Ranch real estate auction

Step-By-Step Real Estate Auction Guide

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A Step-By-Step Guide to the Real Estate Auction Process

Navigating the real estate market can be a complex endeavor, but choosing to sell your property through an auction can streamline the process and potentially yield excellent results. Auctions offer an efficient, transparent way to sell real estate, ensuring your property is presented to a competitive pool of potential buyers.

Real estate auctions work because they create urgency. An auction date and time motivates potential buyers to act. The process is truly hands-off for sellers. And, sellers to dictate when, where and how the sale will happen.

“Once they (CJ Auctions) came in, it all just happened so quickly and so professionally. We were just kind of left with our mouth open because we didn’t expect it to go so smoothly and so quickly. And they took care of everything. All I had to do was show up at closing. I will be forever grateful for what they did for our family.”

 – Kary Warren, Lamb Ranch Trustee.

Property owners benefit from selling real estate at auction because they can minimize carrying costs, eliminate risks associated with pre-sale inspections and know when their property will sell. Additionally, there is no need for extensive repairs or upgrades because property offered at auction is typically sold ‘as is, where is’ meaning that bidders are offering to buy the property in the condition it is in on sale day. There are no sale contingencies and no negotiating.

Competition assures that owners are getting the best price for real estate at auction. At auction you get competing offers all at once. Each bid is simply an offer to purchase. The sales price is determined by competing bids that go up, not down.

Here’s a comprehensive guide to understanding the auction process from start to finish.

Discovery – Initial Consultation

Your auction journey begins with an on-site visit to learn about your property, the local real estate market and most importantly, your goals and objectives. This meeting serves as a foundation for the entire process:

  • Discuss your goals and which sales method – auction or listing – is the best fit for what you want to accomplish.
  • Discover what’s unique about your property, gain an overall understanding of your real estate asset and assess your property’s potential value.
  • Outline the auction sales process including deliverables, timeline and post-sale activity.
  • Address any remaining questions you or your family may have about the process, risks and benefits thoroughly with your real estate team.

Seller Responsibilities

Property owners selling via auction have similar duties to those in any real estate transaction.

  • Affirm property details such as shared ownership, legal descriptions, right of ways, acreage, etc.
  • Disclose financial details about existing mortgages, liens, etc.
  • Disclosure of any known hazards or defects.
  • Make the property available for pre-sale work, inspections or open houses during the marketing period. A key difference with auction is that inspections/open houses are typically limited to 3 or less and scheduled ahead of time – no last-minute showings.

Auctioneer Responsibilities

  • Keep you advised and informed with responsive communication throughout the process.
  • Set the auction date, time and location.
  • Package your property for maximum pricing potential through parceling.
  • Determine if a land survey is necessary and, if so, manage the survey process.
  • Organize all relevant property documentation, disclosures and other legal paperwork.
  • Prepare marketing plan and manage marketing process.
  • Organize and manage your real estate auction and sale process.
  • Organize and manage real estate closing.

Marketing

A strategic marketing plan is crucial for drawing in potential buyers. The tactics employed to market your property typically include:

  • Professional photography and videography showcasing your property through compelling visuals.
  • Custom webpage illustrating your property.
  • Online listing placements on real estate websites such as Zillow & Realtor.com.
  • Social media campaigns that engage audiences and generate interest.
  • Email marketing to targeted buyers, investors, brokers and related professionals.
  • Print advertising in local newspapers and select industry publications.
  • On-site signs and off-site directional signs to inform and attract local buyers.

Inspections and Open Houses

Inspections and/or open houses are a pivotal part of the auction process, offering potential buyers the chance to view the property firsthand. A key benefit of selling via auction is that these are typically limited to 3 or fewer and they are scheduled as part of the marketing plan so that you can plan and never have to hassle with a last-minute call to show your property.

  • Inspections and/or open house events are scheduled on fixed days and times and promoted as part of your marketing plan. Typically, there are 1 or 2 events prior to sale day and 1 event on sale day.
  • A representative from your real estate auction will be present to answer questions and offer details about your property during a set time period. They’ll collect feedback from attendees to gauge interest and address any potential issues that may impact your sale.

Auction Day

The entire process comes together on sale day.

  • Your real estate auction team will set up the property for sale posting additional sale day signage directing prospective bidders to the auction.
  • Prospective buyers will be able to arrive at least one-hour prior to auction time to inspect the property, register to bid, and ask any questions about the property or auction process.
  • At auction time, the auctioneer will make pre-auction announcements reading the sale terms, conditions, and disclosures into the record. Then your auctioneer will ask the audience if there are any questions for the record.
  • Once all questions have been answered, the auctioneer opens the competition with an initial starting bid.
  • Potential buyers make successive bids, each higher than the previous one. It’s a fast and exciting pace. Auctioneers typically work with a team consisting of the auctioneer, ringmen and an auction manager.
  • Your auctioneer will generate maximum value for the property by expediting competitive bidding while ensuring a transparent and fair process for all bidders.
  • The bidding process continues until a high bidder is declared.
  • If there are multiple property/parcels, the successful high bidder wins the right to choose a property/parcel or properties/parcels from a grouping of similar or like-kind properties. After the high bidder’s selection, the property/parcels they chose are deleted from the group and the bidding commences for any remaining property/parcels.
  • The bidding process continues until all properties/parcels have been sold.

Post-Auction

Immediately following the auction, high bidders will meet with the auction manager to complete the sale.

  • High bidders will sign the purchase agreement and pay a non-refundable deposit.
  • The auction manager will review the closing process and answer any buyer questions.
  • The auction manager will then expedite the closing process. Settlement typically occurs within 30 to 45 days of seller acceptance.

Conclusion

Selling your property at auction can be a powerful method for achieving a successful and timely sale. Understanding each step ensures you are well-prepared and can collaborate effectively with your auctioneer to maximize the benefits of this sales approach.

If you have questions or need further assistance about selling your property at auction, don’t hesitate to reach out. We’re here to guide you through the auction process and help you achieve the best possible outcome.

Stay tuned for our next post, where we’ll provide tips on preparing your property for auction to ensure it looks its best and captivates the right buyers.

Home Prep for Maximum Sale Price

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Looking to maximize your home’s sale value? Avoid costly upgrades and focus on simple, effective steps to attract buyers. Declutter, depersonalize, deep clean, and boost curb appeal effortlessly.

Most of us realize that your home should be as inviting and welcome potential buyers by making them feel comfortable.

“One of the most common mistakes that home sellers make is overlooking the simple and inexpensive steps in favor of costly upgrades” says agent Tev Brackin adding, “simply decluttering, depersonalizing, deep cleaning and curb appeal boosting lawncare will do more for resale value than just about anything you can do.”

Use this checklist to knock out the basic tasks to maximize your home’s value:

  1. Declutter every room in your house, the garage, the yard and any storage buildings.
  2. Depersonalize your home. Remove your personality so that potential buyers can visualize how their own personality will look in your house
  3. Deep clean. Think about hiring a pro – your realtor should have affordable options. Not only will they make your home sparkle, they’ll also often notice things that you may overlook.
  4. Amplify your curb appeal. Small and economical upgrades like a few cheerful flowerpots, fresh paint around the doorway, and trimming overgrown shrubs will make a big difference. Realtor Kali Blakley advises her clients to “Take a step back and add some color with potted plants – and you can take them with you after you sell.”

