Buying Land For Hobby Farming 101

Whether or not you consider yourself a green thumb, it isn’t too difficult to start your own hobby farm. Technically, all you need is an ample amount of land, a decent amount of farming knowledge – which you can acquire from experienced farmers and the Internet – and plenty of time and patience. However, if you don’t already have the land, you’ll need to find a good property to purchase with soil that is ideal for farming. A qualified land agent can help you with this task.

What is a Hobby Farm?

A hobby farm can be quite large — the USDA considers a small farm anything that is 179 acres or less. Additionally, while you can certainly sell some of the products from your farm, a hobby farm is not meant to provide you your main source of income. Essentially, the farm is run for your own pleasure, and can go a long way towards setting you up for a self-sustaining future.

It is important to note that a hobby farm is much different than a vegetable garden in someone’s yard. You will need to devote time and effort to keeping your farm operating, as well as considerable expense to purchase the land, equipment, and resources you need to get the farm up and running.

hobby farm kid with goat

Benefits of Hobby Farming

Hobby farms are growing in popularity as more and more people realize the benefits and seek to move away from crowded cities after experiencing the challenges of the pandemic. Here are some of the ways you may benefit from having a hobby farm:

Health Benefits

With a steady crop of healthy vegetables and animal products, you and your family will be able to eat healthier throughout the year. You can choose to make your food as healthy as possible by growing only organic crops.

Hobby farming is also hard work at times, and you’ll be sure to get plenty of exercise working on your farm, another health benefit.

Lastly, gardening and farming have always proven to be great activities for stress relief and relaxation, improving mental health as well.

Social Benefits

Aside from gaining a new network of friends who are also involved with hobby farming, you can interact more with the local community by setting up a stand at local farmer’s markets. A local farmer’s market can be a good source of extra income, and you’ll also likely gain a few steady customers that become friends as well. If setting up shop at a farmer’s market isn’t for you, you can also donate extra food to a local food bank.

Self-Sustaining Life and Agriculture

In addition to becoming more self-sufficient and less reliant on purchasing food thanks to a sustainable food supply, hobby farming is also great for the environment. And, it will help you save a significant amount of money as well once you are producing steady crops, as the more food you grow for yourself, the less you need to spend at the grocery store.

hobby farm produce

How Do I Start Hobby Farming?

The first thing you need to decide is what type of livestock you’ll want to have on your farm and/or what crops you’ll want to grow. Will you have chickens, cows, pigs, goats, or honeybees? Fruit trees and bushes? Herbs and vegetables that grow throughout the different seasons? Perhaps a combination of all of the above!

Once you decide what you want, the next step is choosing a parcel of land that is suitable for your needs. Your best source for purchasing viable farmland is to speak with a qualified real estate agent that has sufficient experience in finding and selling land, not just houses or buildings.

A qualified real estate agent with land experience can help you find a parcel of land with good soil health, and will also be able to help you learn about zoning laws, which can regulate what the land can be used for and whether you would be allowed to have livestock on the land.

Depending on what type of farming you plan on doing, you’ll also need to research what tools and equipment you will need, whether you need to design an irrigation system, and where you can acquire food for any animals you might have.

Before you jump into hobby farming, see how all of the above works with your budget. You may find that you will need to scale back your ambition if the cost of what you want exceeds your current available budget.

It is important to note that purchasing land is different than purchasing a house. A land loan often has higher interest rates and down payments, and must be paid back within 3-5 years. Speak to a qualified land agent to learn more about purchasing land to be used for farming purposes so that you can make an informed decision.

Happy hobby farming!

hunting tree stand

How to Buy Hunting Land

When you buy hunting land, you get to enjoy your private property without following another property owner’s rules. That opportunity has obvious appeal to anyone looking for recreational land. Knowing how to buy hunting land, however, isn’t the same knowing how to purchase a home. Before you commit to purchasing property, make sure you know how to buy hunting land that meets your needs.

Set a Realistic Budget Before You Buy Hunting Land

First, you need to know realistically how much money you can afford to spend on recreational land for hunting.

Most people don’t have enough cash on hand to purchase the amount of acres they would like, so they rely on lenders. Borrowing money makes it easier to buy property, but it also adds to the overall cost. Even though you spread out the payments over several years, you still pay interest on the money you borrow.

Another option is to buy hunting land with a group of investors through a land-owning partnership and share the property. This avenue can have many benefits even outside of the dollar savings.

Whether buying the land solo or as part of a group partnership, it’s always best to set a realistic budget before you even start looking at land. Then, you can make sure you are spending your time exploring the right options.

Do You Want to Earn Money From Your Recreational Land?

The good news is that you can potentially offset some costs when you buy hunting land. For example, you can charge a fee for other people to hunt on your property. Depending on the area, you may also generate income by:

Data also shows that the COVID-19 pandemic has encouraged some people to buy recreational land where they can find refuge away from crowded cities. As land values increase, you could profit from selling parcels of your land or renting to people looking for weekend getaways.

pheasant hunter

Know What Features Your Recreational Land Needs

When you visit properties, look for the types of features that attract wildlife. This may sound obvious, but you want to make sure you buy hunting land that already attracts the type(s) of game you enjoy hunting. Seek game signs such as deer trails, scrapes, rubs, and beds to see if the property shows sign wildlife use you want on the land. If you want to hunt deer, for example, look for a property that has enough thick wooded areas. Alternatively, purchase a property with access to a pond, lake, or stream if you enjoy fishing.

