Land values

[Blizzard Ridge]

Here is my theory of land prices jumping up in my area. The same farmer/landowner owned over 20,000 acres. He inherited some (free), bought some at low market times back in the 80's (300-600 an acre). So what you have is a guy that owns say 10,000+ acres of ground that was bought for pennies on the dollar compared to today. So now this same landowner goes out to auctions bids himself up on land and starts buying ground in the 10,000 an acre range. He adds another 5 -10K acres at these higher prices. So he turns around and sells this land within 10 years of purchasing and while still purchasing ground at that stupid money mark. So if talking return on investment this guy has somewhere between 10,000+ acres bought or inherited for pennies and then goes out and buys a fraction of land at lucrative prices. What this does is raises the land prices in the area that settles in somewhere in the middle say $8000 an acre instead of the normal going rate of 3k-5k and acre. By doing this after selling he has maybe $3M in the original ground bought in the 50s - 90s and maybe $100M in the remainder. He then turns around and sells everything for $8000 an acre after inflating prices by doing so he just made a $57M profit and that isn't counting the many years of farming the ground into the equation.

Talk about playing the system!

 

[j-bird]

Maybe not with some, but IME there are very few farmers left that don't grasp concepts like this.

One thing that may make it appear like farmers don't look at rate of return is that in many cases they have to balance this against opportunity cost. A given piece of land may only come up for sale once in 2-3 generations! So when it does, the farmer has to carefully consider what both the near and long term implications are of both buying it AND not buying it.

Several times my last farming relatives have had people rolling their eyes when they "overpaid" for land, but these were not decisions that were taken lightly. In one case, they paid $1000 per acre more than was considered "the going rate" for an 80 acre parcel that represented the last land in that section that they didn't already own. In addition to buying the convenience and efficiency of adjacent land, the main consideration was that this was the first time since the 1930s that that piece had come for sale. So the opportunity cost of NOT buying the land was also large. The second piece was yes, they farmed that 80 at essentially "no profit" for a number of years, but then guess what? Another couple of crop price runup years made land prices jump way past what they paid pre acre for that 80 and then everyone who thought they were crazy was wondering how they saw the price runup coming and bought when it was cheap.

What I've learned over time is that there are 2 phases OTHER PEOPLE go through when a guy buys hunting land:

1. Phase 1: Everybody thinks you're an idiot for paying so much for scrubby old hunting land. You could have had a nice [insert nice thing here, lake cabin, house expansion, classic car, etc] for that. Phase 1 lasts about 5-10 years.

2. Phase 2: Everybody thinks you're a genius for buying when land was cheap and wonders how you saw it coming and bought when you did. This phase lasts forever.

Grouse

I see a lot of the same things. Todays true farmer (the person actually making a living only farming) understand their finances far better than most people do. I will also agree on the phase 1/2 thing. I bought the other half of my farm for $2800 and acre and folks raised an eye-brow. That was the average of 3 appraisals. Now it's worth at least 4 grand an acre or more, and like was also stated - it came up for sale at that point and may never have been an opportunity again. I have a 40 right next to me that will be the same way. When it comes up I will likely have one shot at it in my lifetime. It isn't so much that I want it - as it is I don't want others to have it!

 

[Bullwinkle]

By us the highest valued property is great deer land and property with water.

Every week I look at what's on the market around me. Inventory is low. Great parcels turn quickly. Most good ones never hit the realtors. A lot of the new ones posted on web sites have been on and off the market. This hunting property market is as hot as I remember.

 

[Chainsaw]

Maybe not with some, but IME there are very few farmers left that don't grasp concepts like this.

One thing that may make it appear like farmers don't look at rate of return is that in many cases they have to balance this against opportunity cost. A given piece of land may only come up for sale once in 2-3 generations! So when it does, the farmer has to carefully consider what both the near and long term implications are of both buying it AND not buying it.

Several times my last farming relatives have had people rolling their eyes when they "overpaid" for land, but these were not decisions that were taken lightly. In one case, they paid $1000 per acre more than was considered "the going rate" for an 80 acre parcel that represented the last land in that section that they didn't already own. In addition to buying the convenience and efficiency of adjacent land, the main consideration was that this was the first time since the 1930s that that piece had come for sale. So the opportunity cost of NOT buying the land was also large. The second piece was yes, they farmed that 80 at essentially "no profit" for a number of years, but then guess what? Another couple of crop price runup years made land prices jump way past what they paid pre acre for that 80 and then everyone who thought they were crazy was wondering how they saw the price runup coming and bought when it was cheap.

What I've learned over time is that there are 2 phases OTHER PEOPLE go through when a guy buys hunting land:

1. Phase 1: Everybody thinks you're an idiot for paying so much for scrubby old hunting land. You could have had a nice [insert nice thing here, lake cabin, house expansion, classic car, etc] for that. Phase 1 lasts about 5-10 years.

2. Phase 2: Everybody thinks you're a genius for buying when land was cheap and wonders how you saw it coming and bought when you did. This phase lasts forever.

Grouse

And then everyone says how lucky you were!

 

[MattJK]

I always wondered about that. I had a guy tell me once, when times were good, a guy with 100% equity in 1500 acres made good money on his corn, he'd just go out and buy another 40 or 80 for a stupid price because he had the cash and wanted to farm more. I don't think rates of return are a well grasped concept in agriculture.

Well, depending on how tax savvy they are, maybe not. I see 1031 exchanges and sometimes a desire to drop tax brackets as big factors in crazy prices. Heck, I've heard of farmers buying land and equipment for years to keep profits down and have their kids qualify for need based scholarships. I wonder if that's what drove the ag disclosure on the fafsa.