Of course, there are a few tasks that you may not have thought about that are absolutely worth your time:

  1. Wow buyers with inviting pictures that compel them to take a deeper look. Most buyers begin their search online. Be sure to declutter, depersonalize, deep clean and brighten your home before taking your online listing photos. Consider hiring a professional real estate photographer to maximize your appeal.
  2. Avoid surprises by conducting your own pre-listing inspection. A pre-listing inspection provides sellers with upfront information about the condition of their property, which gives them more control over repairs and potentially strengthens their negotiating position.
  3. Adjust the thermostat to make certain that your home is comfortable for potential buyers when showing the home.
  4. Make your home smell free. Taking out the garbage and recycling is obvious but removing candles and room fresheners is important too. Any smell can spoil a buyer’s opinion of your property. “Some sellers are shocked when I tell them a buyer thought that the candle scent was covering up a musky smell in the home.” Recalled agent Shelby Enyart.
  5. Avoid signs of your pets in the home. While we love our pets, dander, excess fur and messes in the yard can turn-off potential buyers.

The to-do list or home sellers may seem never ending. Use this list to help your home make a powerful impression, entice buyers, and compel maximum offers early in the process.

Invest in Hunting Land Like a Pro

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Purchasing recreational land for hunting can be an excellent investment, offering both a retreat from urban life and a potential source of income. However, to make the most of this investment and avoid financial pitfalls, there are several crucial factors hunters should consider before making a purchase. Here’s a guide to help you navigate the process and ensure your investment is sound.

Understand Your Objectives

Define Your Purpose: Are you buying the land primarily for hunting, or are there other recreational activities you’re interested in, such as fishing, hiking, or camping? Clarifying your primary objectives will guide your decision-making process and help you prioritize the features you need in the land.

Investment Goals: Consider whether you view this purchase purely for personal use or as a financial investment. If it’s the latter, think about the potential for future appreciation, leasing opportunities, and other revenue streams.

Evaluate the Land’s Hunting Potential

Wildlife Habitat: Assess the quality and diversity of the habitat. Look for areas with ample food sources, water, and cover. Diverse habitats that support various species will enhance your hunting experience and the land’s value.

Game Species: Identify the types of game present on the land. Research local wildlife populations and hunting regulations to ensure the species you’re interested in are abundant and legally huntable.

Property Size and Layout: Larger properties generally support more wildlife and provide a better hunting experience. However, the layout is equally important. Look for natural funnels, water sources, and areas that offer good vantage points for hunting.

Identify Potential Off-Season Revenue-Generating Opportunities

Owning hunting land can offer several passive income-producing opportunities beyond hunting that don’t interfere with habitat management or hunting activity and may even help secure your land with year-round activity. For some this is a very attractive way to pursue a passion for the outdoors while offsetting costs associated with owning and maintaining large plots of land.

Conservation Programs: Enroll in government conservation programs that provide financial incentives for preserving wildlife habitats, wetlands, or other natural resources.

Agricultural Leasing: Lease portions of the land to local farmers for growing crops or grazing livestock. This can provide a steady income stream while keeping the land productive.

Timber Sales: If the land has a substantial volume of mature trees, they can be harvested and sold. Sustainable forestry practices can provide ongoing income while maintaining the health of the forest.

Fishing Leases: If the property includes ponds, lakes, or streams, consider leasing access to fishermen. Stocking the water bodies with fish can enhance this offering.

Short-Term Rentals: There are a host of apps ready to help you generate revenue by opening your land to visitors looking to park their RV, pitch a tent, treat themselves to a glamping experience, or have a family vacation in a cozy cabin. Short-term rentals may require a bit more effort but most apps make it easy to control when and how people use your land.

Solar or Wind Energy: If the location is suitable, lease parts of the land for solar panels or wind turbines. Renewable energy projects can provide long-term, passive income.

Legal and Zoning Considerations

Zoning Laws: Verify the zoning regulations for the property. Some areas may have restrictions on hunting or other recreational activities.

Access Rights: Ensure there is legal access to the property. If the land is landlocked, you may need to negotiate easements with neighboring property owners, which can be costly and complicated.

Conservation Easements: Check if the property is subject to any conservation easements. Are there any protected species or wetlands on the property? Familiarize yourself with any regulations or restrictions that may impact your ability to develop the land. While these can be beneficial in preserving the land, they may also restrict certain activities, including hunting and development.

Financial Considerations

Budget and Financing: Determine your budget, including not just the purchase price but also ongoing costs such as property taxes, maintenance, and improvements. Explore financing options and ensure you can comfortably meet the financial obligations.

Market Trends: Research current market trends in the area. Land values can fluctuate based on various factors, including economic conditions and changes in local regulations.

Income Potential: Consider potential income streams from the land, such as leasing it to other hunters, offering guided hunts, or timber sales. These can help offset the costs of ownership and even provide a profit.

Land Improvements and Management

Necessary Improvements: Assess what improvements may be needed to maximize the land’s hunting potential. This could include building access roads, creating food plots, or installing blinds and stands.

Land Management: Effective land management practices can enhance wildlife habitat and increase the land’s value. Consider hiring a professional land manager or wildlife biologist to develop and implement a management plan.

Environmental, Physical, & Infrastructure Factors

Water Sources: Presence of water bodies like ponds, streams, or lakes can significantly enhance the property’s attractiveness to wildlife and its overall value.

Soil Quality: Good soil quality is essential for maintaining healthy food plots and supporting diverse plant life. Conduct a soil test to understand its composition and fertility.

Topography and Accessibility: Consider the topography of the land. Steeper terrain can be challenging to navigate but may offer excellent vantage points for hunting. Ensure the property is accessible year-round, especially if it’s in a remote area.

Utilities and Infrastructure: When purchasing hunting land, utilities and infrastructure play a crucial role in ensuring the property meets your needs and can support your intended activities. This includes: Water, electric, gas, waste disposal, roads, communications, buildings and fencing. You’ll need to access what you need, what exists, and what improvements will need to be made for your intended uses. One often-overlooked resource is access to emergency services.

Consult Professionals

Real Estate Agent: Work with a real estate agent who specializes in recreational land. They can provide valuable insights and help you find properties that meet your criteria.

Legal Advisor: Consult with a legal advisor to ensure all contracts and agreements are in order and to understand the implications of any legal restrictions on the land.

Financial Advisor: A financial advisor can help you understand the long-term financial implications of your purchase and how it fits into your overall investment strategy.

Conclusion

Recreational land can be a fulfilling and worthwhile investment that rewards you and your family for generations. Purchasing recreational land for hunting is a significant investment that requires careful consideration and planning. By understanding your objectives, evaluating the land’s potential, considering legal and financial factors, and seeking professional advice, you can make a well-informed decision that maximizes your investment and provides years of enjoyment. Take the time to thoroughly research and evaluate each aspect of your potential purchase to safeguard against financial mistakes and ensure a successful investment.

Keys to Land Auction Success

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Successful land auction buyers understand that strong pre-auction preparation is essential to buying land at auction. In this article, we’ll review keys such as pre-sale due diligence, bidding strategy, financing, auction communication and the process for closing on the purchase after the auction.

 

Auction Due Diligence

Because land offered at auction is sold ‘as-is’, it’s vital that you fully understand what you’re bidding on. Ensure that what you think you are bidding on matches what they’re selling by reviewing the documentation physically inspecting every parcel.

Review the auction terms and conditions. Most will include an ‘as is’ or ‘as is, where is’ clause. These are real estate term used to communicate that the property being sold is not subject to financing, inspections or any other contingencies – the property will be sold in its current condition (regardless of what the condition may be), and the seller won’t be making any repairs, updates, or remediation before closing.

Never assume. Land that’s been in one family for generations may have been split and parceled multiple times over the years. Often, current landowners are surprised to find that what they think they own is very different from what they actually own. It’s not uncommon for fence lines, legal descriptions, and actual survey boundaries to be different.

Confirm acreage amounts. Reputable auctioneers will provide documentation of how the acreage is determined – survey or legal description – in the sale documents. It’s vital that you know exactly what you’re bidding on. If you don’t see it, contact the auctioneer and request that information.

