REALTOR® MAGAZINE | GRAHAM WOOD | November 13, 2015
Are your investors wondering where to invest their money next? The opportunities for flipping houses or purchasing rental homes are starting to dwindle, but there’s another option that could be fruitful: investing in land. With the economy on the upward trajectory, land is rising in demand. At the 2015 REALTORS® Conference & Expo in San Diego, Jeramy Stephens of Mossy Oak Properties in Stuttgart, Ark., offered the most profitable options for land investment.
These properties are in high demand right now, both by individual or family farmers and corporate agricultural enterprises. A big reason is because of the increase in cattle prices. As the economy improves, so does demand for meat-related products, Stephens noted. (People tend to spend more money on fine-dining experiences at steakhouses, for example.) You could yield significant cash flow by leasing properties ideal for cattle raising and herding.
The catch: Consider carefully whether you want to lease or sell to individuals or companies. An individual rancher, Stephens said, will have more of a personal interest in the property and may be more inclined to make the upkeep of the land a priority.
Forests and large wooded areas could bring in huge bucks, particularly as housing development ramps back up. When building materials are in demand, lumber companies will pay a premium for a steady supply of wood. And trees will always grow back, so you can expect long-term yields. “Trees grow year in and year out — you don’t even have to do anything,” Stephens said. “They’ll grow through recessions, wars, and stock market crashes.”
The catch: Don’t expect annual cash flow from timberland investments. You only get paid once the timberland has been harvested. You’ll get a rather large lump sum at that point, but it won’t happen again until the next harvest — which could be years.
Hay and Grazing Production
During times of extreme drought, which California and Texas are currently dealing with, farmers rely on outside production of hay and grass to feed their livestock. Considering the years-long drought pattern in some parts of the country where farming is big business, now’s a good time to invest in land where you can produce these goods.
The catch: The success of this type of investment is somewhat at the mercy of weather patters. If the drought finally ends in California and Texas, for example, you may lose a lot of customers who can suddenly become self-reliant for hay and grass production.
Commercial/Residential Development Land
Pay attention to which directions retail and residential development is spreading in your area. Then invest in undeveloped land in the outlying areas. Chances are developers will be eyeing those areas next, and you can lease or sell the land to them for big profits. You could also own a piece of the development (you don’t have to be a large company to do this, Stephens said), or you could subdivide the land for multiple developments and make an even bigger profit.
The catch: This type of land purchase is based on speculation about where developers will go in the future, so you won’t see an immediate return on your investment. This is definitely a long-term option. Additionally, developers will want the land to be utility ready, with electricity, water lines, and sewers in place. That upfront work will be up to you to complete.
Mineral Production Land
In areas where oil and gas companies are seeking land for drilling, you could make a killing by leasing property to them for oil production. But mineral rights don’t always belong 100 percent to the owner of the land. Do your due diligence before buying to see if any other entities own the mineral rights to the parcel you’re considering buying. In many cases, you can split the mineral rights and still yield big profits from a mineral leasing contract. Mineral leases are some of the most lucrative real estate deals in the world.
The catch: Make sure you know who you’re communicating with when leasing your mineral rights. Often, agents for oil companies will take the lease and then flip it to the company, earning a profit for themselves. But that may leave you unsure of who to communicate with once the lease begins. If you own multiple tracts of land, demand individual leases for each tract instead of a bulk lease to maximize your profit, and ask neighbors who are leasing their mineral rights what kind of deal they got so you know you’re not being lowballed, Stephens said.
Graham Wood is a senior editor for REALTOR® Magazine. He can be reached at firstname.lastname@example.org.