The Dream of Owning Land for First-Time Buyers
By Mitchell Eads, Republic Ranches Sales Associate
Have you dreamed of owning rural land, a place to conserve, cultivate, and enjoy? Whether a childhood dream, a recent aspiration, or if you are a savvy investor that wants to capitalize on the enjoyment and pride dividend that comes with owning a hard asset like land, the market has found itself in a sweet spot for first-time buyers.
The first step we highly encourage is to find a broker that you trust and begin the conversation. The complexities of a farm and ranch transaction can seem overwhelming and create a barrier that keeps many buyers on the sidelines. Working with a broker will ease the stress of the unknown and allow buyers to enjoy the process. Buyer diligence in a farm and ranch transaction can sometimes be a more complex endeavor than a residential home purchase. Numerous data points and property encumbrances are generally less impactful than with rural land. Often it is as simple as knowing what questions to ask.
Once you have met or spoken with a broker to discuss your search’s initial parameters and begun to study various properties, the next step is getting out and putting in some windshield time. No amount of data analysis and sorting through maps and pictures can take the place of getting your feet on the land and seeing it firsthand. Some buyers will search for years for the perfect place, looking at ranch after ranch. Other buyers will step foot on the first or second ranch they view and know it is the one. You can feel the excitement and that intangible connection to the land. Some buyers will experience guilt in falling in love with the first few places they see. The process seems too easy, and there is a feeling of potentially missing out on the next property around the corner. We encourage buyers to make informed and thoughtful decisions while also reminding themselves that the perfect property can present itself at any time. As with residential purchases, especially in an active market, seeking pre-approval from a lender is highly encouraged. In addition to a conversation with your broker, we recommended contacting a lender as soon as your search begins. Lenders are a valuable resource that can help walk you through rates and requirements to make the process as smooth as possible. This will also help to refine your search by identifying your buying power and bringing your dream that much closer.
BELOW ARE SEVERAL FACTORS TO CONSIDER AND
DISCUSS WITH YOUR BROKER:
As always, real estate balances atop the three critical factors of Location, Location, Location. Across the country, regions differ drastically in their topography, soils, foliage, wildlife, and watersheds. When many buyers begin their search, one of the parameters is often a search radius from a particular city. This is an essential factor in ensuring that travel does not detract from the enjoyment of a property. However, as buyers refine their search, they will often focus on a particular region, rather than distance. Regions can change drastically within a matter of miles. When viewing a property in one season, it is vital to have a broker knowledgeable about a region’s year-round attributes.
PRICING AND FINANCING
One of the most crucial roles a broker can fulfill is ensuring that a buyer has as much information as possible to decide what they will pay for a property. Brokers will address numerous pricing factors in the recommendations and help buyers feel comfortable that they are within the market. Current interest rates allow buyers to keep more money in their wallet or in the market to outperform borrowing costs. Even cash buyers will often ultimately borrow after speaking with a lender and realizing the benefits of capitalizing on these market factors. Some lenders offer profit sharing and other incentives to their customers, possibly adjusting your interest rates even lower.
OIL AND GAS AND THE MINERAL ESTATE
Many factors can affect a property. After the shale boom, which put the United States as a global leader in oil and gas production, possibly one of the most recognizable encumbrances is created by the mineral estate. A frequently asked question from buyers looking at land is, “does it come with minerals?” Though a good question, the answer is often no. Properties are frequently bought and sold with the minerals having been reserved years ago, and typically it has no impact on the use of the property. It is essential to discuss the implications of purchasing land with some or all of the mineral estate reserved and what can be done to mitigate the impact on your land. Having a firm grasp of all of the rights affecting a property will help a buyer feel more comfortable.
Restrictions come in many forms and can be created naturally by factors such as floodways, county regulations, or a seller who has placed restrictive covenants on the land. Not all restrictions detract from a property’s value, as in restrictive covenants, which can serve to protect the land from particular uses and increase value. It is essential to understand any factors that can impact your use and development of the land, both for your purposes and future value consideration.
One of the most cost incentivizing factors of purchasing rural land is the tax appraisals offered to landowners of agricultural properties. Ag appraisals, often called Ag exemptions, allow landowners to own property with a significantly reduced tax rate by adhering to a list of requirements. This allows land to be appraised based on the estimated production rather than the market value. The Ag appraisal’s general purpose is to encourage agricultural production and conservation by implementing management practices that can ultimately improve the land and wildlife.
The primary Ag appraisals that most first-time buyers will qualify for unless buying a commercial operation is the 1-D-1 Agricultural Appraisal or Open Spaces Agricultural Use. It is imperative to have a firm grasp of the property’s taxing status. A property that has lapsed or is not currently under an Ag appraisal will be taxed considerably higher and require five years of adherence before the land can qualify.
INPUT COST AND OPERATING EXPENSE
Rural properties come in all shapes and sizes and every degree of improvement, from raw land to highly improved and everything in between. Some buyers begin their search looking for a blank canvas property with the dream of molding and shaping the land to their desires. Others look for the turn-key property that is move-in ready and primed for immediate enjoyment. An unimproved property will likely have a higher input cost associated with land clearing, fencing, water development, and the possibility of building structures. Turn-key properties will generally have a higher Operating Expense related to maintaining the existing improvements. Whatever your desires, it is crucial to speak with a broker and asses the time and cost input a particular property will require.
With locations across the country and with experience and knowledge in nearly every industry affecting rural land, the brokers and agents at both Fay Ranches and Republic Ranches are poised to make your dream a reality and to have some fun along the way. We have made careers out of our passions and find no greater joy than sharing that passion with buyers. We hope that this helps illuminate several vital factors to consider on the path to ownership.
By Gregory W. Fay, Founder | Principal Broker, Licensed in MT The famed Dome Mountain Ranch, one of the largest ranches in Montana’s Paradise Valley, has sold. The property was listed for sale for $45m with Greg Fay, the founder of Fay Ranches. The ranch is well-known, boasting incredible habitat throughout its 5,329± acres, and […]
By John Anderson, Broker Associate, Licensed in MT, ID “What’s it really like to live on a ranch?” is one of the most frequently asked questions I receive from prospective clients. As a general rule, those who ask me this question are urban or semi-rural dwellers yearning to escape the rat race encroaching on and permeating […]