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As an Iowa real estate broker, I get calls like it at least once a week.
“Do you think now is a good time to buy land“. Or, “why should I invest in land instead of the stock market“.
I also get statements.
“I sure wish I’d have invested in land 10 years ago when it was so cheap, I’d be retired today!”
Or, like this one. “If I just would have bought that farm a few years back when it was for sale — look at what it is worth now!“
Hind sight is always 20/20. What will we be saying 10 years from now when we all glance back to the present day? The same sorts of things?
You might be thinking that land prices have esculated so much over the past decade or so that it’s too expensive to buy now.
It’s true — land prices have gone up, in general, over the past decade. But that is a good thing not a bad thing, as a land buyer. After all, if land prices trended downward each year than it wouldn’t be such a great investment. The fact the land prices generally trend upward over time is a reason to buy land not to back awary from land.
In Iowa, the last few years, land prices have actually slipped from what they were just a few years back — because commodities like soybeans and corn have dropped in value. So make no mistake about it: investing in land is like investing in anything else, there is performance risk, it might not go up. There are no guarantees in land investing.
But if you believe in using history as a guide to the future, then you should believe that a land investment could be a good one.
Land prices rise and fall, for sure.
There is a finite supply of land. As the world populatinon continues to climb, competetion for this resource will go up. That means price will go up. Maybe not now, or tomorrow, or next month, but they will go up — and they will go down!
Make no mistake about it — investing in land, like any other investment, is often a roller-coaster ride. But if your in it for the long haul — as you should normally be with land — then things look good for the future.
Here are 10 reason why, I believe, land is a great investment:
1). They just aren’t making any more of it!
As we stated above, land is a finite resource. Based on the law of supply and demand, it just makes sense that as the number of people increases so too does the demand for available resources.
And, since they aren’t making any more land these days, prices should increase, over time.
Makes sense, right?
2). Land Doesn’t Break!
Lots of investors get into rental properties and housing, in general, to create wealth.
Housing is a great wealth builder. And so is land.
The nice part about land compared to housing, though, is that it doesn’t break. It’s a simple characteristic of land that makes it so appealing — land just sits there asking for no favors and requires little to no maintainance.
Nothing really happens to it.
That’s my kind of property!
3). Land is a “Hands Off” investment.
Since land doesn’t break, and for the most part, there is nothing to do. It just sits there. Quietly. Asking you for nothing.
That’s a great thing: land is not constantly falling apart, like housing does.
Land is sort of boring this way.
But boring is good. Because it frees up your time to do other things you would rather be doing like fishing.
Of course, there are things you may need to do with some types of land — such as putting up border fencing. But, in general, land is much more of a hands off or “laissez faire” investment than comparable options in the world of real estate such as housing.
4) Land values don’t normally swing wildly.
Ever own some shares of stock and find out a short time later that they dipped in value — I mean really dipped in value!
This is pretty common. Shares of individual company stock swing up and down, short term, like a paper airplane in the breeze. Land doesn’t do that on a normal basis.
On a normal, day-to-day basis, the value of any individual land parcel general stays pretty constant. (of course, things could happen to change the value of any individual piece of land quickly — like a notice of a new airport being discussed in the local paper, a notice for a new mall on the edge of town, or a hog confinement coming to the land near you.
Things happen and prices of anything can go up or down fast. But, in the grand scheme of investments, land prices generally stay pretty constant, compared to many others. And, in Iowa at least, land tends to progress upward over time. (Note: chart/diagram above)
5). Land is easy to finance – and you get the “power” of using other people’s money.
There is no doubt about it. Using other people’s money, albiet, from a friend, relative, bank or otherwise, carries risk and can create stress. You want to be careful any time you borrow money and be sure of your finances before you do. You want to be able to pay it back each month without undo stressing yourself or your loved ones.
But, as long as you are careful, financing real estate with other people’s money can be a real boon to your pocket book.
Assuming the land you purchase carries some sort of monthly return back to you — this could be income from crop ground rental, a hunting lease, government subsidy payment such as CRP, a timber sale, etc., — you come out ahead of other investment vehicles that don’t pay cash back to you each month.
And, any return you get back from any land income sources can be used to pay for the monthly/yearly interest on the loan and you may even make a return over and above that amount that allows you to pay down the principle too.