You should also consider the value of features that will make the land more comfortable and fun. You might prefer owning recreational land that already has certain features, like:

  • Housing where you can spend the night.
  • Tree stands that are well kept.
  • A barn or shed where you can store equipment.
  • Docks that let you fish in deeper water.
  • Trails that make it easier for you to explore your land’s beauty.

Features You Can Add After You Buy Hunting Land

Don’t write off a property that comes very close to meeting your needs. You can always add features to your recreational land after you buy it. Keep in mind that you can add some features more easily than others.

One great way to make your hunting land more attractive to game is by planting mast bearing or fruit trees, and/or adding food plots. Make sure you choose food sources that your preferred game love to eat. As long as you have the right soil, planting can require minimal effort. You can also add water troughs or ponds.

hunting buck

It’s also very easy to improve your recreational land’s value by adding trail cameras. You can use the cameras to show hunters, vacationers, or potential future buyers pictures of the land and wildlife on it. Photos also make great souvenirs that will encourage more people to visit your property. Photos taken with trail cameras are one of the best ways to increase the chances of selling your property for the price you want when the time comes.

“Trail camera photos and harvest photos are one of the top items that buyers of hunting land look and ask for when considering which property to buy. Our website analytics show properties with trail camera and harvest photos have a much longer view time and total number of views versus the ones that do not.  Purchasing a trail camera and a thumb drive to keep a history of the wildlife on your property is the single most cost effective thing you can do to improve the value of your property,” says Accredited Land Consultant Bob Stalberger, a land specialist in Minnesota with Whitetail Properties Real Estate.

Also, remember that adding features will increase the overall cost of your land. Include the cost in your budget and be careful not to spend more money than you intended. It’s considerably more costly to add large bodies of water, buildings, electrical lines, and wells to the property.

Focus on Convenient Locations

How far is it for you to drive to reach your recreational land? Are you willing to drive three hours? How about eight?

Buy hunting land in an area that you find convenient. Of course, convenient means something different to everyone so its important to determine how far is too far early on in the process so you don’t waste time looking at properties not in your desired range. If you have a demanding job in a metropolitan area, you might want to look for a relatively nearby location on the outskirts where you can spend the weekends. If you’re retired or work remotely, you might not mind making a longer drive to stay on your recreational land for a week or longer at a time – or even live there full time.

If you intend to generate income from your land, remember that most weekend warriors won’t want to travel very far to hunt. Focus your attention on hunting land as close as possible to major cities to get the most bang for your buck unless your planning to specialize in trophy hunting. It might also help to choose hunting land located near a small town where visitors can get supplies or have dinner.

Learn About the Neighboring Properties

Knowing about neighboring properties can help you decide whether land will make a good place for hunting. If your acreage is surrounded by farmland, then you probably don’t have anything to worry about. If there’s a community nearby, though, you should consider the possibility that your activities might not be allowed.

You should also talk to neighbors to learn about local residents. Are they the kind of people who respect private property, can you trust them not to trespass to hunt on your land while you’re away?

Find the right Agent

Not all agents are created equal and just because you might know a licensed real estate agent that is a friend or family member doesn’t mean they are experts in the land business. If you need help choosing recreational land that’s perfect for you, make sure to start by finding a land consultant who has the experience and expertise needed to help you find the perfect property to meet your needs. We suggest finding an Accredited Land Consultant (ALC).

invest in farmland

Why Farmland Is A Good Investment

While many current media stories relate the plight of the American farmer, savvy investors with long-term goals know that investing in farmland can actually be quite a lucrative endeavor. A sizable tract of open farmland can become something very profitable so long as you do your due diligence and enlist the aid of a qualified real estate agent who is experienced in doing farmland transactions.

What to Know Before Investing in Farmland

Purchasing land is not as easy as securing a mortgage for a home. A land loan typically needs to be paid within 3-5 years, and both the down payment and interest rates are higher than that of a mortgage as well. Experts recommend paying cash for a land purchase if you are able.

It’s also important to note that a farmland investment is different than a regular land purchase. You’ve got to have the knowledge and experience to be able to properly maintain the site for maximum profitability (or at least the ability to hire someone who possesses both).

If you plan on living on the land yourself, you’ve also got to be prepared for a significant lifestyle change and any environmental factors that could affect your crops. That being said, if you’ve got the fortitude and resources for farmland investing, there are a number of ways in which you could benefit from this type of real estate purchase.

invest in farmland

Benefits of Investing in Farmland

When you own farmland, you have several options for making a profit. The most common is, of course, growing and selling your own crops. An alternative to this would be leasing the farmland, saving you a lot of the work while still allowing you to reap some of the reward.

You aren’t necessarily limited to keeping the land for strictly farm purposes, either. Assuming zoning laws will allow it, there isn’t much you can’t do with your own private property. Just make sure to work with a qualified land agent so you know the property’s highest and best use so you can make informed decisions about it.

Farmland Is Exempt From Certain Taxes

If the land is utilized as a farm, the income you generate is exempt from the wealth tax. Additionally, mortgage interest on farmland can be deducted from your taxes.

Government Assistance

There may also be government grants available to you for growing crops and purchasing livestock, which could be another source of lucrative income.

