My granddad beat this saying into my head from early on in my life. He always told me, “Son, they ain’t making any more land. Get all you can!” This is why land ownership has been a love of mine for a long time.
When people think of real estate investments, they associate them with rental properties, commercial properties, and/or foreclosures. But people rarely think of raw land as an investment and end up missing out on one of the greatest opportunities.
Types of Properties
In today’s land market, properties are typically sold and marketed according to their best use, or the function that they are most suited to fulfill. Understanding the most common types of properties on the market today will allow you to benefit the most from your land purchase, as you’ll be able to find a property that will best fit your needs.
Recreation– These are properties whose main purpose is to provide a space for recreational activities. Recreational properties can come with a variety of features based on their intended use. For example, one recreational property may consist of a cabin with some water frontage to allow for boating and fishing, while another may have extensive trail systems for biking and hiking. It’s important to consider what activities you’re looking to perform on the property, and choose the best one to fit those needs!
Hunting– Hunting properties are fairly self-explanatory; they’re used for hunting! The features of these properties will vary based on the kind of game you’re after, but typically hunting properties will have food plots to supply and attract game with food, as well as bedding/sanctuary areas for game to rest. Be sure to inquire about past hunting successes on the property to get an idea of whether or not this property is going to provide the hunting experience you’re looking for.
Farming– Farming properties are typically comprised of mostly farmland. These properties are flat and open, with fertile tillable soils. When purchasing a farming property, pre-existing improvements/equipment that is included with the property are good to look out for. These could be things like fences for livestock or farming equipment like tractors or combines. Properties that include these additions will be much easier to get up and running as opposed to properties that consist of strictly farmland.
Timber– Timber properties are those that are used to grow and harvest timber. These properties are mostly wooded as growing timber is their main focus. One aspect to keep in mind when viewing timber properties is access; ease of access is one of the most important attributes of a successful timber tract. This is because timber harvesters will have an easier time getting to your timber and moving it off your property if an internal road system already exists. Many timber harvesters are also willing to pay more for timber that is easily accessible.
Types of Land Ownership
There are various types of ownership arrangements that we have here in the United States today. Outlining these different types of ownership will help to outline the unique benefits of each type and therefore more benefits to owning land.
Sole ownership– This is one of the more common ownership arrangements, as it places you as the sole owner of the property. In this setup, ownership is passed from the previous owner to you through transfer documents typically found in the closing process. Sole ownership is a good way to pass along property to children through a will since beneficiaries of sole ownership properties are not required to pay capital gains taxes on the sale of these properties. Sole ownership is a good route for anyone looking to pass along their property to their children or any other inheritors.
Joint Tenancy– Joint tenancy is another common ownership agreement, wherein two parties own equal shares of a property. This type of agreement is not limited to spouses and can be entered by any two willing parties. In the event of one party’s death, the entirety of their ownership is automatically transferred to the other party. In this way, joint tenancy can make the process of conveying ownership to inheritors through a will very difficult. It is important to consider this when determining ownership during the buying process, as it could produce easily-avoidable headaches later down the road.
Tenancy in Common– This form of ownership is similar to joint tenancy, in that tenancy in common consists of two or more parties that own shares of a property or asset. There are some fairly significant differences though, for example with tenancy in common the percentages of ownership between the parties do not necessarily have to be equal. One party could theoretically own 60% of the property, with two more parties each owning 20%. The other main difference between tenancy in common and joint tenancy is that in the event of a party’s death, their share is not automatically passed along to the other owners. Therefore it is prudent to discuss what each party plans to do with their share should something happen to them before entering into this type of ownership agreement.
Community Property– Some states have “Community Property” laws which state that any property acquired during the course of a married couple’s life is to belong to both individuals equally. This means that both spouses will have an equal share of the property. There are also no restrictions on how much of their share, or to who, each individual leaves in their will in the event of their death. The main takeaway here is that just because you may own a property with a spouse, they are not necessarily entitled to leave their half of the property/asset to you, nor would you automatically assume their half should they pass away.
Land Ownership is an Easy Investment
There are many benefits to owning land. First, land ownership gives the owner peace of mind. As a long-term, tangible asset, raw land doesn’t wear out or depreciate, and there is nothing that can be stolen or broken on it. It is a limited resource that is relatively inexpensive to own and requires little maintenance. In other words, it is a relatively hands-off investment. There is also little competition in the land market as most real estate investors are focused on investments such as rental and commercial properties.
Profit Potential in Land Ownership
Contrary to popular belief, there is a large profit to be made in land ownership, but it is not a get-rich-quick scheme. Here are a few examples of ways to make a profit through land ownership:
- Buy and Hold – Purchase land at a good price, hold and sell after appreciation.
- Establish a Farming Lease – Farmland has historically produced larger returns than stocks, bonds, and mutual funds over the long run. A landowner can normally earn enough from agricultural leases to cover the taxes and insurance, and still make a small profit. However, keep in mind that farmland is normally more expensive and will require more capital to get started.
- Establish a Hunting Lease – Hunting lessees normally take excellent care of the property they are leasing. They also do a great job of patrolling the property and keeping away poachers. As in a farm lease, landowners normally earn enough from a hunting lease to pay the taxes and insurance.
- Offer Owner Financing – Land loans can be difficult to secure from traditional banks at times. Offering a buyer owner financing is a way to sell the land and earn interest. Most owner financing deals offer higher interest rates than traditional banks.
Raw land ownership can certainly be a great investment for someone looking to diversify their portfolio. As a land professional, I always recommend utilizing the expertise of your local National Land Realty agent so you can explore your options and determine if land investing is for you.
As granddaddy used to say, “They ain’t making any more land. Get all you can!”