Rural Land Investment – Proven Ways to Get the Best Deals (2022)
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The land is a limited resource though it is economical and offers an abundance of opportunities to attain profits. If bought as an asset to hold, it can appreciate over time to be sold later at a higher price. Also, rural land is a great source to generate passive income through lease or rent.
Beyond the shadow of a doubt, land investment offers numerous benefits. Investors can opt for rural land investment to diversify their investment portfolio and gain higher returns. Yet, it is crucial to choose the right piece of land in a suitable location.
As stated by the U.S. Department of Agriculture, over 900 million acres of land are available in America. When it comes to raw land investing, an investor must be good at buying land at cheap rates.
The size of the land should be according to the purposes it is purchased. A large tract of land is suitable for hunting, timber, and growing crops at a large scale. On the other hand, a small plot of land would be appropriate for home development.
Buyers who purchase rural land expect extra space to grow vegetables or raise animals. If you want to buy land lots to sell at higher prices, then you can buy a large land tract on which a buyer can start a garden or raise animals.
Market lulls are an opportunity for buyers to purchase rural land at the best price. If you can offer cash to buy land, you are more likely to get the best deals. Also, there are several rules and regulations to keep in mind. The price of land and home development cost should be similar to neighboring properties. Otherwise, you may not qualify for a home development loan.
Check Access to Water
Water is one of the essential utilities on which the value of land can vary. Most renters and buyers prefer buying rural land that has easy access to water. The rural landowner needs water to completely utilize the land for different purposes, such as gardening, recreation, farming, or hunting.
The rural land with water availability will attract potential buyers to purchase it. For instance, you can make more money selling your subdivided land to different buyers who intend to maintain a garden or livestock. Land that has sufficient water is more appealing to farmers and hunters.
Learn About Zoning Restrictions
Zoning laws ensure a property is used for appropriate purposes to protect or maintain its value. Local and national authorities categorize properties under a few zones; residential, agricultural, commercial, and industrial.
As per zoning laws, residential property is for single-family homes— commercial property is for business services, industrial properties are best for manufacturing, and agricultural property is best for farming purposes.
Thus, it’s crucial to first determine the highest and best use of the land before purchasing a property. If you need land for farming, ensure you buy a property that is zoned agricultural. Likewise, potential buyers looking for land for commercial, residential, or industrial activities should opt for a property accordingly to leverage all the benefits.
Generally, urban areas and surroundings are very restrictive. However, rural areas have fewer restrictions. So it’s recommended to choose the region and buy land wisely as per your needs and expectations.
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History of the Land
Before purchasing land, you should conduct a thorough investigation. It’s the same process that we use when purchasing a residential or business property. This determines if any unresolved ownership concerns could cause future complications. You should also keep track of how long the current owner has had the property. If they are attempting to sell the land shortly after purchasing it, it could indicate that the property has some concerns.
Hiring a land surveyor to inspect the land before making the final offer regarding its purchase is a wise decision. A land survey will uncover any potential limits as well as clarify the plot’s borders. The land could, for example, be located in a flood zone. This could have a significant impact on the deal’s potential profitability, depending on your ambitions for the land. When buying raw property, take measures by conducting your research and engaging a competent land surveyor.
Current State of the Land
When purchasing real estate, you must do more than simply inspect the property. You’ll want to determine if the soil was poisoned during the time the land was empty, how fast the tree roots are growing, and whether the ground can support particular structures. You’ll also need to factor in the cost of removal of the roots if they are moving close to the site. You should also think about how the sun (or lack thereof) will affect the ultimate occupants. If there are sun-blocking hills in the vicinity, the demand for the property may be greatly reduced.
Your decision to purchase will depend on several questions regarding the existing state of the property. Some of which are – Will the soil on the land hinders you from drilling a well, building complex structures, or acquiring natural gas, power, etc? Are there any environmental issues or liens on the property that need to be addressed? Is the land’s elevation going to be a problem?