Know the asset. Online records and GIS mapping help you better understand the property beyond your visual inspection. County assessor’s website will show you the current assessed value, classification, zoning, water lines and tax records. GIS mapping systems such as Land ID, can give you a deep understanding of how the land flow and topography, multiple aerial imagery, approximate land boundaries, designated land use, aquifers, wetlands, FEMA zones, soil maps, city and county lines, school district boundaries, utility easements, transmission lines, conservation easements, oil well locations, railroads, opportunity zones, and more.

Avoid surprises. Buying ‘as is, where is’ also means that any non-real estate sitting on the land on sale day transfers with the land unless previously disclosed as part of the terms and conditions. That means that you could be responsible for removing any abandoned equipment, junk or other items sitting on the land. Review the auction terms and conditions to avoid unexpected hassles and expenses.

Without proper due diligence, you could end up paying for land without acquiring it, paying property taxes on land that you don’t own, or failing to leverage acreage you never knew you owned.

 

How to Value Land

The comparable sales approach to valuation works well for residential homes but this method falls short in determining the value of assets like land. Land is typically offered for sale at auction because the auction method delivers true market value for the seller. There’s no guessing at a listing price. No fear of setting the asking price too high or too low.

Every piece of land is unique. Savvy buyers know that they must determine the value of the land for them – rather than presume the value is universally accepted. Start by identifying your short and long-term goals land ownership goals. This will help you determine the type of land you need and shape your valuation. Consider the following:

  • What are the best uses of the land?
  • What improvements and structures are on the land?
  • How does the location, condition, utility access, transportation infrastructure, market velocity, and current zoning impact potential land uses?
  • Will the factors above eliminate some potential bidders? If so, how does that affect the value?
  • What will you use the land for?
  • What improvements and structures are needed for your uses?
  • Are there multiple uses for the land and which of these can produce income?
  • Are you planning to purchase the land as an investment? If so, what’s your turn-around timing?
  • What is your land exit strategy?

Understand Auction Bidding

Auctions can be as unique as the piece of land you’re bidding on. They can be held in-person, online, via telephone or a combination of all three. And there are a variety of sale methods that bidders must understand to bid with confidence.

Marketing materials should clearly outline when, where and how to bid. Request help from the auction team to ensure that you understand every aspect of the process. Be sure to reach out to the auction staff well in advance of the auction because once the bidding starts, the action is fast and intense.

Reserve or No-reserve Land Auctions

Land may be sold with or without reserve. Reserve refers to the minimum bid the seller is willing to accept.

Land sold without reserve will be sold to the highest bidder or bidders. These are also referred to as an ‘Absolute Auction’ or ‘No-Reserve Auction’. It is called an ‘Absolute Auction’ because the property will absolutely sell to the highest bidder.

The sale terms and conditions should disclose if a property is offered with a reserve. The actual amount of the reserve may or may not be disclosed.

 

Land is Sold by a Variety of Auction Sale Methods

Choice Auction:

Also known as ‘Buyer’s Choice By The Acre’, this traditional sale method is used when more than one land parcel is being offered at the same auction. Bids are made on a per-acre basis. It’s a straightforward, easy to understand, and fast sales process for bidders and sellers.

Bidding starts low. Bidders compete by raising the bid against each other until a high bidder emerges. The successful high bidder then chooses which parcel or parcels they want from a grouping of similar or like-kind properties. After the high bidder selects the parcel(s) they want, those parcel(s) are removed from the available parcels and bidding commences for the remaining parcel(s).

The high bid is multiplied by the number of acres to determine the sales price.  For example, if the high bid is $4,200 on a 100-acre parcel of land, the sales price is $420,000.

Multi-Par Auction:

This auction method establishes a price for each tract before the auctioneer starts the bidding. Bidders identify what parcel or parcels they want to purchase. Then large multi-parcel bidders compete with small individual parcel buyers. This process often takes several hours. Bidding ends once no new bid raises have been placed within a specified time frame. The property is sold to the tract combination(s) that produce the highest total sale price.

Dutch Auction:

Rarely used in land auctions, this is a sales method in which the price on an item is lowered until it gets a bid. The first bid made is the winning bid and results in a sale, assuming that the price is above the reserve price. This is in contrast to typical auctions, where the price increases with each bid placed.

Sealed Bid Auction:

This method involves setting a date that all offers must be submitted by. This period is typically less than 60-days. Sellers receive multiple offers that they can analyze and respond to resulting in the potential for post-offer negotiations.

 

Land Auction Bidding Strategy

Auction creates true market value – the property is sold for exactly what people are willing to pay for it. But, not every property is worth the price it’s bid up to. The energy and competitive energy that auctions generate can lead to impulsive decisions.

Bid Limit:

Set a firm budget and stick to it. If the bidding surpasses your bid limit, walk away. Avoid letting the excitement of the auction sway your judgment.

Bid Psychology:

It’s the auctioneers job to create competitive energy. Great auctioneers do more than manage the process; they work the crowd into a frenzy of competitive energy. Accordingly, savvy bidders are able to use that intensity to their favor.

Bid with Confidence:

If nobody else bids when the opening bid is announced, take the initiative and offer the minimum bid. Be patient. Wait for the competition to show themselves. When you do bid, be forceful with your voice and body language to announce that you mean business.

Bid Ruthlessly:

Once bidding starts, stay quiet. Gain a feel for the other bidder’s intensity and watch for others surveying the competition too. Entering your own bids will only increase the competition and may drive the price up.

Wait until you feel the competition is cooling off and only one bidder remains. Let the auctioneer say, “going once, going twice” before announcing your bid. Then forcefully announce your bid and, make the raise increment substantially higher than the last bid. This technique can demoralize or take your opponent by surprise and immediately end the bidding process.

Bid Unpredictably:

Avoid bidding in consistent, round numbers. It’s a small detail that wins more auctions. Always raising your bid in the same increment and stopping or hesitating your bid at a round number reveals your true intentions to your competitors.

Keep bids low by eroding their confidence. Raise your bid by different amounts each time. Mix up your bid increments so that your opponents can’t figure out your bid limit. Think about it, if you raise the bid by $1,000, then $500, then $100, and then $50, your opponents will bid more confidently knowing that your bid limit is near.

People love round numbers. Avoid that trap. Know your maximum, but don’t make it predictable. For example, if you decide that the property is worth $200,000, set your budget at $200,250 rather than a figure that is an even thousand. When a bidder stops bidding at a round number it’s a good indication that they’ve reached their limit.

 

Be Prepared on Auction Day

After performing your due diligence, evaluating the land, setting your budget and honing your bid strategy, you’re almost ready to place your auction bids.

Confident auction communication is your next critical element and that begins by understanding the auction process.

Plan to arrive early on sale day and register as soon as you arrive. Introduce yourself to the auction staff and ask questions. This signals that you’re a serious buyer and will result in you being able to gain the auctioneer or ringman’s attention when you need to.

You’ll likely receive a ‘sale-day information packet’ when you register. Carefully review it. This is where you’ll find last-minute changes or new property information. The auctioneer will likely read this information verbally into the record before the auction, then ask the crowd if there are any questions. Don’t be shy. Ask questions and clarify any discrepancies. Ensure that you know what you’re bidding on.

Once the auction begins, record the price per acre and total price of every parcel being sold. Typically, bidders will select the most valuable parcels first, and pay a higher price-per-acre for them. It’s common for parcels offered in the same auction to sell at very different prices per acre. Knowing which parcels are most valuable to you will help you avoid overpaying.

If you’re feeling confused during the auction, request clarification from the auctioneer. Auction companies understand that buying land is a major decision and want bidders to bid confidently. If at any time you need to ask a question, it’s absolutely okay to signal the ringman or ask the auctioneer directly. Be clear and forceful. Stand up if you need to. Be certain that your actions aren’t mistaken for a bid.

 

Closing on Your Land

Immediately after the auction, head over to the sale managers table to place your earnest funds and complete all contracts.

