Conservation Easement Tax Credits

Sometimes our politicians can take a concern, come up with a political “solution” and in the process royally mess up!  Conservation Easement Tax Credits is a perfect example of this phenomena.

The theory is that land owners are “paid” the difference in value between the agricultural value of their land and the development value of their land.  In return they place an easement on their land that precludes their land from being developed…in perpetuity.

In perpetuity is a really long time.  Anyone that says they can precisely and accurately predict the needs for land in the next century is either (1) brilliant or (2) lying.  My money is on the latter alternative.

Here in Virginia we waste $100 Million per year on Conservation Easement Tax Credits, almost $12 Billion since Mark Warner, as Governor, pushed the legislation.  The facts on which you need to focus are these:

1. There is a finite amount of land, no one is making any more of it;
2. When you reduce the supply in the face of increasing demand, the value of the remaining usable land increases.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

Lower Commodity Prices

As China’s economy continues to decline, the prices of various commodities will similarly decline.  There will be some pain associated with those declines especially to speculators.  Additionally, some suppliers will experience decline because they are over leveraged.

Lower prices for commodities can also be a huge positive force in the economy.  When product prices fall, sales of those goods tend to increase and profit margins for the producers can also increase.  Higher profits and increased demand mean more jobs and better wages as the demand supply cycle works its magic.

Just like no two tracts of land are the same, not all commodities will fall at the same time.  The housing recovery will ripple through the timber and some other commodities.  In good times, land prices rise.  There are good times coming!

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

Banking System Recovery

In capitalism, bank loans have been called “Mother’s Milk”.  It is easy to understand – without the availability of bank loans, business can only be conducted by those persons and entities with cash.

The impact of that fact can be seen in the real estate market over the last six years.  No real estate loans equaled very little construction, loss of jobs, and a pitiful economy.

The Fed’s bond buying investments each month is targeted to providing capital into the system for real estate.  The missing ingredient has been healthy banks that can take the capital and invest it in loans.

That missing ingredient is making a revival.  Today the number of banks restricted from lending on real estate is dropping.  There are still too many that cannot lend on real estate but the number that are able to make real estate loans is increasing.

As the number of banks that can loan increases, the economy will revive.  We forecast that banks will recover slowly, so we expect the economy to also recover slowly.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

Timber as an Investment

Many folks only think of stocks and bonds when they hear the word “investments”.  However, we work with many clients whose experience clearly demonstrates that timberland is a better investment than financial assets.

The Fed is making sure that no investor is given an incentive to hold cash.  However, a great deal of confusion exists about what asset an investor should purchase.

Land offers many benefits to an investor.  Perhaps timberland is the easiest to illustrate so let’s start there.  Among the financial benefits of a timberland investment are the following:

1. The trees grow every year, increasing your value;
2. When you harvest your trees, properly structured the income can be treated as a capital gain as opposed to ordinary income;
3. Since we Americans consume approximately 4% more wood fiber per year than we grow in the USA, over time there is a bias in the market towards higher timber prices.

The recovering new housing construction market is increasing demand for timber and therefore timber prices.  If you have been to your local Home Depot or Lowes recently, you know what I am describing.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

Housing Recovery

The new housing industry impacts 27% of the American economy.  The crash in 2006 of the housing market shows the power of this industry.  The revival of the new housing market is as equally strong a force in our economy.

With their bond buying investments each month, The Fed is making sure that mortgage interest rates stay low enough to revive the new housing industry because they recognize its importance to the overall economy.

If you look back at the new housing market and compare one year ago to today, you can easily see the economic impact and resulting trend in the American economy.  Residential development land is the hottest segment in the land market.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

Chasing Returns

Capitalism allocates resources based on the return on the investment.  There is never enough capital so the investor uses the expected rate of return on an investment to decide which investment(s) to make and which to avoid.

In this current capital market, The Fed is making sure that no investor is given an incentive to hold cash.  Therefore, savings accounts and instruments earn almost zero return which is a signal to the saver to go make an investment somewhere, thereby stimulating the economy.

It is in periods of time like these that lazy investors buy questionable assets because of promised returns.  Then when the market paradigm shifts and the lazy investor loses money, they become disenchanted with investing because they ended up with some worthless piece of paper.

Buying a really good piece of land can provide to an investor security and a rate of return that can equal or exceed most other assets today.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

Enormous Amounts of Cash on the Sidelines

Historically, in a “normal” American economy there is approximately $2 Trillion in cash and equivalents sitting on the sidelines.  The reasons cash will sit on the sideline can vary, but that is the normal amount.

