The Basics of Land Investing
What to look for in a ranch or recreational property investment.
As many of my long-time readers know, I have always been an advocate of land investing. I own a recreational ranch myself and I urge everyone to consider adding land as part of their portfolio. The benefits of investing in rural land are enormous. Land acts as a great inflation hedge, provides cash flow, and allows an investor to enjoy their investment during ownership. One of the greatest things about a land investment is diversity of use. One piece of land can have a variety of uses such as grazing cattle, leasing for hunting, fishing, camping, airbnb, agriculture, mineral rights, recreation, and water rights.
In addition to land investing, podcasting, and writing this newsletter, I am a licensed real estate agent with Hayden Outdoors in New Mexico. I help people buy and sell ranches and recreational property throughout the State.
Here are some tips to help you start your land investment process.
1. First and foremost, as with any real estate investment you need to consider carrying costs. The greatest thing about rural land is that there is very limited maintenance when holding a land investment. You may have to fix a fence or a well occasionally, but most of the time the land can just sit their vacant. The main carrying costs are property taxes. New Mexico has one of the lowest property tax rates in the US. Aditionally, in New Mexico, there are a whole host of tax exemptions that come with “agricultural tax status”. If you qualify by using your land in a prescribed way to promote agriculture such as growing crops or grazing cattle, it significantly reduces the property tax on the land. You would have to consult with a CPA in order to find out exactly what agriculture would qualify for AG status, but it is a very common process. Bottom line, buy land in a low tax state and get your property into agricultural status to lower your tax burden and carrying costs. With the increased popularity of elk hunting, one of the best ways to cash-flow rural land in New Mexico is to sell elk tags from your property. New Mexico Department of Game and Fish assign elk tags, or the right to hunt elk based on scoring criteria of how well-suited your property is to hold elk. Depending on your land location, these tags can be sold for up to $6,000 per tag!
2. Secondly, figure out what you want to do with your land. Do you want it for recreation such as a family get-away or a hunting/ fishing property? Do you want to raise cattle? Do you want a house on the land or will you camp? These questions will determine what the correct piece of land is for you. Luckily, there are select properties that allow for one or all these different land uses. Capital Appreciation is the main mechanism for investors to receive a return on their land since hard assets (such as real estate) often keep up with inflation. The demand for rural properties has grown exponentially in the past few years with the increase in the population working from home as well as Covid and civil unrest fears.
3. Look for the “right” land for your needs. Land that is suitable for someone looking to cash-flow by allowing people to camp on their property may be very different than someone looking for income from a cattle grazing lease. This is why you need to know what you want to do with your land so you know what to look for. There are certain items that make some land more valuable than others. Land with water, especially in New Mexico is much more valuable than land without water. Some of the other elements of value are: views, ability to build on the property, permanent structure on the property, good habitat for hunting or fishing, ease of access, good neighbors, and limited covenants or HOA restrictions.
4. Know what you are buying! Purchasing land can get very complicated as rights to certain elements of the property may or may not convey to the new buyer upon purchase. For example, mineral rights, or the right to drill for oil or other minerals may or may not convert with the property purchase. This means the new buyer may be subject to the previous owner digging up oil on his or her land!
If you are looking for an investment that can provide an inflation hedge, potential for cash-flow and enjoyment of use while you own the investment, land is your best bet. New Mexico is a hidden gem for potential land-owners with an extreme diversity in the topography and biome. This state has everything from Rocky Mountain alpine land with flowing streams like Colorado, to beautiful desert landscapes that make you feel as if you are starring in your own western movie. If you are interested in land investing, please contact me at Russell@haydenoutdoors.com. I can help you work through some ideas that may fit your portfolio needs in this beautiful state.
-Russell Warren