Investment Funds are Plowing into Farmland

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

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?

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

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

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.

Maximize Your Lands Value

Managing your ranch land well now will pay big dividends when the time comes to sell. Well managed ranch land attracts a larger pool of buyers, increasing competition for your land which leads to higher sale prices.

Auctioneer Sonny Booth advised, “High sales prices don’t happen by accident. I’d like to take all the credit for high sale prices but the truth is that ranchers with a reputation for quality land management are an auctioneers best friend when it comes to getting top-dollar on sale day.”

As a rancher, you already know the importance of proper land management in ensuring the well-being of your livestock. Have you truly considered how good ranch land management can also impact the bottom line when it comes time to sell your property? Check out these tips for maximizing your re-sale value through effective ranch land management.

Regularly Check and Maintain Fences

One of the most important aspects of ranch land management is keeping your fences in good condition. This not only keeps your livestock safe but also prevents them from wandering off into neighboring properties. Regularly check your fences and make any necessary repairs. A well-maintained fence can also make your property look more visually appealing to potential buyers.

Implement Sustainable Grazing Management Practices

Many ranchers are shocked to learn that nearly 70% of available grazing land in the United States is degraded in some form as discussed in this recent article published in the Angus Journal.   Overgrazing can have a negative impact on your pasture’s health and, in turn, decrease your property’s sales value. Consider implementing sustainable grazing management practices that allow for adequate rest periods between grazing cycles. This will help maintain the health and productivity of your pasture while also ensuring the long-term profitability of your ranch.

Properly Manage Water Resources

Water is a fundamental resource for both your livestock and your land. Properly managing water resources can prevent soil erosion and maintain pasture productivity. Regularly cleaning out and maintaining ponds and waterways can not only make your property look better but also make it more appealing to potential buyers.

Remove Unwanted Vegetation

Weeds and invasive plant species can significantly reduce the productivity of your pastureland. Consider implementing a regular weed control program to keep unwanted vegetation under control. Not only will this help maintain the productivity of your land, but it will also make your property look more visually appealing.

Maintain Buildings and Infrastructure

Maintaining your ranch’s buildings and infrastructure doesn’t just make your property look better, it also increases resale value. Regularly inspect and maintain your ranch’s buildings, corrals, and other infrastructure to ensure they’re up to code, fully functioning and eye-appealing. This makes your property more attractive to prospective buyers and increases the sale price.

Conclusion:

Proper ranch land management is critical to maintaining both the short-term productivity and long-term profitability of your ranch. Investing in regular maintenance and improvements to your property can make it more visually appealing to potential buyers, increase its sales value, and ensure the continued success of your operation. By implementing the above tips for effective ranch land management, you can maximize your sale profitability and set your ranch up for long-term success.

 

ABOUT CJ REAL ESTATE:  CJ Real Estate sells ranch and residential real estate across Oklahoma, Texas, Arkansas, Missouri, Kansas and Colorado. Led by Eric Johnson and Ronn Cunningham, the CJ Real Estate team specializes in complex acreage sales typically dispersing assets in 45 days while outperforming market conditions. What makes CJ Real Estate different is that they give sellers more control through unbiased advice and the opportunity to choose the real estate sale method that’s best for them: auction or listing.

 

MEDIA CONTACT:

Eric Johnson

1.918.550.8118

Info@CJ-RE.com

 

SOURCE: Cunningham-Johnson Real Estate

Subdividing Land Pro’s & Con’s

Should You Consider Subdividing Your Land Before Selling?

What are the pros and cons of subdividing land?  When thinking about selling your rural, ranch, or farm land, owners may increase the total sales price but how does that work? What are the advantages and disadvantages of subdividing the property into smaller parcels? And what should landowners understand before parceling land for sale? In this article, we will delve into the details of land subdivision, equipping you with the knowledge needed to make an informed choice and highlighting key factors to consider.

Know The Purpose:

Before you proceed with subdividing your land, you need to know the purpose behind doing so. Subdividing creates smaller parcels of land for the sale, ensuring that you’re selling all the land or some of the land but in more significant portions, which can often lead to higher profits. Subdividing can also make your land more attainable to prospective buyers by breaking it into smaller, more affordable pieces. The question is, do those benefits align with your goals as a landowner? When properly parceled, land subdivision can increase your total property value and increase how quickly you’re able to sell because your property will now appeal to a larger buyer pool.

