Land Investment vs. Stocks

After seeing the free-fall in the stock market over the last several weeks, many people are wondering where the safest place to invest their money is.  Many pension funds and other investment groups have become heavily invested in land to offset the wild fluctuations in their stock portfolios. Farmland and Timberland have become a favorite “safe haven” for many investors that want to get away from the fluctuations that the stock market has been going through and are looking for a long-term investment.  In the last several years, most land prices have dropped, as has the stock market, but land remains a very stable investment. A well-managed timber stand can give a long-term annual return of 4-7%, in addition to increased value of the land over the long-term.  Strategically located land can increase in value significantly, particularly if the highest and best use changes from timberland to a different use. Cropland values are becoming more and more related to commodity pricing.  Speculation in this area can increase values significantly; however, they can also fall if the “commodities bubble” pops.  This is more evident with large farms in the “farm belt”.  Smaller farms that have both farmland and timberland seem to have less fluctuation in value with swings in commodity and timber prices. Income from land varies over time depending on whether it is producing crops or timber, making it more of a long-term investment.  Crops and timber are both renewable resources.  The return from farms has put many children through college and continues to produce for the next generation leaving the land value to increase as a hedge against inflation and increase as uses change.  Best of all, you can see it, walk on it and enjoy it for its recreation and beauty. Making a good land investment takes knowledge of the potential for each parcel of land.  Each one is unique and has different attributes and needs to be looked at separately.  Grant Massie Land Company can assist...

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How a 1031 Exchange Can Increase the Return on the Sale and Purchase of Investment Property

Most people have heard the term “1031 Exchange” mentioned, but many are unclear on how they can benefit from it.  Some think that it is only used by multi-million dollar investors.  Others think that you can only exchange a tract of land for a tract of land or an office building for an office building, etc., but both of these assumptions are untrue.  It is a tool that can be used by both large and small investors to increase their return on their investment.  Land can be exchanged for land, but it can also be exchanged for an office building, a rental house, or a retail building just as long as it is real property and held for investment.  Another common misconception is that you can exchange a personal residence for investment property.  It can only be investment property for investment property. One of the main benefits of a 1031 Exchange is that it defers capital gains tax.  If you have a property that you may have owned for a long time and it has a very low “basis”, a 1031 Exchange could be of great benefit to you if you plan on moving that investment to another type of real estate, such as land to office building or office building to land or even development land to timberland.  The 1031 Exchange allows you to transfer the original “basis” in the presently owned property to the new property deferring the need to pay capital gains tax on the difference between the “basis” value and the value transferred.  This allows you to transfer capital gain equity from one property to the next on a dollar for dollar basis, rather than having to deduct for the capital gains that you would have to pay on your sale. How can I do a 1031 Exchange?  Very few exchanges are “direct”, one property for another property.  Most are three party exchanges or non-simultaneous exchanges.  However, the IRS has very specific rules that must...

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Buyers Set Values – Not Sellers

Property Is Only Worth What Someone Is Willing To Pay From an appraiser’s standpoint, value expresses an economic concept.  Appraisals are never a fact, but always an opinion of worth of a property at a given time in accordance with a specific definition of value.  In appraisals, there are a number of different types of value such as market value, liquidation value, investment value, tax value, and so forth.  The most often used of these is market value.  An abbreviated definition of market value is:  The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming that the price is not affected by undue stimulus. A Broker or Appraiser can only give an opinion of value.  The one who ultimately decides value is the person that is willing to take the risk and put his money into it.  Value is affected by many factors.  Each property is unique unto itself.  There is no other property that is exactly like it.  Two properties that are side by side may be affected by different outside stimuli making the values different for each of them. Factors That Affect Market Value: We will list some of the factors that most often affect a property’s market value. Location: Location, location, location is what we most often hear in the valuing of a property.  The property may be on the busiest city block in town or it could be the most remote rural area.  These properties may be worth the same thing, but the rural parcel may be 150 acres and the city parcel may be one-quarter of an acre. Demand and Availability of Financing: As we have seen in recent years, increased demand can have a dramatic effect on value.  The lack of demand can also have a dramatic effect on value.  If nobody wants a property, what is it worth? ...

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Why Invest In Timberland?

“Money still grows on trees” as a past article (“For Some, Sound of Profit Is Timber”) in the Wall Street Journal has mentioned.  As a long-term investment, timberland has outperformed the Standard & Poor’s 500 stock index.  Pension funds, insurance companies and investment trusts  among others, have increased their holdings in timberland dramatically over the last 25-30 years because of this realization. There are several factors that play a roll in making timberland an attractive asset: “Under all is the land” meaning that the land is a separate asset apart from the timber.  The “highest and best use” may change over time and has a separate value from the timber; however, the type and amount of timber can have some influence on the land value. Timber is a crop, even though it has a longer rotation than corn or soybeans.  If it is managed properly, it has a good rate of return with a periodic income stream from thinnings and a final harvest. Unlike corn or soybeans this crop does not have to be harvested at a set time.  To maximize return, it should be thinned and harvested within a certain window of time, but that window is fairly broad.  Thinnings could have a two to three year window with the final harvest having an even broader window.  This allows you to pick the best markets for your timber sales.  We have seen this increase the final return by as much as 25% in some cases.  Timing is everything. The return from the sale of timber and land is a taxable event, but in most cases is as a capital gain rather than ordinary income.  Unlike stock which pays dividends and is taxed as ordinary income, land and timber “dividends” are their growth and you do not draw those “dividends” until you sell either the land, timber, or both.  Here again you can pick the time that is most beneficial to you to have that taxable event. Timberland is...

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