I am writing this article while the Coronavirus crisis is in its second week of high growth in the US and I am getting this question is ranchland a good investment almost daily right now.
Many investments can be fickle. Here today and gone tomorrow with wild fluctuations and volatility. In today’s technology world, a company like Tesla who makes no profits can become worth more than GM and Ford combined. They show no profits, build less cars and have considerably fewer assets. That is hard for some to understand.
Ranchland is something you can always see, feel and experience. You work the land and can see improvement in your hard work. Ranchland is viewed as a safer investment with less volatility. It can still be a very solid investment. Average annual returns run about 3%. Like any business, there are good operators that will be way above average. I know some ranchers that under special situations reach 20% returns. The other part of the ranchland investment is potential appreciation over the holding time. This can be substantial and where you likely get paid handsomely if you have a long term hold outlook. What is interesting is many times the land gives opportunities not known when purchased. Mineral rights, water rights, ability to put windmills, recreational pursuits all can dramatically increase returns of a ranch.
Some of the other financial advantages of owning a ranch are very good legitimate write-offs, high potential returns for sweat equity and the possibility of protecting long term capital gains and tax credits through 1031s and Conservation Easements.
Long term trends are likely in favor of ranches continuing to be in high demand. More people want a place to downshift from busy lifestyles, escape crowds and diseases, crime and just have a quiet place to spend time with family and friends. The lifestyle a ranch gives the owner is very enjoyable as long as they don’t mind hard work. It is a clean life where you see the rewards of hard work and the ability to shape the land and animals residing on the property. The deficits Governments are running highly shift the possibility of inflation in hard assets. I don’t see that going away so ranchland becomes a nice hedge with low property taxes and a high potential for appreciation.
There are many types or attributes of ranchland and it strongly affects the appreciation potential. I would always encourage clients to have water features and have some kind of recreational angle on the property. A ranch that has fly fishing, big game hunting and upland hunting on the property will always hold value and be on the higher end of the $/acre spectrum. Recreational pursuits have driven the appreciation end of the ranch game for the last decade or so. It is getting harder to hunt and fish on public land and the crowds take away sometimes from the enjoyment. The desire to control and enhance the hunting experience as a private landowner has become very desired for high net worth individuals.
Buyers do need to have good representation so they are insured of paying a fair price. There are a number of pitfalls for the uneducated buyer that need to be looked at under due diligence. Mineral and water rights need to be known but you also need to know carrying capacity, noxious weeds, hunting district regulations, public land and a number of other factors that are important to consider.
I love talking land and helping people through the process of finding the right ranch for them and their families. Never hesitate to reach out with questions and if you are starting the journey let me help educate you on things you need to be looking for and the regions in Montana that might be of interest. Ranchland is a solid investment with good hedging, nice income potential, and possible tax benefits.
Buzz Tatom is an Advisor/REALTOR® for Engel & Voelkers in Montana. He specializes in farms and ranches. A ranch owner himself he knows the complications that a buyer or seller will go through and is able to help navigate the complicated process. Give Buzz a call or fill out his contact form and put him to work finding you the right property so you can start building memories with friends and family!