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Why It’s a Good Time to Invest in Farmland

The rising food demand due to a growing global population is proving good for farmers. Subsequently, many nations are seeking to purchase large tracts of farmland to better supply their own countries with food at a reasonable cost.

As a result, farmland is a red-hot investment right now, and, according to Marketwire, has appreciated at a rate 2% higher than inflation since the 1950s.

Historically, farmland also offers higher total returns than many other types of real estate investments, and also exhibits a much lower level of risk. That’s because farmland continues to produce product that are in high demand and likely always will be: meats, grains, fruits, and vegetables. Additionally, even when the market is fluctuating farmland typically escapes such volatility and continues to appreciate.

While there is, of course, no solid guarantee that your farmland investment will yield amazing results through crops or property leasing, you still have the chance to build equity. Over the last decade farmland prices have nearly doubled in most areas of the country, giving you the opportunity to at least make a sizable profit simply by owning the agricultural land and selling it at a later date to another investor.

farmland

In Conclusion

Globally, farmland today is a $9 trillion market. Farmland has remained a solid investment option for over 50 years, with high returns and mitigated little risk. Additionally, because the market is often confusing and at times daunting for those without sufficient knowledge of how to navigate it, there is a lot of untapped potential for investors who take the time to properly research the market and retain the aid of a realtor with experience in farmland purchases.

Farmland also makes a great addition to any investment portfolio, as it has proven resistant to inflation and is a sizable asset that will retain its worth. Farmland investing can be quite costly from the initial outset, but if you aren’t intimidated by the costs or any other potential barriers, it can be truly worthwhile investment.

land home

Buying Land For Building A Home Versus Buying A House

Whether you’re considering buying an existing home or purchasing a tract of land on which to build a new home, both options require considerable research. Both options also have some important differences you should be aware of so that you can make an informed decision.

The Major Difference Between Buying Land For Building A Home and Buying a House

One of the differences between the two is how the loans are structured. Mortgages come in a range of options to suit your needs and budget, but there are much fewer options for purchasing land. Many land loans must be fully paid within three to five years.

Interest rates and down payments are also usually higher on land loans than on mortgages. A typical down payment can range from 20-50%. However, some banks will allow a lower down payment if you have an excellent credit score. Securing a lower interest rate is a lot tougher, though, as land only loans are riskier for the lender since there really isn’t any collateral, such as a home. Therefore, lenders are less inclined to offer lower interest rates.

One of the benefits of purchasing land with cash is that the amount you pay for the land can be used as a down payment towards your construction loan when you’re ready to start building your home. Lenders can also include your land purchase within your construction loan in some cases.

Most experts recommend purchasing the land with cash, if you have it. A land specialist can advise you on your options, and a financial advisor can assist you in liquidating assets or arranging finance options.

Reasons to Consider Buying Land

In many areas, today’s housing market is a rather competitive one. New homes are being snatched up before they’re even finished being built. Older homes can come with older home problems. If the current housing market just isn’t offering what you need, then purchasing land and having your own home built according to your specifications may be a much more viable option.

Buying rural land also affords you more freedom and less intrusion from nearby neighbors and costly HOAs. If you like the idea of being able to do more of what you want on your land without neighborhood covenants and restrictions, then once again, buying your own private land is probably a good choice for you.

building home

Important Considerations When Buying Land

You’ll need to figure out if your budget allows a purchase of land and building a home. Aside from construction costs, you’ll also have to consider additional costs including, but not limited to, permits, fees, land adjustments – if needed, and the cost of running water, sewer, and utility lines to the home. The guidance of a land professional is vital to this process.

How to Find Land to Buy For Building A Home

When seeking land to purchase, you’ll want to retain the services of a qualified rural land agent as opposed to a residential real estate agent. A real estate agent without the education or experience handling land transactions can end up either wasting your time, costing you a lot of money, or both. Start searching for a qualified agent near you or browse properties listed by qualified agents to get started. Be sure to interview the agents that you’re considering to confirm they’ve got the experience necessary to help you reach your goals.

land agent

The Importance of Using a Qualified Land Agent When Buying Land

A qualified land agent will have the knowledge and experience to help you maximize the value of your land transaction. Land agents will be able to provide you with important information, resources, and a network of land experts that a traditional real estate agent likely would not have access to in their role. Additionally, they’ll save you a lot of money because they’re well aware of the costs, paperwork, and legalities of a land purchase. Some of the other important ways a qualified land agent can help you include:

  • They’ll have information on zoning laws detailing what can and can’t be done on the land you wish to purchase.
  • They’ll have information on city ordinances you would have to adhere to.
  • They can help you hire a professional land surveyor should you need one.
  • They can help you estimate the utility costs for running water and electric to your new home.
  • They will have information on easements.
  • They can tell you if the lot you intend to purchase falls within a floodplain.
  • They can help you with permits before the construction of your home.

Below is a checklist with some suggestions for potential land buyers to be educated about when looking to purchase land for the first time. Please keep in mind this list is not exhaustive, and anyone considering to purchase land to build a home on should work with a specialized land consultant in their area before buying land.

