Author: Eric Gage
One of the best and worst parts of being a land broker is that I would love to own nearly every property I go look at. East Texas is beautiful and each property has something unique about it. It might be a waterfall on a creek, or a view from a hilltop, or clear spring that pops out of a hillside. Each parcel of land is different and unique and our connection to those special spots is what drives people to the outdoors. Studies have shown that support for National Parks and National Forests is highest among city dwellers who may never see them. It is part of our human nature to want a connection to land and the outdoors.
There are many reasons people buy land. Some people are looking for an investment; some are looking for a place to escape, some to rekindle or find their connection to the outdoors. Most are a combination of these. As a broker, I hear a wide variety of different reasons people want to buy land, but most fall in the above categories, although people can be quite colorful in the way they express it. One retired couple wanted a place they could sit on their porch and drink coffee in the nude and not have to worry about their neighbors. Another couple, both stressed out NASA engineers, needed a place where they could “shoot stuff” as a way to blow off steam. In 1999, a number of land buyers were looking for a place to hunker down to survive Y2K (for those too young to remember, this was the concern that all the worlds computers would crash on January 1, 2000). Another buyer was looking for a place to hide from the future zombie apocalypse. My favorite and most common buyer is the person looking for a place to spend time with their family, away from the video games and modern distractions.
Is land a good investment? As many of us frequently hear from our older relatives in regard to land “they ain’t making no more.” With the population of Texas at an estimated 27 million (2015) and projected to grow to over 40 million by 2050 (Texas Demographic Center, population projections scenario data tool), the demand for land has got to go up. Many of our new residents are moving into Houston, Dallas, San Antonio or Austin. As they get settled, they start to look around and realize Texas is a big place of open spaces. Many of these new residents start to look for a piece of the state they can call their own. Also, much of our population is reaching retirement age, when people start to dream about a more relaxed pace of life. Rural areas, especially those with ready access to quality health care, are clearly benefitting from this trend.
I always advise my clients, when looking to buy a piece of land, plan your exit strategy. If you have to sell this land in 2 years, or 5 years or 10 years, how will you do it? Will there be a market for it? What can you do to the land to improve its market value? Some things to look for are road frontage, utilities (or ability to bring in utilities), surface water, and animal habitat. If you plan to finance your purchase, be aware, most lenders will require a 20% down payment to buy land. Interest rates vary from lender to lender, but are often a couple points higher than those you will see advertised for home loans. Go talk to a couple of lenders before you start looking at land so you know what you can expect. Next, make a list of your “must haves.” Some buyers must have a pond or lake; others must have electricity. The more “must haves” you list, the more per acre you should be prepared to pay. Finally, how far are you willing to travel? The best deals in land are often in the hardest places to drive to (think Newton and Sabine Counties in East Texas).
Land as an investment has a good track record of solid, steady returns. According to the Rural Land Price Data on the Real Estate Center at Texas A&M University’s web site, the average annual real growth in land prices over the period of 1996 to 2015 in East Texas is 4%. Compared to other investments, 4% annual return can look pretty low. So unless you can afford to buy large tracts of land as a portion of a larger portfolio, the return on your investment should not be the primary reason to buy land. However, you can’t ride a 4-wheeler around your stock portfolio. You can’t shoot a 10-point buck with your bonds investment. Your hedge fund won’t give you the satisfaction of connecting yourself and your family to the outdoors. An investment in land is measured by something more valuable than money in your pocket. Instead the return is time spent with family and friends, enjoying mother nature and her bounty together, or sometimes just sitting naked on your porch drinking coffee.