Commercial Real Estate: U.S. seeing a boom in Agriculture / Farm Land
According to the U.S. Department of Agriculture; Following last years rise in commodity prices, we began to see an increased demand in farm land as Farmers, institutions, and private investors began to bid up prices to record highs. The National Council of Real Estate Investment Fiduciaries Farmland Index has also released data that showed returns for farmlands had increased 1.3 percent in just the first quarter of 2011 when compared to the previous year.
In addition to the rapid increase in food prices, the agricultural market is also being driven up due to a lack of inventory as most farmland owners are reluctant to sell. In fact, according to the Illinois Society of Professional Farm Managers and Rural Appraisers 2010 annual report, 57 percent of farmland that did sell was sold through estate sales.
Another drive for the increase in demand and decline in inventory is due to the sharp increase in rental rates for high-quality farmland which was going for $319 per acre in 2011. That’s almost a 75% increase from where rental rates were just 4 years earlier.
Even though we have seen an increase in demand, there are many investors still on the fence about jumping into this market. One of the biggest concerns in the Agricultural market is the fact that commodity prices are set by traders and speculators rather than the industry itself. And with prices reaching as high as $10,000 an acre in the Midwest, an investor can loose a lot of money should traders get squeamish and decide to pull out of the commodity market. However; as countries around the world continue to develop, so does their demand for importing food from the U.S. and other countries rich in farmland.
In addition to the high demand in the use of the land, farmland also presents itself as a very low risk investment due to the extremely low debt-to-asset ratios. Since most buyers coming into this market are primarily paying with cash or with a high down payment (50%), there is little risk that this market is entering into any type of over inflated bubble.
Is it to Late to Invest?
No. Even though prices have jumped over the last few years (especially in the mid-west), the evidence suggests that we still have a long ways to go before we begin to see the pace appreciation slow. However, the main problem you can expect to run into is being able to find a willing seller.
Probably the best way to find a willing seller is to team up with an agent who has their finger on the market (an agent like Josh Talayka) who will already have access to owners who want to sell. One of the best methods I’ve found effective for finding a willing seller is to track both the probate hearings and also tax records in order to try to find absentee owners who may have recently inherited land that they live far away from, or just don’t have any real use for it. These hidden sellers are not only great because other investors are unaware that they exist, but they will also generally be more open to selling the property at or below market value.
Another method for finding valuable farmland is to look for property that is outside the current demand areas such as the Mid-West. As values in these areas continue to increase, it will only be a matter of time before buyers begin to look to other areas like Northern Nevada for prices that aren’t as inflated. This will eventually give buyers today the opportunity to see a substantial return on investment.
In addition to looking into other regions, you may also want to look toward farmland that is growing less than favorable commodities in today’s markets. Crops that are seen more as luxury items (such as wine grapes in Northern California) haven’t been preforming very well, and neither has their land values. However, it’s easy to predict that demand for these types of properties will increase as the demand for the crops increase.
Chase International Commercial Real Estate is licensed in both Nevada and California. Because of this, I am able to offer you access to the highest quality and lowest priced listings available on or off the market. This is made possible through the exclusive regional, national, and international affiliations Chase International has acquired over the last 25 years which allows us to have access to properties that would otherwise be unavailable to most investors.
Should you have any questions or need further information,
please don’t hesitate to contact me, (775) 220-1630
Or visit my website: www.SellingHomesinReno.com
Joshua Talayka
Commercial Sales
& Property Management
Chase International
Office: 775 850 5953
Toll Free: 877 922 5900
Cell: 775 220 1630
Fax: 775 850 5901
985 Damonte Ranch Pkwy, Ste. 110
Reno, Nevada (NV) 89521
Legal disclaimer: I am not an attorney, tax professional, modification specialist or credit counselor. The information contained in this article/blog is intended to provide general information on the subject and not to provide any legal, tax, or credit advice. You should not act upon this or any information without first seeking independent tax and/or legal counsel.
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