Once the purchase agreement is signed, be sure to note all contact info for any business partners, including accountants and attorneys, and retain your copy of the agreement.

Pay attention to the closing terms and conditions. Ag land that’s in production at the time of sale may have disclosures that allow the seller to stay in production until the crop is harvested.

For reserve auctions, the seller or seller representative will normally have up to 10 business days to confirm the sale. Closings are typically scheduled between 30 to 90 days after the auction.

 

ABOUT CJ AUCTIONS

CJ Auctions is the leader in real estate auction partnering with ranchers, landowners, trust attorney’s and investors throughout the central United States. Specializing in ranch, residential and commercial land transactions, the CJ Auctions provides comprehensive solutions and proven sales performance.

20 Questions to Answer Before Selling Your Land

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Knowledge is power. Fully understanding your property, it’s value and everything you want out of the sale is vital to realizing full value.

Choosing to sell is a significant decision that necessitates a deep understanding of various factors to ensure you make informed, strategic choices. Our team at CJ Auction is dedicated to clarifying the sales process and providing you with the critical insights needed to move forward confidently.

To help you make informed, strategic choices, we’ve compiled a list of 20 questions that we’ve found our most successful sellers fully understood as they made their decision to sell. Each question is designed to help you unlock the full potential of your property sale.

What determines my lands value?

The market value of your ranch is influenced by several factors including size, location, available resources (water, minerals), access, timing and market conditions. Many landowners make the mistake of basing their price expectation on a neighbor’s sale results while ignoring all other factors. We recommend basing your expectations on a professional valuation that considers multiple factors. can provide an estimate, considering current market trends and recent sales of similar properties. Understanding this value is crucial for setting a realistically competitive price point.

What are the tax implications of selling my ranch land?

Selling ranch land can result in capital gains tax on the profit from the sale, depending on the length of ownership and the amount gained. There might be options to reduce this tax burden, such as a 1031 exchange. Consulting with a tax professional can provide strategies to minimize taxes and clarify any impacts on your financial situation.

How should I prepare my ranch land for sale?

Preparation can involve clearing debris, making necessary repairs, and ensuring all utilities are in good working condition. Additionally, consider attractive staging of living quarters and any other usable structures to highlight the potential of the ranch. Completing any pending land use applications or permits can also increase the land’s appeal.

What legal restrictions or zoning regulations might impact my sale?

Understanding local zoning laws is vital as they dictate land use. Restrictions can significantly affect the land’s marketability and potential uses by the new owner. Engage with local authorities or a real estate lawyer to ensure compliance and discover if any restrictions could be modified or lifted prior to sale.

What documentation is needed to sell ranch land?

Proper documentation includes the current deed, recent land surveys, any warranties, rights of access, and titles. Environmental and geotechnical assessments can also bolster your selling position by providing clear information to potential buyers on the land’s condition and capabilities.

Should I consider subdividing the land before selling?

Subdividing can potentially increase your land’s value by making it accessible to a wider range of buyers. However, the process requires careful planning and adherence to local regulations. Evaluate the costs and benefits with professionals to decide if this is a viable option for your property.

Who might be potential buyers for my ranch land?

Potential buyers may include private individuals seeking a rural lifestyle, investors looking for valuable land, or businesses interested in agricultural opportunities. Understanding the unique features of your ranch can help target your marketing towards those most likely to be interested.

How long might it take to sell the ranch land?

The time frame can vary widely based on market conditions, the property’s price, and its unique attributes. Historically, specialized properties like ranch lands may take longer to sell than residential homes due to a smaller pool of potential buyers.

What are the costs associated with selling?

Sellers can expect to incur costs including real estate agent commissions, advertising fees, legal expenses, and possibly capital gains taxes. Preparing and staging the land for sale may also entail additional costs.

What’s the best time to sell ranch land?

Market conditions can fluctuate seasonally and annually. Generally, selling during a seller’s market—when demand is high and supply is low—can yield higher prices. Analyzing market trends and consulting with a real estate expert can help determine the optimal timing.

What marketing strategies should I use to attract buyers?

Effective marketing strategies may include online listings on specialized real estate platforms, social media marketing, virtual tours, and engaging with local and national real estate agents who specialize in ranch lands. High-quality photographs and drone video footage can significantly enhance appeal. Be sure to know how any real estate professional that you’re may retain plans to market your land and what marketing resources they’ll put to work for you.

Are there any environmental or conservation considerations?

Some sellers find value in marketing their land for conservation purposes, which can attract a niche market of buyers interested in preservation. Participating in conservation programs may also offer tax benefits.

What utilities and infrastructure are available on the land?

The presence of water sources, power lines, access roads, and internet connectivity can greatly influence potential use and the subsequent buyer pool. Ensure detailed information on the state and availability of these utilities is available to prospective buyers.

Can I retain certain rights to the land after selling it?

It’s possible to sell the land while retaining specific rights, such as mineral or water rights. Such arrangements should be clearly outlined in the sales agreement to avoid any future disputes.

What is the economic potential of the ranch land?

Buyers are often interested in the revenue-generating potential of the land, whether through agriculture, leasing, recreational use, or conservation programs. Highlighting these opportunities can make the property more attractive.

What are the local market factors that may impact my sale?

There are factors that impact your potential sale that you can control and other that you can’t. Most landowners easily acknowledge the factors they control. Many struggle to consider those that aren’t in their control but heavily impact sales success such as local demand, competitive availability, and government policies.

How negotiable am I on the selling price?

Know your bottom line. Decide in advance how flexible you are willing to be on the price. Set an aggressively fair selling price above the lowest offer you’re willing to accept. Being open to negotiation can make all the difference in a successful sale.

What steps should I take to ensure a smooth closing process?

A smooth closing process relies on clear communication, all necessary documentation being in order, and understanding the timeline. Working with experienced professionals can mitigate surprises and ensure a successful transaction.

Should I consult legal and financial professionals before selling?

Absolutely. Selling ranch land is a significant decision with many moving parts. Navigating those complexities often requires expertise beyond the average seller’s knowledge. Consulting with legal and financial advisors can help you fully understand sale implications, minimize potential risks and ensure no surprises.

By thoroughly addressing these areas, sellers can approach the market confidently, prepared to effectively engage potential buyers.

Should I sell via auction or traditional listing?

While selling the land yourself can save on commission fees, a qualified real estate agent with experience in ranch lands can significantly simplify the process. They have market insight, marketing tools, and negotiation skills that can help secure the best deal. Consider your personal experience, the complexity of the sale, and how much time you can dedicate to the process before deciding.

You have two main options when selling your real estate: listing or auction. Both offer advantages and disadvantages. Understanding your answers to the above questions should help guide your decision.

Auction is an accelerated sale method with aggressive marketing that creates demand and buyer interest. The primary benefits of selling at auction are control, urgency, full transparency, and no-hassle. With an auction, you’ll know when your property will sell because you set your sale date. Those who attend auctions are serious buyers eager to make competitive bids. There are no contingencies or drown-out negotiations. And your property sells ‘as-is’ so you don’t have to handle repairs or negotiate with a buyer before closing the sale.

Listing allows you to set your asking price then wait for a buyer to come to you. The primary benefits of listing are negotiation flexibility, time to consider offers and more time for the right buyer to find your property.  With listing, you determine your asking price, can be involved with showing potential buyers your land and what makes it unique. Then take the time to fully evaluate multiple offers choosing the one that best suits your needs and terms.

Thinking of Selling Your Land?  CJ Real Estate Can Help

We are real estate experts specializing in ranch, residential and commercial land sales. Whether you need to diversify assets quickly for top-dollar via auction or are prepared to list and wait for a buyer to come to you, the CJ Real Estate team provides comprehensive solutions and proven sales performance. When results matter, choose CJ Real Estate.

