Analyzing Income Opportunities from Investment Farmland
April 21, 2008
Many real estate investors have been turning to raw land for possible appreciation and income opportunities, especially after the recent downturn in housing prices. In particular, farm property is garnering a lot of attention. One reason why is the variety of income opportunities that this type of raw land offers, which helps the carrying costs of this type of investment and increases the rate of return on the investment.
Obviously one of the interim uses for investment farmland is farming. The land and buildings can be rented out to farmers. If the property was recently used for farming and if there are still active farms in the vicinity, the investor can typically charge farmers a fee for growing crops and maintaining livestock there. Also, any buildings on the property such as barns or sheds can also be rented to farmers for equipment storage or other uses.
The property can also be used for recreational activities. Assuming the location and layout is appropriate, the land can generate income for activities like fishing and hunting. Other potential uses include skiing, camping, horseback riding as well as many others.
In addition, if the land has a lot of trees, then timber rights can be granted for a fee, especially if the trees are not valued for their appearance. However, it is important for the investor to avoid destroying valuable trees that improve the desirability of the site and enhance its value. Other income uses for farmland that can be considered include golf-driving ranges, miniature golf courses, billboards and parking lots just to name a few.
Like any investment endeavor the investor certainly has to do their homework. Despite the numerous income-producing uses of farmland there are situations where the investor may receive no income during the holding period. Just like many other investments, farmland offer rewards and challenges. The investor must evaluate the personal potential in farmland investing.
For instance, limited financing availability and not being able to sell when you want are certainly disadvantages. On the other hand, holding costs normally are low and there is a good probability for high price appreciation. When investing in farmland an advantage is that large acreage can be controlled with only small capital outlay but the investor must also keep in mind that undeveloped land is not depreciable.
Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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