# The Value of land



## DEKE01 (Jul 17, 2013)

Want to see what those with the big bucks are thinking about the value of land? What I like about their logic is that the value of productive land holds up in mild inflation, hyper inflation, and SHTF currency collapse deflation.

>>>>>>>>>>>>

Looking for Dirt (The Fertile Kind)

Wary of investments they struggle to understand, more investors turn to perhaps the most basic asset of them all: land.
BY IAN PRIOR, U.S. Trust


The U.S. economy, it seems, is on the mend. Not so the psyches of some investors. 

They remain guarded about complicated investments, especially the kind that reportedly helped fuel the economic crisis, such as the credit default swap, the collateralized mortgage obligation and the mortgage-backed security. These wary investors are looking instead at asset classes that are less complex and more easily understood, yet still potentially profitable. According to Dennis Moon, head of the Specialty Asset Management (SAM) group at U.S. Trust, some have found just that in productive land. âAs the economy recovers, some of our clients want to avoid something thatâs so exotic they canât understand how it works,â says Moon. âMany have become interested in farmland and timberland in part because they are a relatively uncomplicated asset classes and in part because these are assets they can actually touch and even walk on.â

more here:

http://www.ustrust.com/publish/ust/capitalacumen/summer2013/features/looking-for-dirt.html


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## wharton (Oct 9, 2011)

I posed this question of two older, local farmers. I then got a lesson about how many cycles of boom and bust the "productive dirt" market has seen since they started in the profession, 40-50 years ago. As for all the BS about not wanted to get confused into buying CDSs, traunches, and mortgage back securities, it's all gorilla dust, tossed by a salesman. You can park your money in heavily diversified mutual funds with a long history of performance, and absolutely nothing in the way of complication, or you can fall for chasing unicorns like overpriced crop land, gold, oil futures etc...... Not hard to track the long term success of any of these vehicles, or figure out why the quiet and wealthy "millionaire next door types" end up with broad, diversified portfolios that are boring and easily understood.


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## wwubben (Oct 13, 2004)

wharton said:


> I posed this question of two older, local farmers. I then got a lesson about how many cycles of boom and bust the "productive dirt" market has seen since they started in the profession, 40-50 years ago. As for all the BS about not wanted to get confused into buying CDSs, traunches, and mortgage back securities, it's all gorilla dust, tossed by a salesman. You can park your money in heavily diversified mutual funds with a long history of performance, and absolutely nothing in the way of complication, or you can fall for chasing unicorns like overpriced crop land, gold, oil futures etc...... Not hard to track the long term success of any of these vehicles, or figure out why the quiet and wealthy "millionaire next door types" end up with broad, diversified portfolios that are boring and easily understood.


 You are correct about mutual funds.You are wrong about farmland.We bought 160 acres of land in 1976 for $60,000.Today that farm is worth nearly $2,000,000.It does go up and down,but it goes up more than down.Mutual funds would be worthless if farmland was worthless.Some investors stay away from farmland because it does not give a big return while it is held.The gain is what you get.Many of my farmer friends are republicans because of the capital gains tax.Farmland is a good investment if you know what you are doing.There are crooks out there who will fleece you,so keep both eyes open.


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## DEKE01 (Jul 17, 2013)

wwubben - just by looking at purchase price vs current value, you've had a ~9.7% return on your investment. That is pretty good return and totally tax deferred. 

Admittedly that is a somewhat simplistic measure since there are maintenance and tax costs that you wouldn't get from a mutual fund. But OTOH, you got to live there, derive whatever farm income, it is presumably part of your safety system in a SHTF (personal or global) scenario, and unless you are Warren BUffett, you can't sit under the shade of your mutual funds like you do with your fave oak tree.


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## Evons hubby (Oct 3, 2005)

The value of land is interesting.... what else can you buy that lasts forever, is ALWAYS in demand, and with a little effort can produce an income all the while its becoming ever more valuable? The age old slogan "They aint making any more of it" applies more today than ever before. As our worlds population climbs by leaps and bounds, and the amount of productive farmland remains finite.... its value is bound to grow steadily.


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## wharton (Oct 9, 2011)

Yvonne's hubby said:


> Wow, claims like that would make Bagdad Bob blush, LOLound:
> 
> Nothing is guaranteed, land values CAN decline, HAVE a history of doing so previously, and WILL fall again. There is no such thing as an investment that is "bound to grow steadily".
> 
> ...