Investment Funds are Plowing into Farmland

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Investment Funds are Plowing into Farmland  – Here’s Why

Investment funds are buying vast acres of crop and pasture land as they project land values will continue to grow exponentially. What does that mean for independent producers and why is this happening now?

Reuters recently reported that between 2008 and Q2 of 2023, the amount of farmland and agricultural real estate owned by investment funds increased by 231%. The number of acres owned by foreign entities increased 64% to about 40.8 million acres between 2010 and 2021, with the value doubling to about $72.5 billion, according to the most recent USDA data available.

Eric Johnson, co-founder of CJ Real Estate, a land auction company, said that when investors enter the land market it drives up the price per acre establishing a new cost baseline for everyone.

The average age of farmers and ranchers has been rising for years. “Land costs are a substantial barrier for young producers,” said Troy Shelby, President of the Oklahoma Cattlemen’s Association. It’s a significant challenge for family-owned operations. If the next generation doesn’t want to continue the operation, someone is going to buy that land.

Land Values are Growing

Strong demand has been driven by high commodity prices as well as institutional foreign and domestic investment. According to USDA 2023 reports:

  • For U.S. pastureland, the average value in 2023 was $1,760 per acre, a $110 increase over 2022 and a 66% increase since 2009.
  • The average value of U.S. cropland (irrigated and non-irrigated) was $5,460 per acre in 2023, increasing 8.1% from 2022. From 2009 to 2023, cropland value increased 107%.
  • For pasture, the average value at the state level ranged from $490 per acre in New Mexico to $16,600 in New Jersey. The change in value ranged from a 1.5% increase in Wyoming to a 16.2% increase in Kansas. The Northern Plains region (Kansas, Nebraska, North Dakota, and South Dakota) had the highest increase in pasture value per acre at 13.5%.
  • At $155 per acre, the average rate to rent cropland in the United States in 2023 was $7 higher than in 2022. The average rate per acre for irrigated cropland was $237 (up from $227 in 2022) and non-irrigated cropland was $142 (up from $135 in 2022). For pastureland, the average rental per acre at $15 is up $1 from 2022. Among states, the rental cost per acre in 2023 ranged from $34.50 in Oklahoma to $347 in Arizona for all cropland.

Doing More with Less

Some producers say the best way to farm and ranch is the way it’s always been done, doubling down on techniques and values that have served them for years. Savvy farmers and ranchers understand that sustainability is key to improving production efficiency so that they can maintain profitability and meet growing food demand.

Farmers and ranchers today are doing more with less thanks to innovation and technology. In fact, U.S. agriculture would have needed nearly 100 million more acres 30 years ago to match today’s production levels. Smarter equipment, precision tools and biotechnology are helping agribusiness produce more, while using less water, fertilizer and pesticides.

From climate-smart farming practices to voluntary management of forests, grasslands, wetlands and croplands, farmers and cattlemen are not only reducing their footprint, but also are actively absorbing carbon from the atmosphere.

According to the EPA, land management practices alone removed 764 million metric tons of CO2 from the atmosphere in 2018. That is equal to taking 165 million vehicles off the road for a year. And, U.S. livestock emissions are declining thanks to improvements in feed and production and currently make up less than 4% of overall emissions.

Demand for carbon offsets from agriculture has grown significantly in recent years. But the current process is cumbersome, confusing and offers limited return on investment with high transaction costs which limits farmers’, ranchers’ and foresters’ participation. According to a recent U.S. Agriculture Department study, only 3 percent of farmers, ranchers and landowners are using available carbon credit programs that pay them to remove carbon dioxide from the air and sequester it in the soil. Producers who want to participate must hire private parties to help them adopt the right conservation practices and verify that certain processes and protocols were followed in implementing those practices. And accreditation of these private carbon credit management companies is murky at best adding more doubt to an already murky process.

Sustainability Incentives and Assistance

There are a variety of programs designed to help farmers and ranchers incorporate more sustainable practices into their operations. Here are a few of the most active and interesting:

  • Through the Rural and Agricultural Income & Savings from Renewable Energy (RAISE) initiative, the USDA aims to help individual farmers deploy smaller-scale wind projects using USDA’s Rural Energy for America Program (REAP) which provides $144 million in grant funding for underutilized technologies.
  • The DOE is providing $4 million in funding related to REAP, including $2.5 million to support the testing, certification and commercialization of the latest distributed wind technologies including for the agricultural sector, and $1.5 million to support outreach and the identification and development of new business models for farmers to save money and earn income deploying these technologies.
  • The Environmental Quality Incentives Program (EQIP) is a voluntary conservation program that offers farmers and ranchers financial cost-share and technical assistance to implement conservation practices on working agricultural land.
  • AFRI Sustainable Agricultural Systems (SAS) promotes the sustainable supply of abundant, affordable, safe, nutritious, and accessible food and other agricultural products, while enhancing economic opportunities.
  • Equipment Grants Program (EGP) serves to increase access to shared-use special purpose equipment/instruments for fundamental and applied research for use in the food and agricultural sciences programs.

A More Productive Future

Farm and ranch sustainability practices play a crucial role in maintaining the long-term health and productivity of agricultural lands. By implementing conservation measures, landowners can reap several benefits:

  • Improved Profitability: Sustainable practices enhance production efficiency, reduce input costs, and optimize resource utilization. This translates to better financial returns for landowners.
  • Environmental Stewardship: Conservation efforts contribute to soil health, water quality, and biodiversity. By safeguarding natural resources, landowners ensure the resilience of their operations and protect the environment for future generations.
  • Carbon Sequestration: Practices like cover cropping, rotational grazing, and reforestation sequester carbon, mitigating climate change. Agricultural lands can serve as valuable carbon sinks, benefiting both the planet and landowners.
  • Collaboration and Support: Landowners can collaborate with agencies like the USDA’s Natural Resources Conservation Service (NRCS) to access technical assistance, financial resources, and personalized advice. These partnerships foster sustainable practices and address specific conservation goals.

The Long-Term Impact on Land Values

The growing demand for food, renewable energy, and sustainable practices, coupled with limited supply should drive positive tailwinds for agricultural land values over the long term.

Institutional investors know that constants such as global population increase, proportional food demand and urbanization make land investment a stable and profitable investment.

The factors that forge land value are evolving. Independent landowners, farmers and ranchers can make the most of this by diversifying income streams by producing renewable energy, embracing carbon credits, leasing to recreational interests, and incorporating sustainability.

10 Tips to Sell Inherited Property

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Inheriting real estate can be both a blessing and a challenge. While it may add to your assets, the emotional, time and financial challenges can be daunting. Here is a guide to help you maneuver through the sale process efficiently and gain the most from your inheritance.

Step 1: Assess the Market and Minimize Repairs & Renovations

When sprucing up an inherited property, aim for minor cosmetic updates rather than extensive renovations. Consult with a real estate expert who can recommend the most impactful tasks. These professionals are adept at identifying which refurbishments enhance the house’s value and appeal without over-capitalizing.

Expert Insight: “A strategic investment of around $2,000 for basic clean-up and minor cosmetic enhancements can significantly transform the property’s appeal” advises real estate professional Eric Johnson, “maximum total return is usually achieved through basic repairs and clean-up versus the risks associated with major renovations.”

Step 2. High-Impact, Low-Effort Projects

Here are a few relatively simple and cost-effective improvements that can make a significant difference:

  • Enhance the curb appeal with meticulous landscaping, fresh mulch, and a vibrant paint job on the front door.
  • Replace old carpets and linoleum floors with contemporary vinyl wood flooring for a modern look.
  • Clear out-dated decor elements like window valances, faux plants, and furniture covers. Opting for a minimalist approach can make spaces appear larger and more inviting.
  • Apply a fresh coat of paint in light, neutral hues in the main living areas to create a clean and welcoming environment.