 

[Elkaddict]

Most of the farmers I've dealt with were pretty astute when it came to sustaining their livelihood.... I've always felt they had practical insights all out of proportion to any formal education they had.

 

[badgerfowl]

Long term with weather patterns changing I think ag land is bullish. Read enough articles to believe with population growth this is a real issue. Not smart enough to see the impact of President Trump on food supply/demand out of US

By us ag land prices have a minimal impact on deer hunting land. Ag is $2500-3500 and acre unless it's real special. Hunting land $3500-5000/acre without water. Add a good trout stream and $6000+

With wolves and poor deer herds up in northern WI there is a heavy demand for land in Buffalo and Waupaca counties.

Ag land by you must not be any good. It's nothing for it to go for $10,000/acre down here in southern wi.

 

[Bullwinkle]

Ag land by you must not be any good. It's nothing for it to go for $10,000/acre down here in southern wi.

Not really in the area I am referring to - north Tigerton, East Marion, south Iola and west Rosholt. Lots of rocks but good deer hunting

 

[Osceola]

It isn't so much that I want it - as it is I don't want others to have it!

lol. That's my thinking too when adjacent parcels become available. I'd overpay just to avoid the risk of a bad neighbor.

 

[j-bird]

lol. That's my thinking too when adjacent parcels become available. I'd overpay just to avoid the risk of a bad neighbor.

Bad neighbor......I don't want ANY neighbors!!!!

 

[The Famous Grouse]

And then everyone says how lucky you were!

Yep! You're exactly right, they all say how "lucky" you were to get land back when it was cheap and easy!

I've seen those 2 phases I mentioned play out over and over when it comes to land. In the short term it ALWAYS looks like a bad deal to buy now, but when you just add 5-7 years, I have never seen a case where it looked bad after the passage of just a little time.

Man when I look back at the Great Recession back in 2009-10! Oh Lord, the buying opportunities that were there!

Grouse

 

[Chainsaw]

Grouse, I remember well going to the bar at the game Club in Connecticut during the 1987 to 1990 period and telling everyone that there was more land than anyone would want for $100 to $150 an acre within a few minutes of Salmon River and Lake Ontario NY with great deer hunting potential; Only one guy listened and acted. The rest thought I was nuts buying land when there was so much public land to hunt.

 

[dogghr]

Yep! You're exactly right, they all say how "lucky" you were to get land back when it was cheap and easy!

I've seen those 2 phases I mentioned play out over and over when it comes to land. In the short term it ALWAYS looks like a bad deal to buy now, but when you just add 5-7 years, I have never seen a case where it looked bad after the passage of just a little time.

Man when I look back at the Great Recession back in 2009-10! Oh Lord, the buying opportunities that were there!

Grouse

And that is when I bought my farm, 2009. Looked at the property but they were asking way too much for hunting land. The realtor that owned it called me 5 times in 2 days, and I knew then someone needed to unload some debt. I made a ridiculous offer, they said no way, then called the next day to accept. Gotta be willing to walk away whether it be a land or car deal. If you can't separate your heart from you wallet, then you better be prepared to pay. I was fortunate. Been offered several times since then to buy the land from me. Don't see that happening.

 

[Bullwinkle]

Dog - interesting how our perspectives are different. My dad taught me at a young age to buy land. He used to say they are not making any more. If you find a great piece, don't worry about the price, buy it. Since I've got out of college I've been through 10 land transactions. I've not lost a dime on a single one. One I had to go to a realtor because I extended myself on another piece and had to get rid of it. In the 2 years I owned it I made $25K

I personally believe buy land others want, price is important but secondary(within reason obviously). The most expensive parcel I bought is just getting up to today's market value. I wanted it and over paid but you know, it's still my favorite piece and will kill me if I ever get rid of it. I justified it by attaching it to other parcels and averaging it out

I know a lot of guys who wished they waited for a better parcel. Especially some of my friends in Northern WI.

By me, land value is directly related to the quality of deer hunting thus our QDM practices are increasing our property values

 

[dogghr]

I see you point Bull but I am a bit of a tight ass and I enjoy the bargaining game. Like stocks, buy low and sell high. But land is a precious commodity, and seldom takes a hit if you are willing to weigh thru the slumps that can happen. Again, I've been lucky but I really can keep from falling in love before it costs me money( that is with land, with women, not so much)

 

[Bullwinkle]

I see you point Bull but I am a bit of a tight ass and I enjoy the bargaining game. Like stocks, buy low and sell high. But land is a precious commodity, and seldom takes a hit if you are willing to weigh thru the slumps that can happen. Again, I've been lucky but I really can keep from falling in love before it costs me money( that is with land, with women, not so much)

Sounds like you got the best of all which is awesome

 

[Bullwinkle]

Another thought, my experience is the best parcels rarely hit the market through realtors. The best deer hunting parcels are being worked by guys like us and don't need advertising. Of the 10 parcels I bought, only one was through a realtor and that was more like an oversized lot (25 acres) just outside Green Bay

 

[buckdeer1]

Not much land around me that can't be bought for less then 3k per acre and that twice what I paid for an 80 last year

 

[j-bird]

You put a sign up on property in my area for $3K and acre you will get run over before your done putting the sign up!!!!

 

[buckdeer1]

I'm glad as there was a couple guys that were bidding stuff up to 4K but they have slowed down.i paid 1235 and acre for an 80 last year and my other 160 I paid from 500-800 an acre a few years back