Legality:

Before you proceed with the subdivision, you need to ensure it is legally allowable. Even in rural areas many sellers are shocked that land use regulations and zoning requirements can be so complicated. Professional real estate brokers like Ronn Cunningham of CJ Real Estate, research the zoning laws and regulations within your area, your property’s area, and the jurisdiction in which it’s located to determine if subdividing is permitted and then pursue the parceling process. Ronn Cunningham remarked, “It is essential for landowners to consult with a professional to avoid legal issues resulting from improper land parceling”.

Determine Land Subdivision Cost:

Subdividing comes with different costs that may include legal fees, surveying, filing fees and more. Eric Johnson of CJ Real Estate effectively summarized the cost-benefit of parceling land for real estate auction when he said, “Parceling is a very effective method of increasing the average selling price per acre. And, it’s common in real estate auctions that the research, surveying and filing costs are passed-along to the buyer at closing rather than being carried by the seller”.

Environmental Issues:

Before subdividing your land, be aware of how parceling may alter land access, the beauty of the land for future users, soil erosion, watersheds, and wildlife habitat. Identify potential environmental issues ahead of time and work with experts like CJ Real Estate to ensure that any parceling makes a positive impact that improves the value of the land.

Marketing Your Subdivided Land:

After the subdivision process, your land’s market value will most likely increase, but it’s important to create a comprehensive marketing plan to attract potential buyers. That’s where it’s vital that sellers employ experienced marketing experts like CJ Real Estate that focus on strategic selling. They’ll identify the characteristics and features that each parcel of land has and what potential buyers would be most interested in. Then tailor a marketing plan that attracts, engages and compels qualified buyers to your sale.

Conclusion:

Subdividing land is a complex process that requires careful planning, legal consultation, and thorough research to maximize its potential benefits. Before making a final decision, consider your goals, legality, cost, environmental impact, and marketing strategies. Successful land investment requires significant attention to detail, working with the right team of professionals, and making informed decisions. By keeping all these in mind, subdividing your land could ultimately lead you to maximize your profits and find a more substantial market for your property.

When you’re thinking about selling, choose the Real Estate auction industry leader. Visit CJ-RE.com to learn how CJ Real Estate will help you achieve top-dollar for your ranch, rural or farm land. Then call CJ Real Estate at (918) 550-8118 to get started.

Tax Implications

As a ranch owner, It’s important to understand the tax implications of selling your ranch. In this post, we will discuss the tax laws and regulations that affect the sale of your ranch land and provide tips to help you make better decision for you and your family.

Capital Gains Tax:

If you sell your ranch land, the profit you make is usually subject to capital gains tax. Capital gains tax is a tax on the profit you make when you sell an asset at a higher price than what you originally paid for it. The tax rate for capital gains tax varies depending on the length of time you have owned the ranch land. If you have owned the ranch land for more than a year, the tax rate will be long-term capital gains tax. If you have owned the ranch land for a year or less, the tax rate will be short-term capital gains tax.

Depreciation Recapture:

Another tax implication that you should be aware of is depreciation recapture. Depreciation recapture is the process of paying taxes on any depreciation deductions that you have taken on your ranch land. When you sell your ranch land, you will be required to pay tax on the depreciation that you have taken. This tax is commonly referred to as depreciation recapture tax.

1031 Exchange:

If you want to defer the payment of capital gains tax, you can use the 1031 exchange. A 1031 exchange is a tax-deferred exchange that allows you to exchange your ranch land for another property of similar value without paying taxes. The benefit of using a 1031 exchange is that it allows you to keep your money working for you without the burden of paying taxes on the sale.

Estate Tax:

Finally, as a ranch owner, you should also be aware of the estate tax. The estate tax is a tax that is imposed on the transfer of assets at death. If your estate is above a certain value, your heirs may be required to pay estate tax. As such, it is important to reach out to a financial professional in advance to minimize the planning burden and tax liabilities of your loved ones.

Conclusion:

In conclusion, selling your ranch land has tax implications that you should be aware of. There are ways to minimize your tax liabilities, such as using a 1031 exchange. Depreciation recapture and estate tax are also factors that you should consider when selling your land. It is vital that you consult with a tax professional and financial advisor before making any major financial decisions. With the right guidance, you can make informed decisions that will help you maximize your profitability and reduce your tax liabilities. Thank you for reading this post on the tax implications of selling your ranch land.

What are the tax implications of selling my ranch land?