Checklist For Land Buyers

  • Zoning & Permits
  • Special Tax Assessments
  • Easements & Deed Restrictions
  • Property Boundaries
  • Water Rights & Soil Productivity
  • Future Land Use Planning
  • Crop & Timber Yields
  • Well water quality and flow
  • Road & Driveway Maintenance
  • Fire & Ambulance Services
  • Electricity and High Speed Internet Options
  • Flood Zones
  • Past & Present Land Use
  • Adjacent properties’ land uses
  • Past Logging Practices
  • Surveys
  • Topography & Geo hazards
  • Property Taxes & Associated Deferrals
  • Hardship & Farm Help Dwellings
  • Financing Options for Rural Property
  • Market Valuations & Inspections
  • Sale Negotiations

Remember, as with any major purchase, it’s also important to do your own due diligence and use a qualified land agent, like an Accredited Land Consultant, to assist with your purchase. Ask plenty of questions, consider the value of nearby homes, and plan your budget accordingly so that you will have a better idea whether purchasing land is the right option for you. Rural Property is a segment of Real Estate that requires a different level of education and experience from the professionals that advise buyers and sellers.

The Road To Buying Your First Rural Home

The COVID-19 pandemic has convinced many people that they don’t want to continue living in urban areas with high population densities. Millennials were already starting to move away from cities, but the pandemic has piqued their interest and encouraged many to consider buying their first rural home.

If you plan to be buying your first rural home soon, you will need to do some research that makes the process easier. In many cases, buying a rural home, especially if it sits on a few acres of land, is different than buying a home in a city or suburb. The following recommendations should help you learn more about your options and choose a country home you’ll love.

Know How You Can Use the Land Once You Own It

Typically, rural land has fewer restrictions than urban and suburban properties. Don’t assume that you can do anything you want after buying your first rural home, though. Even if local laws let you set up a residential hobby farm, they may prevent you from owning certain animals or using specific farming practices.

Use this list of important questions to help you choose a piece of land that fits your expectations.

goat

Know What Features You Want From Your Rural Land

You should also look for features that will meet your specific needs and wants to get the most out of your property. For example, it makes sense to buy a rural home on wooded property if you want to hunt, hike, or use it for many other recreational purposes.

There are many potential features to consider before buying your first rural property. A pond or lake provides great entertainment for swimmers and fishers. Hilly land doesn’t suit many crops, but cows can enjoy it. A large plot of well-drained soil could make an excellent spot for a family garden or even growing produce for a farmer’s market.

Also, ask questions about whether the area has good broadband internet access. A poor internet connection can make it difficult to work remotely, enjoy your favorite media, and stay in touch with friends. Unfortunately, many rural areas have broadband deficiencies. Don’t assume you will get a fast internet connection just because the property has a town nearby.

Know What Types of Insurance You Will Need

In the city, most people choose standard homeowners’ insurance policies that cover hazards like fire, damage from storms, and personal liability. You may need more coverage for things like crop protection (if you plan to grow crops), additional liability insurance (if you plan to let people hunt on your land), and property insurance that covers other structures like barns and tractors.

Think about how you plan to use the property so you can get an insurance policy that keeps you protected.

rural home porch

Determine How Much Effort You Are Willing To Put Into the Home

Maintaining a rural home, and the land it is on, can take a lot of time and effort. Suddenly, you have much more to do than mow a small backyard and plant a few flowers. In addition to the usual maintenance that comes with owning a home, proper maintenance for your rural home could include:

  • Clearing acres of growth around your house or mowing a sizable lawn.
  • Establishing a fence line that helps you and neighbors avoid conflicts.
  • Repairing damage to barns, sheds, fences, and other structures on the property.
  • Tending to the plants and animals on your hobby farm daily, if you have one.
  • Managing common pests living on the surrounding land.
  • Clearing large driveways of snow if living in cooler climates.

You might also need to think about ways to keep predators away from your house, especially if you have children or small animals. A herding dog could help, but that means adding a furry member to your family, which comes with its own effort and expense.

rural home

Think About How Long You Plan to Keep the House and Land

Is this a property that you want to live on for a few years or several decades? The answer matters quite a bit. If you only want to live there for a few years, you probably don’t need to develop the property much. Instead, you could turn a profit from selling the raw land.

If you plan to spend many years in the home, you need to think more carefully about your wants and needs. Adding gardens, cottages, and other features could increase your enjoyment significantly. You could even set aside a section of the property for paying guests. Visiting the countryside can help city-dwellers de-stress, so you could use your land as a new income source by advertising your cottages as a vacation spot.

Hire an Accredited Land Consultant Before Buying Your First Rural Home

You don’t want to use a standard real estate agent when buying a rural property. Instead, you should get help from an Accredited Land Consultant (ALC). ALCs must take at least 104 hours of courses, get approved by a committee of active ALCs, adhere to a strict code of ethics, and show a history of successful sales before they can obtain accreditation from the REALTORS® Land Institute. No matter what type of rural land you want, an ALC can narrow your search to options that best fit your needs.

ALCs have a lot of connections, so they can introduce you to a large pool of sellers. If you decide to sell your land later, you can reach out to your ALC to benefit from his or her connections to potential buyers.

As more people think about buying rural homes, prices will likely increase. If you think you want to make the move, start exploring your options by finding and talking to an ALC near you.

invest in land retirement

Retiring Baby Boomers See Land Real Estate As “Land of Milk & Honey”

As more Baby Boomers enter retirement, they have started to explore reliable investment opportunities that appreciate in value and allow them to leave something behind someday for their children.

