Plan

This is essentially a business plan for the investor/developer.  It can be a simple one-pager, or a more detailed analysis. Length doesn’t really matter as long as you include the reason you want to develop, the types of development you plan to start with, and at what point you consider your development/investing a success.  Stating your goals is imperative.  It is a defined process.  Think of it as a road map taking you from point A to point B.  In the case of land development, point A is always the raw land, and point B is always the finished product, like a home or commercial property.  You can’t start out on the path to development without knowing where you’re going.

Here’s a sample:

Cornerstone will farm three neighborhoods of Seattle; West Seattle, White Center, and Alki Beach.  We will acquire vacant lots or land with tear downs, and develop them into single family homes.  Our goal is to develop one single family home per year over the next three years, two homes in year four, and three homes in year five.  All the homes will be built to LEED Gold or Builtgreen 4 Star standards.  The homes will be listed with local real estate brokers and marketed at median market rate.  Our goal is to return a profit of at least 30% on our cost per year.

The Personal Financial Statement

The personal financial statement (PFS) is the financial counterpart to your development plan.  Every real estate investor, not just developers, should have a current personal financial statement.  A PFS lists your assets, liabilities, and resolves the two to show your net worth.

Most novice investors may not have a significant net worth yet, but it’s important to set goals here too.  Think of how much profit it would take for you to live the way you want to live.  Maybe your goal is to quit your day job and retire early.  Figure out how much money you would need to put away to make that happen and that’s your goal.  When your net worth hits that level you’ve reached your personal financial goal.

Put Together Your Team

Once you’ve taken a look at your financials you can determine your starting resources.  That’s where putting together a team comes in.  You’ll meet alot of people in the development game, and you need to be friends with all of them.  The idea is to shore up your list of resources by adding the strengths of others where you are weak.

If you have no cash on hand, but have good credit, you will probably need to start looking for a money partner.   If credit is your problem and you foresee needing loans, you’ll need to get a partner who can put their credit on the line.  If you don’t know how to build a home think about partnering with a local contractor or another developer.  Don’t know the local zoning codes, get on the phone to the city planners and start taking them out to lunch.  Hopefully you’ll never need a land use attorney, but having one on speed dial might get you some quick tips on local development trends that keep you a step ahead of the competition.

How to get Started Today

Determine your target market.

It could be your local neighborhood, a particular zip code, or the entire city.  Most developers will tell you the first property they developed they found very close to home.  Probably somewhere along their morning commute; something they’ve passed by every day.  Developing close to home has several advantages.  For one, you’ll have a greater degree of familiarity with your own neighborhood than one an hour or two away.  You’ll also save money on transportation costs by staying close to home.

Don’t make the mistake of thinking you need to develop in the high-end areas.  That’s not always the case.  There are many developers who profit in areas that are at median income levels or below.  Similarly, if property in your local area is not moving you will need to venture out a little further.  To figure out the best market in which you should develop you’ll perform a Feasibility Study, the first step in the process of Residential Land Development.

Feasibility Study

You perform a feasibility study by researching the supply and demand in a given market and estimating the potential profit of a given project.

The supply is other residential homes and land currently on the market.  This includes all land and residential homes for sale, as well as homes that may come on the market between now and the time your potential home is completed.

Demand is determined by researching the area’s demographics.  It helps to know how many people are moving into the neighborhood and how many are moving out. You can get this information from the government census or from local economic development boards.  These places will also list the breakdown of homeowners in your area.  If your zip code is expecting growth of 1,000 people over the next year, and the ratio of owners to renters is 50%/50%; that means your market will need to add or absorb 500 new rental units and 500 new homes.  If after checking with the local department of planning and development you discover that only 200 homes are planned to come online in the next year, you may have found a good market in which to develop.  Clearly there will be some pent up demand.  You have found a hot market, now all you need to do is find the available land to purchase and develop.  This is called a “Use Looking for a Site.”

If you find that population is moving away or there are more units coming online than there are people to buy or rent them you may want to stay away from that area.  Supply overwhelms demand, and in the end you may need to significantly discount your property to move it.

If you already control a piece of land or are able to purchase a piece of land at a discount in an area where property generally moves well you have a “Site Looking for a Use.”  Generally speaking, this is where most novice developers start off.  Again, driving by property on their way to work they are able to jump on a deal when it comes up, or sometimes they get tips from friends and family that allow them to beat out the competition.

