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Benefits and Drawbacks Of Different Types Of Land Investing

In articles about investing, “land investments” are often all lumped together, as if investing in a commercial property is the exact same as investing in a vineyard. There are many different types of land, and not every land type is right for every investor. Let’s take a look at the benefits and drawbacks of investing in some of the different types of land.

Disclaimer: There are more benefits and drawbacks to investing in a single land type than we could ever fit in a single article, so we are going to focus on some of the most important pros and cons of each land type.

Timberland

Pro: Less Risky Than Stocks

Historically, timberland has had much less risk and volatility than stocks, but timberland returns were similar to those of stocks.

“Over the last twenty years, according to the National Council of Real Estate Investment Fiduciaries, returns from timberland have been almost equal to returns from equity investments as measured by the S&P 500.” Said Bob King, ALC in his article The Basics of Timberland Investing.

Pro: Moves Against the Stock Market

Not only does timber have less volatility than stocks, timber historically moves countercyclical to other asset classes. That means even during bad markets where many other investments types take a dip, your portfolio will have a safety net.

Con: Timber Is Delicate

The elements can impact all types of land, but timber is especially susceptible to the elements. Pests, natural disasters, wildfires, and other forces of nature can have long-lasting impacts on the value of your land.

Con: A Pricy Down Payment

When timberland is priced as the “highest and best use”, often by sellers marketing their land towards people looking to build their second home, the price can skyrocket. The exact same property can double or triple if it is reclassified. The best thing you can do, is work with a land expert in your area to make sure you are paying the right price for your investment.

Vineyard

Pro: Quick Returns

If you invest in a vineyard that is already producing grapes, you will likely see a return on your investment quickly. In fact, vineyards are one of the land investment types to see the fastest return on investment (ROI).

Pro: Tax Advantages

From the immediate expensing of replacing diseased vines to tax breaks based off the depreciation of a trellis to cash-only accounting, vineyards are ripe with tax advantages.

Con: The Down Payment Might Be More Than You Think

Depending on where you buy, investing in vineyards might cost a pretty penny. In the past decade, wealthy buyers have started investing in vineyards, so the prices have skyrocketed up to over $400,000 an acre in some high demand areas.

Con: High Operating Costs

Vineyards can be very expensive to run, making it harder to turn a profit on smaller vineyards. If you are buying a vineyard that hasn’t started producing yet, it won’t produce a profit for at least the first two years, so that can add extra financial burden to an investor.

Farmland

Pro: Tax Breaks Based Off Of Depreciation

Similar to vineyards, farmland can also offer tax advantages to investors, as pointed out in the article How And Why To Invest In Farmland by Clayton Pilgrim, ALC.

“Many farms contain improvements that depreciate such as grain storage, irrigation pivots, shops, barns, etc.,” says Pilgrim. “An owner can depreciate some of these assets each year to offset yearly taxes.”

Pro: The Ability to Lease Out Farmland

Sharecropping or leasing your land can help bring in some extra income. It’s minimal effort on your end, and it brings in some extra cash.

Con: High Risk

There are many risk factors to take into consideration with farmland. The market is unpredictable and can change on a dime. And it’s not just the market – the weather, natural disasters, pests, and dozens of other factors out of your control can take a serious toll on your investment.

Vacant Land

Pro: The Freedom

The possibilities of what to do with vacant land are endless. You can transition the property to its highest and best use, hold the property until the value goes up, add solar panels or wind turbines, and more. The choice is yours!

Pro: More Affordable Than Developed Land

Since it often doesn’t come with structures, vacant land often has a lower price tag than other land types meaning the financial barrier to entry is usually a lot lower than other land types.

Con: Less Tax Advantages

Unlike some of the other land types on this list, vacant land doesn’t have much to offer when it comes to tax advantages.

Orchards

Pro: More Money Per Acre

Trees don’t need much space, so you can squeeze lots of trees onto your property to maxamize your returns.

Con: Time To Grow

There’s an old Chinese proverb that says “The best time to plant an orchard was twenty years ago. The second-best time is now”. The meaning behind it is if you want a successful future, but in the hard work now, but it can be taken literally. Trees are a slow grower, and can take three-to-six years to start producing money. If you are looking for quicker returns, consider investing in an orchard that is already producing.

Con: Fruit Rot

Fruit that falls from the trees needs to be picked up quickly or else you run the risk of fruit rot. Rotting fruit can impact the health of your trees and the land.

Recreational Land

Pro: Sentimental Value

It’s not as easy to have fun on timberland! Recreational land is an investment that you can enjoy with your family and friends.