Why Should You Opt for Rural Land Investments?
Investing in Rural lands is a choice that can provide you with multifold benefits. You have numerous options for making a profit if you own farmland. Some options require you to work to have an active involvement such as growing and selling crops. Some options are ways to passively generate income such as renting your land which saves you from working in the field while allowing you to reap the benefits.
These are not the only advantages of owning rural land. The other benefits include:
Rise in Demand: By the year 2050, the food demand is expected to increase by up to 98%. This will increase the value of farmlands and will also increase crop production. You should purchase or start investing in lands now to reap tons of benefits in the future. As Mark Twain said – Buy Land, They are not making it anymore.
Tax Benefits: An agricultural investor is allowed several tax benefits from the government. Some of the most common tax benefits are –
Depreciation: Agricultural land does not depreciate. With the increase in time, the value of such land is only predicted to rise, unlike the apartments, houses, and flats that depreciate. It in turn saves the costs that are involved in the maintenance of the land.
Conservation Trusts: There are several conservation trusts that you can put your land to. These are available to provide your benefits of property tax, etc. Such trusts are available to preserve the ecosystem, the natural ground, and water resources. These help your land to remain privately owned.
Property Tax: All states in the US have favorable policies related to agricultural land. These include policies that assist farmers in claiming their lands, policies that prevent threatening expansions, etc. Low property tax enables the reduction of the investor’s liability.
How Does a Landowner Make Money?
Farmers and ranchers aren’t the only ones who benefit from owning rural land. A study conducted by USDA, National Agricultural Statistics Service concluded that 31% of agricultural landowners do not operate farms themselves, but instead rent or lease their land to farmers. This study was conducted in 2014, it stated that the non-operator landlords owned more than 282 million acres of farmland in the US out of 911 million acres of land. They collected the regular returns due to their farmland ownership without having to manage the day-to-day operations.
Ways in which you can generate money through rural land investment:
Buy and Rent the Land
This is the most common method of generating a sizable passive income through rural land investment. Once you determine that the land is usable and capable of generating returns, you can rent it to a rancher or a farmer. You should have a substantial budget beforehand to make a purchase. As the data presented by the USDA states that the average land price was $3380 per acre in 2021.
You have several options when you decide to earn via renting your land.
You can choose to purchase land through a sale-leaseback agreement. Here, the existing farmers will continue to work on the land and will start paying the rent to you AKA the new owner of the land. This agreement gives you a direct path to earn a passive income without putting in any farming-related efforts.
Purchasing land that is not currently in use for agricultural work. You can convert the land to cropland, pastureland, or an urban farm. You will be in a profitable state as you will receive the land at a lower price. But this option also requires extensive effort as you will have to convert the land for farming usage, identify the appropriate crops that can be grown, and will need to hire farmers to work on the field.
Currently, there are two REITs (Real Estate Investment Trusts) that are publicly traded and specialize in purchasing rural lands to lease them to farmers.
Gladstone Land Corporation
Iroquois Valley Farmland
Farmland Partners: It is the largest publicly traded REIT in the US. In the year 2019, it had approximately $1.1 billion in assets which includes around 158,000 acres of US farmland from seventeen states. It leased the owned land to over 100 tenants who then cultivated close to 26 different varieties of crops.
Gladstone Land Corporation: They owned around 111 farms which totaled 86,534 acres of farmland in ten states in 2019. These were worth $876 million and were used in the cultivation of nutritional foods.
Iroquois Valley Farmland: It is a public non-traded REIT. This REIT is available to all but it does not trade in the stock market. It focuses on owning only the organic farmlands where the minimum investment required is over $10,000. If you invest in this corporation then it will generate a level of returns but you won’t be able to redeem your shares for a minimum of 5 years.