Even if you’ve identified the piece of land you’ll still need to check local demographics to determine what home amenities are required for your area.  If you live in a market with an average age of 60+, you may want to develop a home on one story, as opposed to a three level townhome style house.  If you’re target buyer is a 30 something, you may want to include high tech wiring, an open floor plan, and a home office.

Remember, the more research and planning you do the better you’ll know your market and the fewer surprises you’ll run into later.  Many developers have gone broke thinking that they can develop a lot just because the home across the street sold for a certain amount.  Market’s change, costs go up and down, and contractors can get busy.  Do the research, know the numbers before you start.

Once you’ve find your site or your area, you’ll want to estimate the potential future profits.  This is done by performing a highest and best use analysis.

Highest and Best Use

The highest and best use of a piece of land is determined by answering four questions in the following order:

1. Is your proposed project legal?
2. Can it be built practically on your site?
3. Will your project generate the desired return?
4. Does the proposed use represent the use that will deliver the maximum return?

Since we’re developing single family homes, we must find an area that allows that kind of home to be built.  If we determine the home must have at least 1,700 sf on two stories, that style home must be able to be built practically on our site.  Our goal was to return a profit of 30% on our cost, so we must be able to sell the property for at least 30% more than what it will cost us to build it.

You can do that by estimating your development and construction costs, and we’ll review that in part 2.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Residential Land Development – Part 1

Pricing land for development can be a daunting task for the untrained investor.  As a niche subset of both residential and commercial real estate, using comparables for land can be as dangerous to a developer as it is mysterious, sometimes causing the failure of what was certain to be a fantastic development.

However, for the savvy investor, there is one universally accepted land valuation method used by development professionals, corporations, and appraisers alike; the Land Residual Method.  By using this method you will be able to determine the current and future value of any piece of land, whether its use be residential or commercial.  You will also be able to price land, such that any development you propose will have built in profit. With some practice, you will be able to employ the land residual method in just a few moments, summing up the value of almost any property just on sight.

The land residual method has a fancy sounding name, but to use it all you need is an understanding of some simple math.  The land residual method is a calculation that takes the highest and best use of a particular piece of property and subtracts out the total cost of development to arrive at the residual value: the land value.  Once you have the numbers it’s that easy.  ”How do you get the numbers?”  You ask.  It takes some research, but even a novice investor can figure it out relatively quickly.

For the sake of this article I’ll be speaking to residential single family development or single family lot land.  Rest assured, commercial development uses the same principles, though the calculations are a little more in depth.

Use and Utility

You’ve heard the term “Location, Location, Location” thrown around in many real estate circles.  It is never more true than when developing land.  While I don’t recommend using any type of comparables for valuing land, it’s generally accepted that land near the ocean, or any other high priced corridor, has a higher intrinsic value that land based further away from a hub or commercial center.  It boils down to use and utility.  For instance, a 100 unit office building in downtown Seattle will probably be worth more than the same building in rural Arkansas.  Generally speaking, the land those properties sit on will be valued accordingly.  It’s one thing to accept that, but another to understand why.

Property value is determined by its highest and best use.  A piece of property that can be developed into a regional shopping mall will be more valuable than a property that can only be developed into a single family home.  This is because the end use of the former has a much higher finished value than the latter.  The value of the materials are more and the expected income from renting or owning the first is significantly more valuable than the second.  It all comes down to profit and a return on investment.  Generally speaking there is more profit to be made in larger commercial buildings than a single family home.  However, the commercial property takes significantly more risk and money to develop.  Hence, the larger land value.

The first part of the land residual method is to estimate the final or future value of the proposed property.  This can be done by several approaches.  In the case of a single family home development it can be quickly estimated by using recent sales comps from a local real estate broker or agent.  Make sure you’re dealing with true comps; similar in style, size, amenities, and age.  You shouldn’t be using a 10 year old sale as a comp for an about to be built home.

For our example, let’s assume you’re building a 3 bedroom, 2 bath home, 1,500 sf in size, with a lot size of 1/2 acre.  Let’s also assume your comparable report shows the median home sales price in the last 6 months for this type of home to be $500,000.

Once you’ve arrived at an estimate for the final or completed value of your property you move on to figure out what it will cost to build your proposed property.