Pro: Can Handle More Wear And Tear

Unlike other land types (we’re looking at you, orchards!), recreational land is hearty. It’s meant to handle foot traffic. If you don’t want to spend time fretting over the impact of people or weather, this might be the right investment for you.

Con: Animals (And People) Can Be Tricky

If your recreational land is used primarily for hunting, you’ll need to keep a close eye on the habits and health of the animals on your property. Attracting and keeping game on your property can take a lot of time and money.

It’s not just animals you need to worry about – poachers and trespassers can steal animals, destroy the animals’ habitats, and scare animals off your land. Be sure to have clearly marked signs and limit access points to reduce the risk of trespassers.

There are lots of benefits to land investing, regardless of land type. Tax advantages, diversifying your portfolio, and saving for retirement are all great reasons. No matter what land type you invest in, investing for your future is always a good idea.

About the Author: Laura Barker is a freelance writer based out of California for the REALTORS® Land Institute. She has been with RLI since October 2017.

How to Start an Orchard

Many people think that summer is the best time to appreciate land, but orchard owners know that fall is when land is really in its prime. The leaves are changing color, fall treats are cooking in the oven, and everyone is in the mood for a big mug of warm apple cider.

Since October is an orchard’s time to shine, we thought we’d look into what makes a successful apple orchard.

Choosing Your Land

For an orchard to succeed, it needs to have a strong foundation to grow on. You’ll want to find a property with plenty of sunlight and well-drained soil. Different varieties of apples thrive in different climates, so you’ll need to make sure your trees and your property’s location are a good match.

The USDA’s Plant Hardiness Zone Map is a great way to gauge which types of trees would thrive in your location.

Soil drainage is also incredibly important. Be sure to get a soil test done or check out the USDA’s Web Soil Survey to make sure your property’s soil type is the best kind for your trees to flourish.

The best landscape for your orchard will also depend on the type of apples you plan to grow. If you grow apples that need more sunlight in the fall, you’ll want to plant them on a northern-facing slope. If you grow apples that need more sunlight in the spring, its best practice to plant them on a southern-facing slope.

A rolling landscape protects land from harsh wind. Too much exposure to strong winds isn’t good for any crop, but despite their sturdy looks apple trees are especially sensitive to the effects of wind. To prevent the delicate branches of your trees from snapping and the fruit from bruising, make sure your trees have decent protection from strong winds.

Finding the perfect property for an orchard can be tricky. Land transactions require specialized expertise, so Find A Land Consultant in your area before investing in this unique type of property this fall.

Choosing Your Apples

In America, there are currently 2,500 varieties of apples grown, each with their own unique flavor, colors, and needs. Here are some best sellers, according to the US Apple Association:

  • This New England favorite grows best in cool areas. Its tart flavor makes it perfect for cooking fall treats.
  • Originally developed in Japan, the Fuji apple is sweet and crisp. They also have a very long shelf life, sometimes lasting up to a full year with refrigeration.
  • Red Delicious. This American classic thrives in warmer climates. Although this type of apple has a surprising amount of online hate, it is still projected to be one of the top sellers for 2018.
  • Pink Lady®. A sweet, sharp taste with a lovely blush color. But be warned – this type is susceptible to fireblight and cedar apple rust.
  • These apples have a mild, honeyed flavor that is great for baking or dipping in caramel.

To learn about other types of apples, check out Orange Pippin. They have detailed descriptions of hundreds of apple types.

 

Tips For Planting/Caring for Your Orchard

  • Planting three varieties of apple types is the best way to get great pollination. Like people, bees are important to land real estate as an industry and its important to know they like variety in their food. Offering them a few different types of apple blossoms will keep the bees coming back to your orchard time and again.
  • Patience is important when growing trees. It can take anywhere from two to seven years for trees to turn a profit. Much like timberland, orchards take a while to make money.
  • Orchards do require upkeep. You’ll need to prune them in spring to get rid of dead wood.
  • Orchards are also especially susceptible to pests, so set aside some money for pest control.

If you have the time, patience, and love of land required to grow an orchard, it might be a great addition to your property.  There are thousands of different apple varieties to choose from, so channel your inner Johnny Appleseed and getting planting! Thinking about purchasing an orchard or starting one of your own? Make sure to find a land expert using the Find A Land Consultant search tool. Land transactions and investments require an agent with specialized expertise and experience in the field.

About the Author: Laura Barker is a freelance writer based out of California for the REALTORS® Land Institute. She has been with RLI since October 2017.