If you do not have a hefty bunch to purchase land but are looking to invest in rural lands, REITs are an appealing source. This is an easily accessible and low-cost method that you can choose to invest in rural lands. If you can purchase one share through your brokerage account, it would be the start of generating a passive income through your shares. However, these REITs also trade on stock exchanges which can pose a risk if you do not have sufficient knowledge of the market trends.
You can also use the internet-based farmland investment platforms. This is an intriguing option that has gained a high level of preference in recent years. There are several platforms available that provide easy access to rural land investment.
FarmTogether: This online marketplace is available to all accredited investors for farmland investment. It provides you with direct access to various pre-vetted rural land investment opportunities in the US. You can invest directly in your preferred farms or you can also invest in a fund that is cumulative of several farm investments.
Steward: This crowdfunding platform focuses all its efforts on sustainable farm investments. It provides the farmers with loans that are used to sustain as well as expand the farms. The lowest amount of investment they allow is $100 which is available to all investors and farmers.
Harvest Returns: Harvest Returns is a crowdfunding platform that provides various kinds of agricultural deals to its accredited investors.
FarmFundr: This platform enables its investors to invest in all kinds of agricultural as well as farmland opportunities.
Farmland LP: This crowdfunding platform provides its accredited investors an opportunity to first invest in a private equity fund that has the potential to become a REIT. This has the flexibility of going public in the future. This platform focuses on transforming the purchased commodity farmland into organic farmland.
AcreTrader: This crowdfunding platform enables all certified investors to purchase their preferred farms directly. It provides several options of purchase to the investors, most of which include the purchase of 10 shares i.e. up to one acre of land. The cost which the investor will bear is a minimum of $3000 to a maximum of $10,000. You will own shares in the LLC i.e. the Limited Liability Corporation (it has the legal title to the land) rather than owning the land yourself.
Frequently Asked Questions (FAQ)
Why Does Land Appreciate in Value?
Land appreciation is a common term that most people are familiar with. The biggest reason that appreciates the value of land is Scarcity. Increased demand and limited supply appreciate the value of land and influence the investors to find the most profitable land option for themselves.
Another contributing factor is location. If the land is located in the most desirable place i.e the one with an abundance of good soil, sunlight, water resources, etc. Such lands are often high in price as there are numerous investors ready to pay the higher price. So the basic factors that lead to Value appreciation of land are –
Low Supply & High Demand
Restrictions & Easements
Soil Quality and Composition
Safety from Flooding, Bushfires, etc.
What Types of Agricultural Land Can I Purchase in the USA?
The types of land that you can purchase or invest in the USA are:
Cropland: The cropland is that area that is used to produce crops. There are 2 kinds of croplands –
– One is Cultivated Land which includes the row crops and all the other cultivated crops.
– The other is Non-Cultivated Land which includes the horticultural crops and the permanent grassland.
Pastureland: These are inclusive of the native forage species that are used to graze the livestock. It consists of plants, beans, shrubs as well as grass. These lands are renovated every few years. The pastureland covers about 6% of the total land in the United States. This can determine its area i.e about 119 million acres of land.
Urban Farms: The United States has started utilizing the Urban Farms for the production of fresh and healthy food. Such farms are a source of comfort in areas that lack grocery stores.
What are Common Terms & Their Meanings of Rural Land Investment?
The most common terms are:
Farm: This is an establishment or land that sells agricultural products.
Price of Cropland: This term means the price of land that is used to produce field vegetables, crops, or that is harvested for hay.
Farm Property Value: This determines the value of land that is used for the production of agricultural products inclusive of dwellings.
Cost of the Irrigated Cropland: This term refers to the cost of cropland which has full access to the artificial water.
Can People from Other Countries Purchase Rural Land in the US?
Yes, According to the laws of the United States, foreigners from any country can indulge in the purchase of US lands. They have access to all lands in the US except to the lands in six states. These six states have laws that ban any foreign individual from having ownership of their lands. These states are Oklahoma, Minnesota, Hawaii, North Dakota, Mississippi, and Iowa.