The stock market tends to yield returns between 6% and 7%, but you never know when a financial collapse will wipe out even the most diversified portfolio’s value. Instead, many Baby Boomers in retirement or nearing retirement have decided to invest in land real estate.

Once you know more about the benefits of owning your own piece of land real estate, you may decide that it fits into your investment strategy as well.

Farmland Provides a Higher Return Than the Stock Market

All investments come with some level of risk. The numbers, however, show that people can earn more money by investing in farmland than the stock market. Over the last 20 years, farmland has produced a steady 12% annual return. That’s double what many people get when they invest in stocks.

Some people indeed make more than 7% from stocks. Most of those investors, however, do a lot of research and take big risks. Unless you have a professional background in researching and evaluating stocks, you will probably have better luck with land real estate.

Whether investing in the farmland itself or purchasing it as a quieter place to live in retirement away from the hustle and bustle of more urban areas, purchasing farmland as an investment has a great track record of paying off in the long-term. Even if you wanted to live on the farm but not manage the land, there are options like leasing out your farmland and hiring a farm manager that can pay off and take away any of the “work” that comes with it.

Land Real Estate Gives Baby Boomers Diverse Ways to Generate Income

Investors have several options when earning money from land real estate. The option that you choose will likely depend on how much money you want to invest in the land and how quickly you want to start earning a profit.

You’ll also want to make sure to consider the intended use of the land before investing. For example, are you looking for a property with recreational uses like hiking, camping, or hunting for you to enjoy? Or are you looking for a property you can start your own hobby farm on and grow your own crops to eat? Is it purely an investment or do you plan to retire and live full-time on the land you buy? You have to know your goals before you can know which piece of land will best serve you. Using a qualified land expert can help you figure out your goals and which properties will help you meet them.

Renting

According to the United States Department of Agriculture (USDA), more than 30% of farmland is rented or leased. Many farmers don’t have enough capital to purchase hundreds of acres of quality land. As a farmland investor, you can start getting a return immediately by renting your land to working farmers.

Selling

In the wake of the COVID-19 pandemic, a lot of people want to move out of congested urban centers. Cities like New York and San Francisco once seemed appealing because jobs were plentiful in those areas. Residents also enjoyed the cultural advantages of living in places with thriving restaurants, theaters, and art communities.

After spending a couple of months trapped in a tiny apartment, suburban and urban areas look more appealing, especially when people can telecommute to work.

Buying land real estate now creates an opportunity to earn money in the near future. As more people choose to leave cities, rural real estate will become more valuable. Buying low and selling high makes it relatively easy for your investment to earn a tidy sum without much effort.

Developing

Once you own the land, improving your land can make it more valuable. You may consider upgrading the land by:

  • Installing infrastructures that support water, electricity, and gas.
  • Adding ponds to the property.
  • Removing old buildings.
  • Building new structures, such as barns, houses, and sheds.

Developing land requires an additional investment, so you will need to make sure you consider the extra money before renting or selling it.

Make the Most of Your Land Real Estate Investments

A lot of factors will influence how much money you can generate from investing in land real estate for retirement. You can’t control every variable, but you can focus on properties that are more likely to generate income during your retirement.

Choose Land in States With Low Prices

If you want to invest as little money as possible in land, you should purchase property in a state with low prices that already fits your needs. Some of your best options include land in:

  • Tennessee
  • Arkansas
  • West Virginia
  • New Mexico
  • Arizona

Make sure to use a qualified land expert who can help you find the right property to meet your needs and long-term goals.

Know Land Before You Buy It

Before you buy land as an investment, you need to know that the property will attract renters or buyers. Some of the most important features to know about land before you buy include:

  • The quality of the soil.
  • The types of agriculture the land can support.
  • Existing infrastructures and buildings.
  • Previous uses of the land.
  • Ease of access.
  • Distance to the nearest markets and processors.

Learn About Your Funding Options

If you don’t have enough cash on hand to purchase land, you have other options for funding your investment. For example, you can use an IRA to invest in raw land. Talk to an experienced financial advisor and land consultant, though, to make sure you follow rules that will affect how you can use the IRA to buy property.

Get Help From an Accredited Land Consultant

If you are looking to buy land for retirement, make sure to work with a qualified land expert, like an Accredited Land Consultant (ALC) in your area who has experience and education in conducting these types of land real estate transactions.

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Do Not Let the Virus be an Obstacle to Selling Your Property: Know Your Options With A Section 453

The virus is affecting everything in our lives. Stay at home. Eat your own cooking. Home school your kids. Do not get your haircut. If only John Wayne was here to come to the rescue. Well, he is not coming to save the day but maybe I can when wanting to buy/sell real estate. That is correct. Do not let the virus be an obstacle in the real estate market.

Many property owners, when appropriate, want to transact a 1031 Exchange. However, because of the virus, have decided not to sell until the virus has passed. This is in large part due to the 45- and 180-day periods. Fortunately, the Treasury Department has extended the 45-day period until July 15 but is that the answer? What if sellers have not listed their properties yet so there is still no supply of properties to identify? The larger question is why sellers are even dealing with the 45-day period in order to defer taxes when there may be a better option.