Since 2008 the amount of cash on the sidelines has increased to $9 Trillion.  By itself that is a remarkable change, but when one considers that the owners of that cash are receiving zero return for holding cash, it is even more remarkable.  Then, add the fact that the American economy is approximately $16 Trillion and the scale of the cash becomes astounding.

There are many reasons for individuals and companies to hold so much cash on the sidelines.  But we suggest that you look at that huge sum of cash not as simply money, but rather as “economic accelerant”.  When gas, an accelerant, is thrown on a fire there is an explosion.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

Introduction

Every day there are conflicting stories in the media about whether the economic world is about to collapse or boom.  My experience in dysfunctional situations is that it is critical to not be swayed by “rumors”, but rather to stay focused on “facts”.

To help us help our clients, several years ago we developed a GMLC Weekly Land Market Activity Index (Index).  The objective was to create a way of quantifying the amount of activity in the land market in order to see trends in the market, therefore being better able to advise our clients.

For the last four years, we have watched the Index quantify the “surges” followed by “lulls” in the market.  Interestingly, our Index forecasts surges about 30 days before we see the activity in the market.

Over the next three months we are going to share our insights into the “facts” that we believe are driving those surges.  Our objective is to help you understand why you should be investing now to take advantage of the current land prices, so that you can maximize thr return on your investment.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  Those that buy one of the best tracts of land will benefit most and look brilliant.  Call us, we would love to help your investment decision look brilliant.

World Economic Trends

Has anyone alive today ever seen such a mess as the world economy over the last five years?  The short answer is “NO”.

Increasing the risk is that the world economy continues to increase its inter-connectivity every year.  What happens around the world has a huge impact here in the United States on every facet of our economy.

Therefore, a discussion of the forces that will impact the land market here in Virginia during 2013 has to include a brief discussion of the world economy.  As I write this in May of 2013, the only way I can hope to discuss this huge topic is to summarize my educated guess as to what will happen for the remainder of 2013.

China – Now the second largest economy in the world, second only to the United States, appears to be operating on ether.  Their combined Communism with capitalism by definition will fail.  It appears that for the fourth time in 20 years, their banking system has failed and will be bailed out by the government, their real estate market is an enormous bubble, and they are losing manufacturing jobs due to the “On Shoring” trend.  Those all suggest a recession as the best case scenario.  As a result, I expect commodity prices will fall and internal turmoil will increase.

Japan – Tired of two decades of deflation, the new Japanese government actually was elected because of their promise to create inflation.  The devaluation of the Yen has started, will continue, and will have global impacts.  However, it will do nothing to address the core problem that the Japanese population is smaller in number and those that exist are getting really old.

Europe – Saddled with a common currency but no central control creates a structure that only succeeds in good times.  Therefore, Europe is destined to struggle.  In 2013, Europe will experience a recession.  The flex point for the world economy is how severe the recession will be.

USA – Obama got his tax increase and we will get to enjoy a recession in late 2013 or early 2014.  Obama’s campaigning about the Sequestration is an effort to deflect the blame for the coming recession from his tax increase to the Republicans for agreeing to his idea of a Sequestration.  In 2014 ObamaCare hits the US economy… well, that is next year.  The US economy in 2013 will be tepid but until the recession the only growing major economy in the world.

In summation, 2013 will see low interest rates and at best a stagnant world economy.  But a wise investor does not invest for today…rather, for the future.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  The really good tracts of land will benefit most.  Call us, we would love to help your investment look brilliant.

The Housing Market

Historically, the New Housing market has been a Leading Economic Indicator.  While New Housing construction is itself less than 5% of the American economy, the ripple effects impact industries that make up approximately 25% of the American economy.

The next time you hear a talking head say that an increase or decrease in New Housing construction will not impact the American economy… well, you just listened to an idiot.  Its impact is huge, as described above.

The New Housing market is ultimately driven by demographics and taxes.  Recognizing the negative impact that taxes, called cash proffers, have had on their counties, wisely some counties have eliminated cash proffers from their tax structure.  Residential construction will result in those areas.

New Housing construction includes both New single-family homes and apartments.  While the largest generation of Americans EVER, Generation Y (12 to 31 years old) has now entered the housing market, they are disproportionately renting apartments, not buying homes.

Preliminary indications are that Gen Y’s college debt is preventing them from qualifying for a mortgage to buy a home.  Another analysis suggested that with the historically low interest rates, Gen Y is skipping the “first” or “starter home” and buying the “move up” home to lock in the lowest possible 30-year mortgage payment.

Both trends bear watching.  But the bottom line is that the recovery of the new housing market is positive for various segments of the land market, including development land and timberland.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  The really good tracts of land will benefit most.  Call us, we would love to help your investment look brilliant.