Step 3. Understand Capital Gains and Related Tax Implications

Upon inheriting a property, you’re exempt from taxes until it’s sold – this is when capital gains taxes come into play. These taxes are calculated on the basis of the property’s value at the time of the original owner’s passing and its value upon sale.

Tax Tips: If the property was valued at $250,000 at the time of inheritance and sells for $275,000 a few years later, capital gains taxes would apply to the $25,000 increase. However, by residing in the home for a predetermined period, you might qualify for additional tax exemptions.

Step 4. Home Sale Tax Exclusions

To benefit from a home sale tax exclusion, which allows a single filer to exclude up to $250,000 (or $500,000 for married couples filing jointly) of the gain, you generally need to have lived in the home as your primary residence for at least two out of the previous five years.

Step 5. Consult Tax Professionals and Attorneys

Since tax obligations can vary greatly, it’s wise to discuss your specific situation with a tax consultant and potentially an attorney, especially if the inherited property is located in a different state with unique tax laws.

Step 6. Declutter and Depersonalize

Before listing your property, take the time to declutter and depersonalize the space. Removing personal belongings and excess furniture can help potential buyers envision themselves in the home, increasing its market appeal.

Step 7. Consider Real Estate Auction vs Traditional Agent Listing

Selling at auction can be very appealing for those seeking a quick, hassle-free sale that brings true market value. It’s very common for inherited homes to be dated and have significant deferred maintenance making accurate appraisals difficult. And increases risk associated with inspections and contingencies.

A property sold at an auction isn’t tied to an appraisal, inspection, or mortgage. There also can’t be any conditions or contingencies from the bidder upon selling.

Auctions are also hassle-free because there’s no negotiating. Real estate auction removes the hassle of negotiating when you sell. No inspections or appraisals are required. And, closings as fast and typically surprise free.

Step 8. Market Effectively

Ensure that however you decide to sell your property, the auctioneer or listing agent utilizes multiple channels to market your inherited property. High-quality photos, virtual tours, and open houses can attract a broader audience and generate more interest.

Step 9. Know What’s Most Important to You

Choosing the right sale method for you, agent listing or real estate auction, depends on what’s most important to you.  For most people, this comes down to price, speed of sale and risk tolerance.

If you need to sell your property quickly, real estate auction may be best as you get to determine the exact day your property will sell. With an agent listing, you’ll have to wait for a buyer to make an offer and there’s no guarantee to how long that will take.

If you want to maximize the sale price, either sales method may work for you depending upon market conditions and how unique your property is.

Both methods offer means of managing risk tolerance. Reserves can be set for real estate auctions to ensure that property will only be sold at your minimum acceptable price. And agent listings can advertising lower and lower pricing over time to potentially speed up your sale.

Step 10. Be Prepared For Emotional Challenges

Selling an inherited home can be emotionally taxing. Prepare yourself for the emotional aspects of parting with a family home, and seek support from friends, family, or professionals if needed.

Wrapping Up

Selling an inherited property doesn’t have to be a stressful endeavor. By following these steps and enlisting the help of professionals where needed, you can ensure a smooth and efficient sale process. Remember, every inherited house is unique, and so is your relationship to it. Moving forward thoughtfully and strategically will help you honor that relationship while maximizing your benefits from the sale.

Is Real Estate Auction Right For You?

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Opting for a real estate auction offers the sellers the benefit of knowing the exact date their property will sell, a potentially higher sale price, and a straightforward, transparent buying experience. This guide aims to simplify the decision process by exploring the 5 key questions sellers must answer in order to determine if selling via auction aligns with your needs and goals.

Do you have time to handle the sales process?

Real estate auctioneers typically remove the hassle of selling by actively managing every aspect of the sale from signing to closing. That’s why auction is preferred by trust companies and families handling property sales after a loved-one has passed. Sellers often only need to sign the listing agreement and provide access to the property.

The auctioneers team handles everything from that point forward through closing. It greatly simplifies the real estate process and reduces seller stress.

What’s most important to you: a guaranteed sale or sales price? 

There are two kinds of auctions you can choose from: absolute and reserve. Each has its advantages, and the best choice depends on what you’re looking for and the details of your property.

If you’re aiming for a definite sale, an absolute auction is best. Absolute auctions attract larger buyer pools and generate more excitement because buyers have more confidence in the sale. There is no ‘reserve price’. Buyers know that the property will absolutely sell to the highest bidder. An absolute auction is the “classic” type of auction where real estate is sold to the highest bidder, regardless of the price. There is no reserve price or minimum sale price. Bidding in an absolute auction starts at $0 resulting in fast and fierce competition for quality assets.

If you are risk averse, reserve auction may be for you. A reserve price is the minimum amount that a seller will accept as the winning bid. This prevents a bidder who offers a price lower than what you will accept from winning the auction. Reserve prices are not published. Sellers have the accept or reject the high bid within a designated time period – usually 24 hours. The auction company will work with sellers to set the minimum acceptable sales price. The downside of a Reserve Auction is that they reduce the potential buyer pool and bidding competition because there is no certainty they will be able to buy the property even if they are the highest bidder.

Both approaches can work well, and your auctioneer will help you decide the most suitable one based on what you need for your property.

Is your property unique or hard to value due to lack of comps?

When it’s time to sell, setting the right price can be tricky for any real estate asset. Typically appraisers review comparable properties to determine the value. But, for unique properties such as ranches, farms, rural land or lake homes, the lack of comparable properties makes it exceptionally difficult for brokers, banks, sellers and buyers to assign a fair value range to your real estate. An accurate appraisal of your properties value is only possible with a large data set of comparable recent sales.

A real estate auction as the ultimate way to set true market value. Instead of guessing and setting a price, an auction lets the market decide. It draws in all interested buyers to bid against each other. You get the genuine market value of your property, attract lots of interested buyers quickly and, speed up the selling process. This way, you’re not just getting any buyer, but the one willing to pay the most for your unique property. And you might even find the final auction price surpassing your expectations!

Are High Holding Costs a Concern? 

When your property is up for sale, you’re still responsible for ongoing costs like taxes, utilities, insurance, and mortgage payments. For unique properties in rural areas, sellers often wait for months or years to get an offer through the traditional real estate listing sale process. Sellers are forced to pay for all of the expenses of holding the property. Often maintenance is a significant issue for unoccupied homes and buildings – little issues become big problems because no one is there to stay on top of it.

The longer it remains unsold, the more expenses you accumulate. Selling through an auction can speed up the sale process, helping you save money and swiftly move into your next home.

For landlords facing rental properties that cost more to maintain than they earn, or require significant repairs, selling via auction could be an effective solution. It’s a quick way to offload these properties, potentially increase your profits, and free up resources to expand your investment portfolio.

Homeowners facing unexpectedly high costs, such as large utility bills, HOA fees, or maintaining a property that’s too large, could benefit from a quicker sale through auction. This approach could help manage expenses more effectively.

Do you want to sell quickly, with no inspections, repairs or negotiations? 

If so, real estate auction is for you. Properties are sold at auction in as little as 30-days. And, the winning bidder must be willing to accept the property as is. Buyers can’t ask sellers to do extra work or pay expenses on the property. A property sold at an auction isn’t tied to an appraisal, inspection, or mortgage. There also can’t be any conditions or contingencies from the bidder upon selling.

Real estate is sold at auction in ‘as-is’ condition – no contingencies, no inspections and no repairs. Buyers are responsible for inspecting the property and committing to buy the property ‘as it stands’. Sellers do not need to make repairs or improvements.

There’s no negotiating. Real estate auction removes the hassle of negotiating when you sell. No inspections or appraisals are required. And, closings as fast and typically surprise free.

Is auction right for you?

Real estate auction offers the benefits of a quicker sale, higher sales price and a simple transparent sales process.