Development Costs

Development costs can vary wildly from state to state and city to city, dependent on things like the amount of work in the area and the cost to deliver materials to your site.  When estimating development costs I counsel investors to research their market by calling local developers.  Find out what they paid.  Talk to contractors and find out what the going rate for material and labor is.  Talk to local builders’ associations.  They often keep data on home building costs in the area.

There are two ways to estimate costs.  You can use a $/sf method, or actually go line item by line item.  The second method can only be done if you have a list of all the line items required to build your home.  The $/sf method is easier to obtain, but not as accurate as the line item method. Your goal is to determine the total soft and hard development costs.  Soft and hard costs break down as follows:

A hard cost is anything that contributes to the direct construction of the structure itself.  These are usually limited to the costs to go vertical. Soft costs are anything that do not fit into that category.  Some soft costs are brokers fees, financing fees, horizontal development like running of utilities, demolition of existing structures, clearing and grading of the land, curbs, roads, and driveways, among others.

If your local contractor tells you the average hard and soft cost to build your home would be $100/sf, then you know your total development cost would be $150,000 ($100/sf  X 1,500 sf  = $150,000).

Do the Math

Now it’s time to resolve your numbers.  The value of the completed home is estimated at $500,000, which is hopefully the amount it will fetch when you’re ready to sell.  Your development costs are  $150,000.  The residual land value is the difference between finished value and development costs.  In our example, the residual land value of the proposed property is $350,000 ($500,000 – $150,000 = $350,000).

What this means, is that for you to build a home that would cost $150,000 and have a value of $500,000 in the open market, you could pay up to $350,000 for that piece of land.  This is the break even point.  If you pay more for the land there is a great potential for you to lose money.  If you pay less for the land you’re potentially building in profit.  And that’s exactly how a professional developer would do it.  They don’t stop at the residual land value.  They go one step further by working in their profit.

Work in your profit

As a developer/investor you’re here to make a profit.  You want to work that into the equation before you price your land and make your offer.  Most developers of residential property like to make between 20-30%.  Anything below that will be hard to finance through a conventional lender, and would also be a risk on your part. Markets move up and down, sometimes as much as 10% in a few months.  If your profit margin was only 15% and the market drops 10% you’re left with a 5% profit.  For that kind of money you don’t need the risk of development you can just go out, buy a T-Bill, and sip iced tea on your front porch until retirement.

If you’re cost to develop was estimated at $150,000 and you’d like to make a 30% profit on costs, your profit margin would be $45,000 ($150,000 X 30% = $45,000).  This number is then subtracted from the residual land value of $350,000 for a maximum offer price of $305,000  ($350,000 – $45,000 = $305,000).  That means, to make a 30% profit on your development costs, you wouldn’t pay more than $305,000 for the land.

Well that’s fine and good, but most developers want to make profit on their entire project, not just the costs.  Thus we do this calculation one more time; this time on the land purchase portion as well.  Assuming you’d want to make 30% on the land portion to, how much would you have to back out?  You’d back out approximately $90,000 ($305,000 X 30% = $91,500).

Max Offer Price

Take your residual land value minus your profit on cost and your estimated profit on the land cost and you can determine your maximum land offer price.  For our example, the final land value and max offer price would be $215,000 ($305,000 – 90,000 = $215,000).

For the property cited in the example I would offer the seller no more than $215,000  to purchase their piece of land.  This ensures I can get the development done and make a nice profit for myself.  Just to check my numbers, I run the math one more time.

Check the math

To check your final expected profit, simply run the numbers forward from the start.   Here’s how it would look:

$215,000 Land Purchase

+ $150,000 Development and Construction Costs

$365,000 Total Project Cost

$500,000 Projected Revenue from Sale

-  $365,000 Total Project Cost

$135,000 Profit

$135,000 profit / $365,000 total project cost = 37% total profit Margin

Keep in mind we have not accounted for taxes of any kind.  That will of course reduce your profit margin, but still, this is not bad for a development that probably took less than a year from start to finish.

For even higher returns, your land offer would be made at an even lower number than your max offer price, in case you end up negotiating the price higher with your seller.

You can see that the residual land value method of obtaining land value is an easy and efficient way to make sure you’re paying the true market value of the land, while working in profit for your potential development.

Photo Credit: pnwra

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Developing Real Estate: How to Price Land for Profit

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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How to Make Money With Rural Properties: An Interview with Allen Shannon