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## DEKE01 (Jul 17, 2013)

Wharton - how did you calculate $60K becomes $4M in 38 years? That requires an avg annual return of ~11.7% but their website says they have done about 9% which equates to $1.58M in that time frame. Wwubben's land is worth ~$2M, a ~9.7% return, which is better than that of VSTAX. If I&#8217;ve done those calcs wrong, please school me.

You also have failed to take into account the tax implications. Yes, land has real estate taxes, but the mutual fund has annual taxes on dividends unless the investment was made in a tax advantaged account. To make a fair comparison, you would have to know what income wwubben's land produced and if he was living on it. Since he lives in Iowa, he might produce 1000 acres of corn/beans/grain each year. His farm net income is directly related to his land investment. If he is living on the property, you can add another few thousand in annual return. You would also need to know if he paid cash, the same as needed to invest in the fund. The ability to make tax advantaged loan payments, is another plus for land.

You can hunt on land, camp, grow table food, and make love under the old oak tree. With a mutual fund, you can make paper airplanes out of your monthly statements. I&#8217;m NOT saying land is a guaranteed investment in any particular sort term time frame, but it is one of the few investments that has intrinsic value in almost every situation. In a major deflationary spell, the land may become worth $1.98 in future dollars, but it will still have intrinsic value in the ability feed and house your family. Not even gold can do that and in that scenario, your mutual fund would be worthless.

As to the long term appreciation potential&#8230;if you assume a rosy scenario where there is no generational economic crisis, no great depression, no currency collapse, the world continues more or less as it is today, then the upward pressure on land values will be there. As the world&#8217;s population continues to grow and people around the world demand more and more middle class amenities, you get a need for more land for homes, a need for more land to grow crops, more land to be chewed up by shopping malls and 6 lane highways. If you assume TEOTWAWKI, your mutual fund is $0.00 and the land retains it&#8217;s intrinsic value. 

Income producing land is a better investment in almost every scenario...as long as you want to have that lifestyle. If you don't, I'm wondering why you are in a homesteader forum.


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## wwubben (Oct 13, 2004)

wharton said:


> Wow, claims like that would make Bagdad Bob blush, LOLound:
> 
> Nothing is guaranteed, land values CAN decline, HAVE a history of doing so previously, and WILL fall again. There is no such thing as an investment that is "bound to grow steadily".
> 
> ...


Residential real estate is a way different thing than Iowa farm ground.I hope investors stay away from farm ground and leave it to us farmers who understand it.


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## wharton (Oct 9, 2011)

DEKE01 said:


> Wharton - how did you calculate $60K becomes $4M in 38 years? That requires an avg annual return of ~11.7% but their website says they have done about 9% which equates to $1.58M in that time frame. Wwubben's land is worth ~$2M, a ~9.7% return, which is better than that of VSTAX. If Iâve done those calcs wrong, please school me.
> 
> You also have failed to take into account the tax implications. Yes, land has real estate taxes, but the mutual fund has annual taxes on dividends unless the investment was made in a tax advantaged account. To make a fair comparison, you would have to know what income wwubben's land produced and if he was living on it. Since he lives in Iowa, he might produce 1000 acres of corn/beans/grain each year. His farm net income is directly related to his land investment. If he is living on the property, you can add another few thousand in annual return. You would also need to know if he paid cash, the same as needed to invest in the fund. The ability to make tax advantaged loan payments, is another plus for land.
> 
> ...


 
I guess you have to decide what you believe in? In this post you lean heavily toward the doomsday mentality, and how it's far more stable to own crop land than be invested in the world economy. Your original post is a linked puff piece for BoA, one of the biggest dirt bags in the industry, as they shill "investment vehicles" for crop land using scary verbiage.............. you are all over the map.

As for the minutia in a crop land VS balanced fund comparison, sorry but I'm not going to bite. My off the cuff comment was based on the beginning of the fund industries offering of balanced, low fee funds to the average guy in the 70s. An often quoted figure is that $15K at that point would of grown to a million in 40 years. As for getting down to what every dime of load, deferred taxation, rental rates, etc is.....sorry this is about concepts, not what soybeans brought in 1982. 

I sincerely hope that wwubben and other who are legitimate, hard working farmers, heavily invested in their dirt, don't end up getting hurt badly WHEN the meteoric rise of crop land crashes. IMHO, it won't end well, however. As for the folks with too much money that run the values through the roof, they will reap what they have sown. Iowa values are up 90% since 2009, auction prices have hit $20K/acre, and farmers are dumping land for insane amounts of money, only to rent it back. Smart money known what a bubble looks like, the AG folks in the region are not hesitating to publish reports that the whole market has them nervous and could, once again end badly. 