Analysis of 25 academic studies reveals that property auctions consistently produce greater returns than traditional sales through realtors. Several factors consistently emerged as contributors to the higher returns achieved through auctions. These include:

Speed: Sellers control the sale by setting the sale date. They’ll know exactly when the property will sell. There’s no waiting and no ‘hoping’ to get an offer. Auctioned properties typically sell faster than those listed with realtors, reducing holding costs and increase overall returns.

Competitive Environment: The auction atmosphere encourages a competitive bidding environment, resulting in higher sale prices. Analysis reveals that the average real estate auction results in 15% greater total return. Real estate auctions take advantage of current demand by pitting buyers against each other. Sellers benefit from the competition. Buyers to see exactly how much others are offering and adjust their bids accordingly in real-time.

Transparency: Auctions provide a level of transparency that is often lacking in traditional real estate transactions. Traditional home selling methods often leave buyers in the dark, making offers without knowing what others are willing to pay. Sellers simply don’t know what the maximum offer can be so they often have to settle for less than true value.

1031 Exchanges Grow Ranch Profitability

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Cattle ranching can be rewarding and challenging. One of the most significant challenges for many ranchers face is navigating the complexity of taxes. 1031 exchanges are a powerful tool you can put to work increasing profit while reducing your potential tax liability.

Understanding the 1031 Exchange

Named after Section 1031 of the Internal Revenue Code, a 1031 exchange allows you to sell real estate or a business then reinvest in new, “like-kind” property and defer capital gains taxes. So instead of paying taxes on the sale of a property, the profits can be reinvested into a similar but different asset, allowing you to defer paying those capital gains taxes.

Using a 1031 Exchange to Improve or Expand Your Acreage

A 1031 exchange allows you to sell your land and then use the proceeds to purchase a different piece of land without immediately paying taxes on the sale. So, you could potentially sell some or all of your existing ranch and then purchase a larger or better-located one, using the 1031 exchange to defer the taxes on the sale.

Using 1031 Exchange to Improve Herd and Equipment

Livestock and equipment are other assets that may qualify for a 1031 exchange. This means you could sell part of your herd or outdated equipment, then use the funds to invest in higher quality livestock or better equipment. By doing this, you can improve your herd quality or improve operation efficiency while postponing taxes on the profits from the sale.

Meet Jack and Will

1031 Exchange is a powerful tool

Let’s consider an example involving Jack, an Oklahoma rancher. Jack purchases a $1 million ranch and sells it several years later for $1.5 million. That’s a $500,000 capital gain tax liability. But, by utilizing a 1031 exchange, Jack invested the entire $1.5 million into a new ranch gaining more productive grazing land, rich with spring-fed ponds and healthy blue-stem, boosting his profitability and potentially better safeguarding his herd during drought years.

If Jack hadn’t used a 1031 exchange, he would face a capital gain tax liability of $123,750 – assuming a 24.75% total capital gains rate – and would only have $1,376,250 million at his disposal for the purchase of a new ranch.

1031 exchanges become increasingly remarkable as the value of the ranch continues to rise. Of course, it’s not all up-side. Anyone using a 1031 exchange must remember that there are specific rules and requirements and timelines that must be met. For example, there are strict timelines for identifying and closing on the new property. Always work with a tax, financial and/or legal professionals experienced in 1031 exchanges to ensure that you fully understand the potential risks, gains and liabilities and that all requirements are met.

The purpose of this article is to give an overview of the 1031 exchange, highlight key takeaways, and explain best practices for taking advantage of this financial tool. Learn more about in this 6-minute read:

What is a 1031 Exchange?

A 1031 Exchange, also known as a Like-Kind Exchange, is a tax deferral strategy under Section 1031 of the tax code. It allows individuals to defer capital gains on real estate profits by reinvesting the proceeds in another property of equal or greater value within a specific time frame. This exchange helps to maintain the productive use or investment nature of the property.

According to the Internal Revenue Code (IRC) Section 1.1031, if a real property is exchanged solely for real property of like kind, no gain or loss will be recognized. This means that the tax burden is deferred as long as the property is reinvested in another qualifying property. For more information on this beneficial strategy, you can refer to the Real Estate Tax Tip article on IRS.gov. It provides detailed insights into Like-Kind exchanges and their implications.

Benefits of a 1031 Exchange

Beyond the capital gains tax deferral that a 1031 Exchange can accomplish, there are several other reasons why astute investors favor this financial tool. The primary advantage of a 1031 Exchange is the ability to defer capital gains taxes. Through the “like-kind” clause of a 1031 Exchange, the up-leg property must be of the same nature (meaning it must be an investment real estate asset). Like-kind is often misinterpreted as meaning the up-leg property must be the same asset class (multifamily, industrial, net lease retail, office, etc.) as the down-leg property; however, that is not the case. Below are more advantages to executing a 1031 Exchange.

A 1031 Exchange offers various benefits that extend beyond deferring capital gains tax. While the primary advantage is the ability to defer taxes, there are other reasons why ranchers, farmers, landowners and investors favor this financial tool. The “like-kind” clause of a 1031 Exchange requires the up-leg property to be of the same nature, typically an investment real estate asset. Contrary to common misconception, it does not necessitate the same asset class as the down-leg property (e.g., agribusiness, raw land, multifamily, industrial, net lease retail, office). 1031 Exchange benefits include:

Off-Load Management Responsibility

Certain assets can become burdensome due to high maintenance costs, property taxes, insurance, and the need for employees. However, investors have the option to ease their workload by exchanging these properties for less time-intensive assets, allowing them to generate passive income. For instance, if a multifamily owner feels overwhelmed by property responsibilities, they can consider exchanging it for a net lease retail asset that requires minimal involvement.

Consolidate or Separate Assets

One of the exciting possibilities offered by a 1031 Exchange is the ability for investors to enter new markets in the U.S. with high growth potential. Let’s say an owner has an investment property in a highly appreciated market, such as California. With a 1031 Exchange, they could exchange that property for multiple properties in more affordable states, optimizing their cash flow. Additionally, investors can take advantage of income-tax-free states to avoid double taxation (although it’s important to note that some states require investors to pay state capital gains tax.

Depreciation Reset

A 1031 Exchange also provides investors with the opportunity to “reset” the depreciation schedule to a higher value by purchasing a property of greater worth. This strategy presents a significant tax benefit and serves as a valuable tool for increasing after-tax cash flow. It is especially beneficial for those who have fully depreciated their investment and are seeking ways to maximize their financial returns.

Grow Equity and Holdings

The 1031 Exchange is a powerful tool for investors looking to diversify their portfolio and generate higher returns. This tax deferral strategy allows investors to strategically realign their investment goals by exchanging one property for another or into multiple properties of higher value. By doing so, investors can lower their risk profile and minimize exposure to market disruptions.

Step-Up Cost Basis

Another key benefit is the step-up in cost basis that heirs receive when a real estate owner passes away. This means that the heirs inherit the property at its fair market value at the time of death. Not only does this eliminate the depreciation recapture and capital gains tax liabilities, but it also presents an opportunity for owners to exchange into a larger asset while they are still alive, effectively eliminating any built-in gain when passed through to heirs.

1031 Exchange Considerations

While the allure of avoiding capital gain taxes is appealing, there are important factors to consider when deciding if a 1031 Exchange is the right investment strategy. Let’s dive into these considerations and gain a better understanding:

Timelines

In cases where simultaneous closing is not possible (i.e., when the proceeds from the sale cannot be directly invested into the replacement property), investors have the option to delay the purchase of the replacement property. To take advantage of this option, investors must adhere to certain timelines:

  • Replacement properties must be identified within 45 days of closing.
  • Pruchase of replacement property must be made within 180 days of closing.

Failure to meet these deadlines can result in the proceeds from the initial sale being subject to capital gains taxes. To navigate these timelines effectively, a qualified intermediary assists you as they document and manage the process.