Using the power of borrowed money “leverages” returns in your favor over time, assuming a gradual increase in the value of the land. This enables you to buy more with less money out of your own pocket.
This allows you to use any excess cash toward other things like more land purchases, home maintaincence, family things, or a fishing trip. This is something that is often forgotten but shouldn’t be. By not having to pay “all cash” to buy land you get to keep more cash in your pocket for necessities, goodies, or other investments.
6). Tax Advantages
While land itself cannot be depreciated over time to help reduce your tax burden, improvements to the land can (such as fencing, driveways, tree shelters, and buildings). You’ll need to discuss this in detail with your tax manager or accountant. But land does have some potential advantages here over other investments (such as common stock).
Also, Iowa has the Forest Reserve Program. This enable owners of forestland to take the land off the tax roll! That’s correct: you pay zero real estate taxes!
7). Enjoyment of Use
With land, you can use it. You can enjoy it. It’s sitting there, quietly, waiting for you and your family to get some use out of it.
What can you do? You can hunt, fish, hike, bike, walk, run, ski, camp, build, etc. You can do wildlife photography.
You can just go “reflect”. The point is that you can enjoy it however you desire. It’s hard to enjoy using a stock certificate!
8). Government Programs
Land has all sorts of options in regard to programs that help you to not only pay for the land but to make it better.
Did you hear that right? The government will help you pay for your land through these programs and to make it better!
In Iowa, the Resource Enhancement and Protection Program (REAP) provides funding to help landowners make various improvements to wildlife and wildlife habitat on their land.
The Conservation Reserve Program (CRP) is another program that provides millions of dollars to landowners across the nation to protect sensitive tillable acres from massive erosion and to enhance the wildlife habitat in these areas.
There are LOADS of other programs available to landowner as well. Such programs can make the land more valuable to the landowner. These programs also enhance the wildlife habitat as well as create, protect, and promote vital wildlife ecosystems. These programs help the whole nation by enhancing soil and water quality for everyone to benefit from.
9). Land Can Create Multiple Streams of Income For You.
In the form of cash rent from farming, hunting leases, government program payments (CRP, REAP, EQUIP, etc.,).
These cash streams are like housing tenants that provide income to you each month. The only differnce is these “tenants” don’t break down your property!
Ring up another victory for land investing!
Wind turbines, cell towers, oil drilling, etc., are some other potential ways your land could literally be handing you cash on a regular basis.
Of course, the income any particular piece of land has the ability to produce depends on lots of factors. Every land parcel and location is different. You’ll just have to analyze the potential of each parcel of land you find.
10). Land Creates Wealth
There is no doubt about it.
By buying land at the right price, with good financing, and by creating cash flow with all the cash flow creation opportunities that we’ve already discussed (crop rental, various leases, gov. programs), it’s not hard to create solid long-term wealth through land investing.
I am not here to tell you that any land deal is a great land deal because it isn’t. You have to shop. You have to buy right.
You have to get to know the in’s and out, as you do when investing in anything. But I am hear to tell you, it’s not that hard and that you CAN do it. People have been investing, and profiting, and building wealth with land for ions…it’s nothing new.
But, still, so many people don’t do it. It’s amazing. So many people have just their family residence as their biggest investment. You can do better. You can gain more wealth. Wise land investing could be just what you have been looking for!
I wish only the best of luck to you and your endeavors!
His name was Brad.
It was one of those first-thing-out-of-bed and my hair-is-still-wet from the shower phone calls.
You know what I mean.
A still I’m very groggy and I-haven’t-had-a-cup-of-coffee yet phone call.
“I just came back from Iowa and I am really excited about finally being able to buy some land out there,” he quipped excitedly. He was calling from out of state – way, way, way – out of state. And had just come back from a successful Iowa deer hunt.
Sounds great, I said. I’m glad you had a great hunt. How much land are you looking for and in what part of the state?
“I’m looking for about 200 acres with a good mix of tillable and timber for hunting. I’m looking to spend up to $400,000 tops, and preferably, less.” he continued. “I need some good tillable to support my mortgage payment on the land; I need to get a really good rental rate of those acres to an area farmer.”
