Can raw land protect against out of control inflation?
Inflation has been a hot topic in headlines lately. It’s a simple fact of life, the value of a dollar is decreasing over time as inflation increases. Inflation refers to the increase of prices of goods and services overall as time goes by. Another simple definition of inflation is: “Too many dollars chasing too few goods”. Inflation isn’t good news for consumers or savers. If you’re an individual that pinches pennies and tucks them into a savings account, more than likely that savings account isn’t paying you an interest rate that even remotely keeps up with the rate of inflation. The wealthy often take advantage of inflation by investing in tangible assets that appreciate in value faster than the rate of inflation.
Historically in the U.S. Inflation has been a naturally occurring economic event over time. However, inflation has been accelerated by recent economic situations such as the impacts of the COVID-19 pandemic. Because of COVID-19 shutdowns in 2020-2021 there have been low supplies of manufactured goods leading to increased demand. Add to this, Government stimulus programs that have injected funds into the economy during the pandemic, which has only only worsened the effects of inflation. Record low interest rates have allowed more people than ever to access financing to purchase homes and automobiles driving up prices for big ticket items.
To protect the future value of your money it is important to own assets that hedge against inflation. It’s no secret, the wealthy invest in asset classes that appreciate in value and/or provide cash flow at or above the rate of inflation. Real estate has always been a popular form of investment to hedge against inflation because property has the potential to grow in value while also potentially providing a stream of income.
Investing in unimproved land
Land is a finite commodity (especially here in North Central Florida) and as our area grows, land becomes very valuable to be developed for housing, commercial or even farmland. Also, there are ways to produce income from land to offset costs of ownership such as taxes and insurance. In the following paragraph we’ll discover the different types of land ownership and the ways to generate income. In the following we will discuss *Timber Land Investment *Farm, *Vacant Residential and *Unimproved Commercial.
Timber Land Investment
Owning timber land is a great long term hedge against inflation. Many of the largest investment funds, banks and “Hedge Funds” have timber property in their portfolios. A well managed timber tract has had a track record of around 3% income annually plus appreciation of the land. Most owners will lease the use of their tracts to hunting clubs which offsets expenses such as taxes and forestry management. Agricultural land owners qualify to take advantage of Government programs and grants for best practices and conservation. See: https://www.usda.gov/topics/forestry
Farmland
Farm Land Investment
People will always need to eat and food prices are a big contributing factor to inflation and a larger percentage of household spending allocated towards groceries. One doesn’t have to be a farmer to own profitable crop land or pasture as an investment. Farm Investors can receive income from multiple sources such as rent, percentage of crop production and USDA programs. Agricultural land has a long history of producing strong investment returns while having low levels of volatility. Essentially, they are a comparatively secure investment option. Between 2019 and 2020, cropland rental rates increased 5.4% per acre in the Southeast, which is higher than the rate of inflation and also higher than residential rent. In the same period, pastureland saw a 3.2% rental increase.
Lower property taxes
Agricultural land has lower carrying costs than most other types of real estate. One of the biggest factors is low property taxes on farm land. With the filing of a land management plan (and approval of the County tax collector) the property can be Agriculturally classified for the purposes of taxes. This does not change the zoning of the property just the classification.
Convert Farm to High Value Agricultural Land
Horse Farms, Agri-Tourism and Agri-hoods are growing here in Florida. Properly located farm land is easily converted into high value agricultural land. We have the World Equestrian Center located here (and has the name implies), it is a “World Class” horse facility. High net worth horse farms are looking to relocate which is driving up land prices in the area much faster than the national average for inflation.
Future potential to redevelop
As more and more people look to relocate to rural areas of North Florida, farmland located within commuting range of townships have the potential to be re-zoned and redeveloped into other uses such as a residential subdivision or commercial or mixed use property. A change in zoning and use will increase the asset’s value and not only act as a hedge for inflation but deliver a high return on investment (ROI).
Vacant Residential Lots
Residential vacant land is platted / subdivided and zoning for building is already in place. Subdivision land is easier to liquidate when ready to sell and less expensive to purchase on the front end making it a more accessible investment opportunity for investors who don’t have large amounts to spend.
Lot values historically increase with time
The key to buying lots as an investment is to purchase in an area that is (or has previously been) underdeveloped but has future growth potential due to city expansion or new industry moving to the area. Hold the lot(s) for a period of time until new construction goes up and sell. You have the power to choose the best time to sell your residential building lot at a future point that produces the highest possible sale price. Investors in our area of Florida have doubled, tripled (or more) the initial purchase price when the timing is right to “cash out”.
Minimal carrying costs
Vacant building lots require little maintenance and carrying costs while holding for future sale. However the down side compared to Agricultural land is the real property taxes are often higher.
North Central Florida has residential lots available priced from thousands dollars to large estate sized parcels for a million plus. We can help Investors of all price ranges find a property that fits their financial requirements.
Vacant Commercial / Industrial Land
For the money, commercial properties typically offer more financial reward over the long term than residential or Agricultural based land. However the cost of entry and risks can be higher.
There are at least six types of commercial vacant land zoning and usage.
*Office, *Retail, *Industrial, * Hotels / Hospitality, *Mixed use and *Special Purpose
The highest return on investment in commercial land is to identify a property that fits the State, County or a municipality’s comprehensive plan for future commercial, but is not currently zoned for the “highest and best use” (Ag or residential). An owner can complete the rezoning process (typically with the help of a certified land planner), then sell or partner with a commercial builder / developer for maximum profit. Much due diligence and feasibility is required to verify and identify potential commercial vacant land properties that are certain of future appreciation.
Improved Residential Property Investment
I cannot close out without discussing the most common real property asset that people are most familiar with investing, that would be existing residential real estate. Residential (homes and apartments) properties are easy for most people to understand, are easily available and a tend to offer good growth in strong markets. The advantage of single family residential is; Historically, property values have an upward trajectory, which acts as a hedge against inflation even before rental income is considered. For investors that are a bit savvier and more creative, there are Multifamily residential opportunities which can generate a level of immediate rental return as well as future property appreciation.
*If you are looking to invest in these types of properties, we can also work with you to find an improved residential.
Buying or selling land in North Central Florida
Our area of North Central Florida has a broad range of properties available but it can be challenging for investors to know exactly where to look and which property will be a secure and profitable investment.
Working with an experienced real estate professional in North Central Florida’s local marketplace, and one who understands land purchasing, is essential. Get in touch to have a conversation about your particular goals in owning investment land. I will help you develop a strategy to protect your financial standing from ongoing inflation by investing in land.
If you are looking to consult someone who knows the in’s and out’s of selling your land, please let me evaluate your property and make a plan that will position your land for the most exposure for the highest market price.
Sid Stidham email: sid@realworks1.com
PH: (352) 215-2631
*This article is intended to be informational but not a replacement for legal or tax advice. Please seek the council of an Attorney for legal matters and an Accountant for tax advice.