Capital Gains

Although a 1031 Exchange is touted as a tax deferral strategy, it’s crucial to note that taxes on capital gains still need to be paid. While federal codes are generally followed by most states, it’s essential to be aware of any state taxes applicable to the exchange property. For instance, Texas might be an income tax-free state, but it compensates with a higher property tax rate of 1.8 percent.

Taxed on the Boot

If the identified replacement property is valued lower than the property being sold (after deducting ordinary transaction expenses), capital gains taxes must be paid. Additionally, accumulated depreciation is recaptured through the difference in the prices of the properties, commonly referred to as the “boot.”

Difficulty Identifying Like-Kind Properties

Finding a property that aligns with an investor’s goals can be challenging, especially within the limited timeframe of 45 days. Failing to identify a replacement property forces the investor to pay taxes on the full gain from the initial sale. To avoid this situation, it is imperative to work with a qualified broker from a reputable firm.

Qualified Intermediary

Whether you are a seasoned or first-time investor, professional advisors are crucial to navigate the intricacies of fees and regulations. Investors are required to hire a Qualified Intermediary (QI) who will facilitate the 1031 Exchange process.

Professional Guidance

Executing a 1031 exchange involves a complex set of rules and timelines that must be strictly adhered to. Restrictions are imposed on exchanging into properties with the intention of selling them for quick profits. No limit is set on the number of 1031 Exchanges one can execute however, from the date of sale of the original property, the seller has 45 days to identify potential replacement properties and 180 days to close on the purchase of the new property.

Rules can be murky. For example the IRS does not specify a minimum holding period but, holding onto the property for less than two years may trigger a “dealer status” designation and invite closer scrutiny from the IRS.

Given these complexities, it’s crucial that cattle ranchers work with a professional experienced in 1031 exchanges. Such professionals can provide invaluable guidance and help ranchers navigate the process successfully and legally.

Conclusion

A 1031 exchange can be a strategic tool for ranchers, allowing them to boost their profits and reduce tax liability. By reinvesting the gains from sales into “like-kind” properties or assets, ranchers can defer capital gains taxes and reinvest more of their money back into operations. While there are several advantages, it’s essential to remember that 1031 Exchanges only defer capital gains taxes, and they will still need to be paid. Help yourself thoroughly understand potential liabilities by always seeking guidance from qualified tax and financial advisors able to provide professional guidance through the full process.

Habits of Successful Rural Land Investors

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Rural land investing can be lucrative and risky. Going it alone can be challenging and highly risky. Successful investors know that it takes a little savvy to be successful in this highly competitive sector.

Land investment offers a myriad of opportunities for investors who are seeking long-term, low maintenance investments with the potential for solid returns.

KEY TAKEAWAYS

  • Land investing requires knowledge, talent, organization, networking, and perseverance.
  • Fully educating yourself is crucial and requires significant research and learning.
  • Understanding the risks and building a professional advisor network are vital.

Key to this success are certain habits and practices shared by successful rural land investors. Let’s delve deeper into these habits and how they contribute to success in this unique sector. Learn more is this 4-minute read.

They Always Consider Risk

We all see the warnings about the risks and potential losses when reviewing stock opportunities. But real estate investors often encounter a narrative of easy money. Smart investors recognize the risks and legal implications involved in real estate deals. They actively adapt their strategies to mitigate these risks and protect their businesses.

“Profit is made when you buy, not when you sell,” advised Eric Johnson becaue he feels that smart investing is all about “de-risking the investment up-front”.

Minimizing potential risks and uncertainties is crucial before committing substantial resources to a real estate project or investment. This strategy involves a comprehensive assessment and effective risk mitigation right from the early stages of the investment process. By adopting such an approach, you can ensure a more secure and successful investment journey.

They Do Their Homework

Effective real estate investors invest in themselves by learning all they can about area, people, market and potential outside risks. Staying informed about the latest trends,like local developments, new or expanding employers, potentail unemployment swings, and the like prepare you to adapt to evolving conditions. By doing so, you gain the ability to anticipate when trends might shift, thus creating potential opportunities for yourself. It all begins with diving into your local real estate market and learning everything you can about it. Real estate investor and rancher Max Franklin agrees: “If you don’t know the people and the area like the back of your hand, you don’t know it well enough to invest in.”

They Rely on a Network

Building a professional network is crucial for real estate investors, whether they are just starting out or experienced. This network can provide valuable support, create opportunities, and help investors grow. It typically consists of a mentor, business partners, clients, or members of a nonprofit organization. Being part of such a network allows investors to challenge and support each other, which is essential in the experiential learning nature of real estate investing. Savvy investors understand the significance of establishing a strong network to thrive in this field.

They Develop Trust

Real estate investors generally have no binding ethical obligations, but it’s worth noting that most successful investors hold themselves to high ethical standards. As real estate involves dealing with people and earning their trust, your reputation plays a vital role in negotiations and sales opportunities. Effective investors understand that fairness prevails over opportunism.

They Specialize

Successful investors frequently focus on a particular part of the real estate market where depth of knowledge is essential. This can take time, but once you master a particular market, you can move on to other areas using the same in-depth approach. Niches might include development land, farm or ranch land leasing opportunities, subdividing for home-building residential parcels, or farm & ranch rehabilitation.

They Plan and Verify

To establish and achieve short- and long-term goals in real estate investing, it is crucial for investors to approach it as business professionals. A solid starting point is developing a well-structured business plan that allows you to visualize the big picture and prioritize important aspects over minor setbacks. This plan not only keeps you organized and on track but also factors in estimated cash flows from rentals, the number of units to own, timing for refurbishment or upgrades, demographic changes, and other variables that could impact your investment over time. By incorporating these elements into your plan, you will navigate the complexities of real estate investing with confidence and efficiency.

They Build Relationships

Trust and the referrals that trust fuels are vital to investors success. People want ot do business with those they, or their friends, trust. Therefore, it is crucial to earn the respect of business partners, associates, clients, renters, and any other individuals with whom you have a business relationship. Effective real estate investors exhibit attention to detail, attentiveness to complaints and concerns, and maintain a positive and professional representation of their business. By doing so, they build a reputable image that attracts potential collaborators.

They Know What’s What

To thrive in land, or any type of real estate investing, you must stay informed about the ever-evolving laws, regulations, terminology, and trends. Falling behind not only hampers business progress but also exposes investors to potential legal consequences. Successful real estate investors understand the significance of keeping up with real estate, tax, and lending laws that directly or indirectly affect their operations. Stay ahead of the game by staying updated on these important aspects!

They Listen to Tax Advice

Taxes represent a substantial portion of a real estate investor’s annual expenses. However, navigating the complex world of tax laws can be time-consuming and divert attention from core business operations. That’s why savvy real estate investors opt to enlist the expertise of a qualified and reputable accountant to handle their financial books. While there may be costs associated with hiring an accountant, the potential savings and benefits they bring to the business far outweigh the expenses. Effective tax planning can make or break an investment. You must prioritize sound tax strategies alongside asset acquisition plans.

They Don’t Go It Alone

In leand investing, going solo can be a tough journey. Successful real estate investors understand the value of seeking guidance from others – be it a mentor, lawyer, or a supportive friend – and attribute part of their success to this collaborative approach. Rather than risking valuable time and money on tackling difficult problems alone, they recognize the benefits of embracing and learning from the expertise of others. Investing wisely in these additional costs becomes a worthwhile investment in one’s own knowledge and growth.

The Bottom Line

Land investing is fun, engaging and challenging endeavor requiring expertise, planning, and focus. And, because the business requires strong relationships with people, investors benefit in the long run by operating with integrity and showing respect to associates and clients. Though you may hear about quick and big profits, the truth is that profitable success long-term requires skill, effort, and strong habits that  encompass research, risk-taking, financial acumen, networking, visionary thinking, environmental consciousness, negotiation skills, and patience. By cultivating these habits, prospective investors can significantly increase their chances of profitable success in rural land investing.