I really need to have something that brings in at least $20,000 per year in income,” Brad said. “I’m really excited about this and I’m ready to buy right away if I can find what I am looking for.”
“By the way,” Brad continued. What is this thing called CSR that a friend told me about the other day and what does it have to do with the value of land”?
We talked and talked for probably an hour-and-a-half and we covered a lot of bases in regard to his questions.
In the end, though, long story shorter, Brad did not end up buying any land at all – something in regard to a family situation popping up, I guess. But his call got me thinking of all the questions regarding Iowa’s CSR index — or corn suitability index — that I’ve had over the years.
The CSR index is unique to Iowa and I’ve found that many folks don’t really know what it is. So, I thought it was due time to shed some light on that.
Corn Suitability Rating examined:
The Corn Suitability Rating (CSR) was established in 1971 by Iowa State University as a means to rate the productivity of Iowa tillable soils.
With this system, soil are segregated in a meaningful way based on similar physical properties and are arranged into mapping units. Corn suitability rating (CSR) is based upon these different soil mapping units (smu’s), average weather conditions for the area, and upon the frequently of use of the soil for row crops.
Corn suitability rating’s range from 5-100. Five being soils that are severely limited in being able to be row cropped. And, with 100 being soils with few or with no physical limitations on being row cropped, having little or no slope, and that can be continuously row cropped.
As you can see, basically, the higher the CSR unit of the land the more valuable, from a production standpoint, it is to the farmer and to the landowner in general.
Something else to note about the CSR index is that it has gotten more accurate over time, as the overall knowledge base and classification of soils has become more refined.
The New Corn Suitability Rating:
In 2013, Iowa State University came out with a new version of CSR called the CSR2. You might deem this the new and improved CSR index.
Well, sort of.
The major difference between the old CSR and the new CSR2 has to do with rainfall. That being, the CSR2 value does not include a rainfall correction factor, built in, as did the old corn suitability rating.
It seems that, over time, rainfall rates have generally increased across Iowa so that having the correction factor was not needed.
Interestingly, that, in general, at least, CSR2 values tend to be higher in north-central and in northwest Iowa, than CSR values. For the rest of the state, the two indicators are very similar.
Keep in mind that with both indexes these assumptions exist: soil management units are adequately managed, are artificially drained when required and that there is no land leveling or terracing.
(Note: part of the above was taken adapted from Sassman, Buras and Miller – “A Comparison of Iowa’s Original CSR index to the new CSR 2 index. Dept. of Agronomy, Iowa State University).
Will the new CSR2 index affect my real estate taxes?
In general “NO”.
Here’s how the county assessor deals with CSR in relation to establishing real estate taxes.
As you may imagine, from our discussion so far, CSR values are directly tied to land values. In fact, The two are generally directly related. I say generally because this is not always so clearly defined as we’ll discuss in a second.
Iowa farmland prices in relation to CSR. (Sometimes CSR in relation to land prices is discussed as dollars-per-CSR point in relation to price per acre. For example a price of $100 per CSR point on X number of acres that have a CSR value of 60: Equals 60 points x $100 per point == $6,000 per acre)
Segmentation of Acres impacts production and valuation using just CSR Index:
When a farm is segmented, as so many recreational tracts are, the relationship between CSR value, as may be examined as CSR points-per-acre becomes less clear.
A large crop field with easy access means it’s easy for the farmer to get in and out of to plant and to harvest. Lots of acres in one place also means the farmer does not have to relocate his equipment to a different location to do the same things. This saves him time and money.
Suppose we have the same amount of acres as in example A. That is, the same amount of acres but they are broken up or segmented into several smaller fields. Separated, perhaps, by a creek crossing, parcels of timber, or a few miles distance between the fields. These things mean the farmer will need more time to plant and more time to harvest the same amount of acres as in example A.
It also means more expense because of the travel between fields with big equipment. Segmented fields also have more edge. This is great for wildlife, especially deer. But it does mean that these fields will receive more browsing pressure and predation from animals.
Smaller fields, in Iowa, tend to get heavily browsed by deer.
And, also, turkeys eat lots of planted seeds. Animals like raccoons, squirrels and, even beaver, eat seed and damage crops too. These things all play against the market and production value of smaller individual fields vs bigger fields with identical CSR values and the same amount of acres.