That is right. A proprietary trust based on Section 453 may be a better option than a 1031, especially in the current environment.  Here are some of the reasons why you should consider 453 rather than 1031. Our proprietary trust has none of the 1031 requirements.  No dealing with a 45-day period, 180-day period, loan to value ratios, like-kind properties, or holding periods, and you do not have to get locked into a Delaware Statutory Trust (DST) as an emergency replacement property. Sell today, defer the capital gains tax, state tax, and depreciation recapture, and have an unlimited time to buy another property.

Consider the current situation with the virus. Let’s say that a seller has a buyer but will not sell because he is concerned about transacting a 1031. Using Section 453, the virus is no longer an issue to defer taxes. They can sell today, defer taxes today, and wait for the virus to end to buy another property. Also, consider this: If many sellers are waiting until the virus is basically over to bring their property to market, there could become an oversupply of properties and now you have a buyers’ market. That is great if you sold your property using Section 453 but not so good if you waited to sell.

land real estate

In a virus-free world, that is also an opportunity. Sell today in a sellers’ market, defer taxes, and wait until market conditions become more favorable to buying.  If you must wait 6 months or 2 years that is not a problem. Sell high and buy low. Even Einstein thinks that is smart – thanks, Al!

In addition, there are numerous other opportunities using Section 453. Quite often, depreciation plays a key role when owning a property. When you transact a 1031, you may not get a new depreciation schedule on the replacement property so even though a cost segregation study may be beneficial, it won’t be as beneficial as if you were to use Section 453 where you do get a complete new depreciation schedule. Using cost segregation and 453 has the potential to generate more real estate wealth than using a 1031.

Quite often, at some point, a property owner may want to sell and retire and does not want more real estate. He would like to find a 1031 exit strategy. A Delaware Statutory Trust is not a 1031 exit strategy but rather a 1031 continuation strategy and, at some point, taxes will have to be paid. If someone is in the wealth accumulation stage, a DST may make sense but it is not an appropriate retirement vehicle unless it’s a small part of someone’s estate. Again, at some point the Delaware Statutory Trust will no longer be an option and all the previous exchanges will become a taxable event and the basis will be the basis of the first original property. A DST only delays paying taxes.

The bottom line is, especially with the cloud of the virus hanging over the economy, Section 453 may be the real estate vaccine needed to keep the real estate market alive and well. If you can sell today, do so knowing that you can still defer your taxes today and either wait to buy another great property or to retire and go move closer to the grandkids and spoil them to get even with your kids for making you miserable when they were growing up. Maybe we do not need John Wayne because 453 may come to our rescue – seems only fair. Happy selling and be safe.

About the Author: David Fisher is the managing partner for Creative Real Estate Strategies, a national firm that can defer taxes on highly appreciated real estate when a 1031 isn’t appropriate or can’t be completed. He has been an RLI sponsor since 2006 and has sponsored over various RLI events nationwide. He can be reached at 713-702-6401 or david@cresknowsrealestate.com.

rural home

COVID-19 Lockdown Puts Focus on Rural Broadband Deficiencies

As the COVID-19 lock-down encourages more people to consider moving to rural areas where they don’t have to worry about the dense crowds of city life, the possibility of relocating has put a renewed focus on rural broadband deficiencies.

Ideally, Americans can telecommute to work whether they live in the New York metropolitan area or the High Plains of Wyoming. In reality, a digital divide often prevents the residents of rural areas from accessing high-speed internet services.

Rural Areas With Broadband Deficiencies

According to the Pew Research Center, rural Americans have considerably lower levels of broadband adoption. Surveys show that 79% of suburban residents and 75% of urban residents have broadband in their homes. Only 63% of people living in rural areas say that they have broadband.

Many people think of rural areas as places that exist far away from cities. That’s not always the case when it comes to rural broadband deficiencies. A map of broadband health in America from the Federal Communications Commission (FCC) shows that areas without broadband often sit near urban and suburban communities. For example, Fort Worth, TX, has 23 broadband service providers. Just 60 miles away, Jacksboro, TX, doesn’t have any broadband providers.

Living near an urban center, in other words, doesn’t necessarily mean that you have broadband access. The rural deficiency problem isn’t restricted to areas located hundreds of miles from cities.

rural home broadband

The Troubling Effects of Rural Broadband Deficiencies

Rural broadband deficiencies have several troubling effects on populations. Without access to high-speed internet, people living in rural areas often:

  • Lack access to media that has moved from print to digital formats.
  • Struggle to learn about job opportunities as more businesses turn to online services to advertise open positions.
  • Can’t communicate with friends, family members, and colleagues as easily as people with broadband.

During the COVID-19 lockdown, access to news coverage and communication tools matter more than ever. When people can’t leave their homes safely, they quickly feel isolated from their peers.

The pandemic has also caused a significant shift in the number of people working from home. Remote work already creates challenges for employees used to spending 8 or more hours a day in an office, factory, or other facilities. A broadband internet connection cannot solve all of those problems, but it can make remote work possible. With the recent events taking place, the National Association of Realtors is rightly supporting a bi-partisan bill that would allow remote online notarizations nationwide. However, such measures are only helpful for conducting land transactions in places where a connection is available. While nearly all land agents are able to go back to an office or home to take care of such business, often times access to a connection in more rural areas would make doing business on the go, and in a more timely manner, much easier.