I'll say it once again for those smart enough to listen. Dirt is a tool, not an investment. your whole theory of how rich you are going to be once the highways and malls show up, can, and does fail. Here in the northeast, I know plenty of farmers who are paper wealthy, and very concerned about making ends meet. IF they had sold out to developers 2-3 decades ago they would be rich. They are now plowing fields in areas that rapidly degraded to suburbs. They had to sell the development rights to keep R.E taxes at a semi-rational rate, and the only value of their dirt is what the next generation of farmers is willing to pay. Even thought this productive dirt is only two hours from NYC and Philly, it's worth 3-4K an acre. Roughly the same amount it would of sold to a developer for in the 1980s. 

Finally, your last paragraph is curious. first, the claim that income producing land is a better investment is, in fact, wrong. Absent a VERY recent explosive bubble in some markets, you would be hard pressed to prove your erroneous claim. Second you confuse the desire to foolishly invest in income producing cropland with the desire to engage in the range of activities promoted by this site. I can assure you that the vast majority of members here have nothing invested in speculative cropland, and no desire to risk their hard earned cash on such. As for questioning why I would be here, perhaps we can flip the situation and ask why you would post a BoA sales piece about a risky investment, that many insiders view as a dangerous bubble that may be on the verge of collapsing?


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## wharton (Oct 9, 2011)

wwubben said:


> Residential real estate is a way different thing than Iowa farm ground.I hope investors stay away from farm ground and leave it to us farmers who understand it.


The last few years have seen:

"high net worth" investors flying their personal jets to the mid-west to throw mind blowing amounts of cash at cropland. 

Venture capital groups amassing hundreds of millions specifically to invest in productive ground.

Double digit appreciation annually in many areas, and values that have more than double in the last few years.

An obvious case of a hyper-inflated bubble fueled by investors with the attention span of a flea, in a climate where they panic and bolt every time the Fed announces "we may think about print a tiny little bit less cash a year or two from now" 

Yet, you hope that investors "stay away" and leave it to those of you that "understand"

Good luck with that.

http://www.nytimes.com/2013/03/19/b...farmers-vie-for-land.html?pagewanted=all&_r=0


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## tarbe (Apr 7, 2007)

The value of my land, to me, cannot be easily measured in dollars.

It brings peace, comfort, a sense of duty (stewardship), it allows me to share with friends and family (hunting, camping etc) and more.

Now, if I could just get the owner of the 40 south of me to recognize the true market value of his place, I would gladly trade more Treasury Notes for dirt!


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## agmantoo (May 23, 2003)

I believe in being diversified. I am more comfortable with my land than I am with my stock investments.
However, I have lost significant earnings from what I gleaned from stocks. CEO"s lie, Products never reach their advertised expectation, Money managers foul up and some steal.
On the other hand, my timberland is growing trees regardless of political unrest. The value of the land reflects the effects of inflation. I can manage the properties passively. The land in respect to property tax is tax deferred. The hunters leasing the land pay the property taxes and insurance. I can visit the property and walk on it and admire the trees. As long as I can pay the tax no one is going to take the property. The timber can be sold in most markets and payment is prompt. the timber is renewable and sustainable. Since I sell biomass I feel I will have a market as long as plastic doesn't become a substitute for toilet paper. PS... with the land I can do a 1031 exchange. With stocks you can convert them to cash then donate a large portion to the government.


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## DEKE01 (Jul 17, 2013)

wharton said:


> I guess you have to decide what you believe in? In this post you lean heavily toward the doomsday mentality,
> *
> I explored a wide range of scenarios, to show land, in addition to its financial potential, has lifestyle insurance value that mutual funds do not. My orphaned grandmother lived OK during the depression because she was taken in by family on a farm.*
> 
> ...


*If you would take a deep breath, pause, and read what I write as opposed to projecting some emotional response onto the topic, you'll see I answered that question when I posted the BOA piece. I thought it was interesting, in a real estate forum, to see what the big money is thinking these days about farm land. Since many folks here have a significant part of their family funds in their land, call me crazy, but it seemed like a relevant topic. *


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## DEKE01 (Jul 17, 2013)

wharton said:


> The last few years have seen:
> 
> "high net worth" investors flying their personal jets to the mid-west to throw mind blowing amounts of cash at cropland.
> 
> ...


great article and hard not to agree that land in some areas is in a bubble. The problem is always determining how big the bubble will get and when it will break.