As can be seen in this comparison, two farms, each having identical acres and identical CSR indexes, can have very different real values to the farmer and, hence, to the landowner. In the market place, these acres would also have different market values.
So, using CSR values as a direct pricing mechanism when buying and selling can be a bit tricky and subjective.
Basing the value of acres using just the CSR index alone is not really enough.
One also needs to take into account these other factors such as field size, ease of access, animal browsing potential, edge component, and total recreational potential (This is not discussed here but we’ll hit this topic in a future blog post. Do note that the recreational market value potential goes up with field segmentation, in general. Just the opposite of valuation using of such fields using just the CSR index).
Looking at a Soils map: The Letters mean Slope
Something else you will see on soils maps are letters after the soils designated classification number. You see something like 13B. The number refers to how the soils is classified by mapping unit and the letter refers to the slope of the land.
B == 2-5% slopes
C== 5-9% slopes
(no letter designates little to no effective land slope)
As you might imagine, CSR and land the slope of the land have an opposing relationship. That is, the more the land slopes the lower is the CSR value.
And, therefore, usually, too, the lower is the value of the land, from a pure crop production valuation standpoint. (Not necessarily from a recreational value standpoint).
Stay tuned to our blog, as I’m sure we’ll discuss market valuation from a recreational value perspective – instead of just an income perspective — as it relates to CSR indexes of tillable acres.
Lastly, you might check out this video on soils and soil properties.
Soil Properties Video (outside link)
Lucas County, Iowa 51 Acres m/l (Approx. 18 mi S. of Knoxville and 45 miles from Des Moines)
You say you always wanted to have that home in the country overlooking your own private lake? Well….Your wish has come true!
This is a dream property for sure! Here’s what you get:
- 1248 square foot ranch-style home that sits on a gentle slope with gorgeous sunset views to the west looking over the lake.
- large yard that looks like a huge garden-of-eden with all sorts of flowers and various plantings. Don’t be surprised to wake up in the morning to a large bunch of
- deer or turkey walking through the back yard along the lakeshore!
- The home is a very solid home on a concrete foundation built in 1974. It has 3 full bedrooms and 1 full bathroom and a full basement. Also a beautiful porch area on which to sip your cup of coffee on in the morning!
- The home does have an attached garage and there is also a small detached garage building on the premises.
- The land offers incredible hunting opportunities for a smaller parcel.
- Gorgeous and very rare oak/savanna ecosystem with native prairie all around.
- The tall grasses and thick cover offer outstanding deer sanctuary areas for living in day to day and for security cover.
- The land offers various successional habitats from early to late stage (large oaks) which offers the ultimate in deer attractiveness!
- Edge habitat is very abundant and the early successional habitats offer lots of natural, native browse.
- Lots of tree stand and set-up options, especially for a smaller parcels.
- There are at least 3 major areas that one could establish food plots in.
- Abandoned roadway along east side of property allows easy entrance and exit into various stand setups – going into the wind to get to your stand!
And The Lake – Ah yes, THE LAKE!
- The lake measures right at 6 acres and up to 7 acres (during really wet years). Here is one pond that is totally justifiable to be called a lake! (such a lake can easily cost $70,000-$100,000 or more to construct!)
- The lake has abundant crappie with reports from the previous owner of numerous crappie up to and over 16 inches! Those are huge crappies regardless of where you are fishing in the U.S.! Right in the back yard!
- Bass too—and some giant largemouth possible here!
- In 2015 the owner stocked forage fish – golden shiners and fathead minnows at 10X the normal rate! What this will do is create a huge buffet of food to resident fish and should make them grow super fast and to potentially huge sizes! Big fish and I do mean really big fish could easily come from this lake at any given time – could be a 10 lb largemouth bass or a 3 –4 lb. crappie – how great would that be? Iowa DNR records show that ponds in southern Iowa consistently produce the most and biggest game fish of any bodies of water in the state!
- Bluegill and catfish also present and could easily get to huge sizes here as well.
Here is a fantastic opportunity to purchase a great piece of Iowa hunting land along with a nice home and your own stocked lake – all in post-card setting? What in the world are you waiting for? We don’t expect this one to last very long!
Call me now if you like to make this one your personal piece of paradise! Rich 641-919-9026.