Residents of rural communities may not have the opportunity to telecommute because they don’t have reliable internet connections. Some may use satellite services to access the internet, but those connections rarely offer the speed needed for video calls and performing data-heavy tasks.

fiber internet

How to Give Rural America Better Access to Broadband Internet Connections

Internet service providers (ISP) don’t want to spend a lot of money building a broadband infrastructure in rural areas because they don’t see many ways to earn profits from the investment.

In Manhattan, nearly 71,000 people live in a square mile. When ISPs build infrastructure there, they know that they can get a return on the investment. Extending broadband to rural communities, though, can cost more while only a few people are paying for the service. The low population density makes it difficult for ISPs to commit to broadband connections and see worthwhile returns on their investment.

Solving the digital divide in rural America will likely take more than one approach. Since companies don’t see ways to make much money from upgrading their services, all of the methods will probably require government subsidies or regulations.

Updating Wired Broadband Infrastructures

Many small towns and rural communities use old telephone lines that work about as well as internet connections in the 1990s. Technically, they might connect you to the internet. In practice, though, they cannot handle the amount of data needed to efficiently and reliably use the modern internet.

Updating telephone lines and adding signal boosters to existing infrastructures should make it possible for rural residents to access the internet at broadband speeds.

Improving Satellite Broadband

While few satellite ISPs offer the speed of a broadband connection, companies could update their technology to improve data speeds. The government could help by letting the companies use a wider frequency range.

Conclusion

The COVID-19 lock-down shines a spotlight on one of the country’s ongoing problems: the quality of your internet access often largely depends on where you live. By improving broadband access in rural areas, residents, employers, and governments can keep communities safer while keeping them connected to loved ones and work. It can also open doors for people looking to move to more rural areas where they can escape the cities and buy their own plot of land to live on. Especially as the current pandemic shines a light on an ever-increasing amount of jobs being able to be done completely remotely. If you are thinking about making a move to a new rural property with its own piece of land, make sure to use a qualified land expert, like an Accredited Land Consultant, by using our Find A Land Consultant search tool.

rural home

Will Americans Trade-In Their Urban Lifestyles For Rural Ones In The Wake Of COVID-19?

The COVID-19 pandemic will encourage a lot of people to rethink their urban lifestyles. In a time when social distancing and self-isolating play crucial roles in health, consumers living in urban centers find it nearly impossible to follow the rules for safety and are realizing they are at a much greater risk of being impacted by such an outbreak. The COVID-19 pandemic will, however, only add to subgroup of the population moving away from large, crowded cities to homes with more open lands in rural areas.

In fact, in a recent Virtual Round Table discussion about COVID-19’s Impacts on The Land Market, Accredited Land Consultant Lisa Johnson with Horsepower Real Estate out of Junction City, OR, predicts that there will be a lot of demand and says that right now there isn’t a lot of inventory to meet it. “We’re still seeing a lot of people calling from the larger metro areas… that, whether its 5 acres or 100 acres, they just want somewhere to go.” Read more insights from Lisa in the COVID-19 Impacts on Rural Residential Hobby Farms RLI blog post.

New York City at the Epicenter of a Pandemic

It didn’t take long for New York City to become the COVID-19 pandemic’s epicenter. Millions of people commuting on a public transit system and passing each other on crowded streets helped the virus spread quickly.

Millennials Were Already Moving to Suburbs

Fear of future pandemics will likely encourage more people to leave cities and settle in suburban and rural areas. Those moving away from cities, however, are not starting something new. They’re continuing a trend.

Drew Ary, ALC, with Ary Land Co in Coweta, OK, said in the COVID-19’s Impacts on The Land Market Virtual Round Table that he is seeing a similar trend in land sales with “an increase in anything outside of 45 minutes of a major metropolitan area.” He also noted that the inventory and interest rates are low and thinks “we’ll continue to see an incredible increase in demand for these types of properties. Read more insights from Drew in the COVID-19 Impacts on Rural Residential Hobby Farms RLI blog post.

As Millennials get older and start families, many of them realize that they cannot continue to afford living in large cities. The median home cost in New York City exceeds $680,000. In LA, the median home cost is nearly $690,000. Few families can afford to spend that much money on housing. A growing number of Millennials and other young people see suburbs, mid-sized cities, and rural areas as cost-saving alternatives with other perks of their own.

Knowing that they will have to spend half a million dollars more on housing to live in big cities, a lot of people don’t mind moving. Moving to smaller cities, suburbs, and rural communities often means that they can purchase larger homes, access better public education, and avoid higher rates of crime – not to mention improve their mental health. Add the fear of another pandemic, and it becomes easy for people to reconsider living in places like New York, Chicago, Washington, D.C., and Los Angeles.

rural home

Technology and Remote Work Opportunities May Influence Decisions

Improved technology and a growing number of remote work opportunities may also influence people when they decide where to live. Living in New York makes sense when it’s the only place where you can find a job. When work becomes decentralized and remote, though, employees can effectively make more money by living in cheaper areas.

Data from the Pew Research Center show that internet access has grown considerably in rural and suburban areas over the last two decades. In 2000, only 42% of people in rural places used the internet. During the same year, 56% of suburbanites accessed the internet. In 2019, 85% of people in rural communities and 94% of people in suburbs said that they use the internet.

Despite improvements in technology, many business leaders have shown reluctance to remote working. The pandemic has forced them to reconsider this outdated idea, which could lead to a significant paradigm shift that embraces the value of working remotely.