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## Evons hubby (Oct 3, 2005)

wharton said:


> Wow, claims like that would make Bagdad Bob blush, LOLound:
> 
> Nothing is guaranteed, land values CAN decline, HAVE a history of doing so previously, and WILL fall again. There is no such thing as an investment that is "bound to grow steadily".


You can always find temporary lows in productive farmland sales prices, but overall, the land values in not only our own country but world wide have steadily increased since land ownership became a reality. Residential real estate is an entirely different animal, most of its value being related to the structures upon it, which rapidly decline in value with out constant maintenance. So yes, I maintain that productive land is indeed a sound investment when the buyer uses some basic prudence when "buying in". I am curious about this history of declining land values you speak of, exactly when and where has this happened?


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## wwubben (Oct 13, 2004)

Farmers realize that land prices go up and down.Farming has been good the last few years and farmers have been making money.The high priced land around here has been bought by farmers for cash.They don't care if it goes down or not.They don't intend to ever sell it.Land is not leveraged like it was in the crisis of the Regan years.Farmers don't think like you do.They have a long term view.Many farmers have land that has been in the family for generations and was bought for $50 an acre.


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## Grumpy old man (Aug 6, 2013)

I have to laugh everytime I read one of "these type " posts about the value of land. To some it's value is priceless because they can afford to own it ,Some can't and have to look at every thing they have as an investment, Just another number on a piece of paper or the reasoning of Well if I need money I can sell it ? Really , I'll bet a lot of property owners in Detroit would care to differ on that ! I own land for the shear enjoyment of farming /hunting and living in a place with no neighbors in sight ,no HOA to deal with and no keeping up with the Jones next door . You couldn't afford my land at any price because to me it's priceless not another piece of paper.


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## DEKE01 (Jul 17, 2013)

Grump - I don't understand how you don't see your land as an investment. I own land for the same reasons as you, but that doesn't mean it is not an investment. For those of us who didn't inherit land and want to have a life on the farm, we have to buy, lease, or steal it. I don't particularly care for the last two options. I also have to weigh the investment I make in land against other choices for those investment funds. No matter how much I love my land, I still have to have retirement income which may or may not be able to come from productive use of that land.

The fact that Detroit wrecked homes went to near zero is proof only that we need to invest in property wisely. There are no guarantees, not all investments are winners.


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## Grumpy old man (Aug 6, 2013)

an investment is something you put actual cash money into in expectation of someday reaping a cash appreciation when it is sold ,I have no need want or desire to ever sell my land and totally plan on being buried there ! also as far as Detroit is concerned at the price you can buy at I think it very well could be a super long term real investment as they aren't making land anymore .It will take decades to be valuable again but it will happen as fast as the population is growing . I'll bet you could buy a city block for $1,000.00 right now and your great grand kids could sell it way down the road .Might pay off better than any savings bond !


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## DEKE01 (Jul 17, 2013)

Grumpy old man said:


> an investment is something you put actual cash money into in expectation of someday reaping a cash appreciation when it is sold ,I have no need want or desire to ever sell my land and totally plan on being buried there ! also as far as Detroit is concerned at the price you can buy at I think it very well could be a super long term real investment as they aren't making land anymore .It will take decades to be valuable again but it will happen as fast as the population is growing . I'll bet you could buy a city block for $1,000.00 right now and your great grand kids could sell it way down the road .Might pay off better than any savings bond !


I agree on the investment but some of my investments I hope to leave to my kids and their kids, just as your Detroit idea demonstrates. So while I plan to die on my farm and become compost, it is still an investment. 

The prob with the Detroit idea is that with the type of gov't they have there, if the land values ever begin to recover, the city gov't will most likely tax the vacant land owners to death - or steal it with imminent domain powers. If I could buy that city block for $1000 and get a 100 year fixed tax deal, I would do it.


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## wwubben (Oct 13, 2004)

wharton said:


> The last few years have seen:
> 
> "high net worth" investors flying their personal jets to the mid-west to throw mind blowing amounts of cash at cropland.
> 
> ...


Investors don't buy enough land to increase the price that much.The price is going up like crazy because grain prices have been so high.Grain prices will go down and the price of land will go down.This is not the first time this will happen and farmers realize this.Investors usually are a day late and a dollar short.


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