Companies have already undertaken the hardest parts of setting up remote teams. Stay-at-home orders meant that businesses had to review and adopt software applications designed for remote workers. With these technologies now in place, some companies may decide that it makes sense to keep their employees remote to decrease overhead instead of bringing workers back to their offices. By keeping workers at home, companies may have to spend slightly more money on technology. However, in return, they can save a lot of money on overhead costs associated with real estate, energy, and insurance.

The combination of better internet technology throughout the country and an increase in remote work opportunities will make it even easier for ambitious people to move away from crowded cities.

rural home

Are Employers and Employees Rethinking the Future?

No one knows how people will respond to the COVID-19 pandemic. Once researchers develop a vaccination, employers and employees might go back to life as usual. Alternatively, they could be reconsidering their urban lifestyles as a way to prepare and protect themselves from future potential outbreaks as the world economy continues to globalize. If they feel less certain about the future, there is a good chance that many will leave crowded urban areas for places that offer more room to spread out.

If this pandemic has you thinking about moving to a more rural area to put some land between you and your neighbors, as well as allow you to source your own food, make sure to Find A Land Consultant and use the Land Connections property listing site to help find the perfect property to meet your needs.

rural residential farm

COVID-19 Impacts on Rural Residential Hobby Farms

A panel of Accredited Land Consultants of the REALTORS® Land Institute (RLI) shed light on the impacts of the Coronavirus (COVID-19) outbreak on land values and land market trends across the country in a recent Virtual Round Table session. The panel, which consisted of expert land agents from across the country, mostly pointed towards a positive outlook for the land market despite volatility in other areas. One key market they covered was the rural residential hobby farm market.

With a trend the past decade of urban-dwellers moving further to the outskirts of larger urban areas, the COVID-19 outbreak seems to have pushed the migration to rural residential hobby farms even further. Lisa Johnson, ALC, with Horsepower Real Estate out of Junction City, OR, shared that when it comes to buying a rural residential hobby farm or ranchette, these properties are a great “entry-level for owning land, typically 5-20 acre plots.” She feels that due to the COVID-19 outbreak “People are looking to get back to the basics a bit and out of the suburbs.” She explained these rural residential hobby farms are the perfect alternative because “the price range for these properties is well within reach of someone looking to sell their home in town and roll their equity into a down payment for 5 to 20 acres.”

Rural Residential Hobby Farm

As far as going forward, she says they aren’t seeing a lot of listing coming on but closed sales were still pretty even with where they were this time last year. She did note that since the start of April, many agents are seeing a slight slip in the number of closed sales.  Lisa predicts that there will be a lot of demand and says that right now there isn’t a lot of inventory to meet it. “We’re still seeing a lot of people calling from the larger metro areas… that, whether its 5 acres or 100 acres, they just want somewhere to go.”

She also noted that the shutdown is making it clearer than ever that not everybody needs to go to work in an office. With so many companies getting a taste of working remotely, there will likely be a shift in the future to more remote jobs that will allow people to settle further out from cities on to properties like these. As far as an outlook, she said “I also think the economy is going to come back pretty strong.”

Drew Ary, ALC, with Ary Land Co in Coweta, OK, said he is seeing a similar trend in land sales with “an increase in anything outside of 45 minutes of a major metropolitan area.” He said they’ve “had some seasoned listings that have been on the market a while and many of them have been snatched up lately,” noting them having “a lot of calls on rural residential developments.” Drew mentioned that “these properties on the outskirts of major metropolitan areas really seem to hold their value.” He also noted that the inventory and interest rates are low and thinks “we’ll continue to see an incredible increase in demand for these types of properties.

Panel moderator Eric Zellers, who is also with Ary Land Co., noted that he’s been “getting a lot of calls asking if sellers of larger tracts would consider breaking them down and selling 5 or 10 acres of the property.” It is still early to tell, but this could be a new trend in buyer purchasing as more and more people look to invest in living outside urban areas and instead on a rural residential hobby farm or ranchette.

For more insights on the impacts of the outbreak and shutdown on the ranch land market for ranchers from Clayton as well as insights on how other land markets are being impacted, make sure to watch the full Impacts of COVID-19 on The Land Market Virtual Round Table presented by the RLI 2020 Future Leaders Committee or check out the related posts below:

If you are interested in buying, selling or investing in land real estate, make sure to Find A Land Consultant, like an ALC, in your area with the expertise needed to best assist with your transaction.

About: Drew Ary, ALC, is an agent with Keller Williams Advantage. Drew has a vast knowledge of raw land, land with improvements, and farm and ranch properties. Above all, he has a passion for selling land and farm and ranch properties by bringing buyers and sellers together through honesty and integrity. Drew spent 10 years in the real estate auction world with roles as a Closing Coordinator, Project Manager, and a large portion as the Director of Farm & Ranch Sales. Drew moved to traditional real estate with Keller Williams Advantage at the beginning of 2017.

Lisa JohnsonAbout: Lisa Johnson, ALC, is the Owner/Principal Broker at Horsepower Real Estate. Specializing in Farms, Ranches, and Equestrian Properties in Western Oregon, her and her team of land Brokers are among the top rural agents in the area. Lisa is a member of the RLI Pacific Northwest Chapter, and a 2019 Future Leaders Committee member.