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The Rush to Invest in Land

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The Rush to Invest in Land
« on: July 25, 2006, 07:12:34 PM »
Behind a firewall, can't get to the actual article unless you are a paying member...  Article mentions West Texas and how the land values are increasing - BUY NOW!

July 22, 2006

The Rush to Invest in Land

Undeveloped Plots Draw Buyers
As the Housing Market Softens;
The 'Jed Clampett' Problem
July 22, 2006; Page B1

The real-estate market has a new cry: Land ho!

As the nation's housing market cools, there's a rush to snap up undeveloped property as buyers stake their claim on everything from New England creek-front parcels, to mountainous woodlands in Tennessee, to big-sky vistas in Montana.

Some people are buying dream lots now, while the land is available and prices affordable, with plans to one day build a vacation or retirement home.

Others are investing in recreational property they want to use today: In rural west Texas, for example, scrubland that wouldn't even sell a few years ago has become so popular with deer hunters and the offroad-vehicle set that it now fetches premium prices from buyers flying in from Florida, Illinois and California.

Keith and Mary Payden of Minneapolis a few years ago bought 35 acres of land in a wooded canyon in southwestern Colorado. They've put in a well and set up temporary living quarters above a barn to use when they visit. "This is where we want to spend our retirement," says the 59-year-old Mr. Payden, an information-technology consultant. The land "fits our hobbies, since there's horseback riding, skiing and golf nearby." Their eventual plan: Put up a small house they can use there.

In the face of demand like this, prices for undeveloped land in many parts of the country are shooting up. Around the country last year, farmland values rose at their highest year-over-year rate -- 11% -- since 1981, according to the Agriculture Department. Rural land in Texas hit a historic high of nearly $1,500 an acre on average last year, up about 75% since 2000, according to Texas A&M University Real Estate Center.

Robert R. Johns, a 68-year-old retired gas-pipeline worker, recently bought 400 acres of corn and soybean fields in central Illinois. The land, which the Johnses lease to farmers, serves mainly as an investment, generating what he expects will be rental returns of as much as 5% a year plus any long-term price appreciation.

But the couple, who live near Chicago, also enjoy visiting friends and shopping for antiques in the area, and plan to park a camper there to visit, "almost like a weekend vacation."

In some ways, buying land and buying a second home are similar. Both are capable of generating income -- a house through rental income; land through leases for farming, hunting, fishing, ranching or mineral rights. And in both cases, the first three rules of a successful purchase are location, location and location.

Some buyers are heading farther afield to find affordable acreage. Charlie Chernak, owner of Bear Island Land Co., in Ely, Minn., near the Canadian border, says "remote backlands are now becoming popular because people are getting priced out of lakeshore properties."

Land also comes with its own set of snafus that can quickly turn a picture-perfect parcel into just that -- something that's pretty to look at, but not much else. Among the important questions: If you plan to build a vacation home there or eventually live there, can you get electric power onto the property? And can the land support a water well and septic system?

What's more, land might make a good investment, but it can be a lot harder to sell in a pinch than a house, since fewer people are looking for land.

The U.S. has roughly 1.5 billion acres of rural land, excluding public lands, representing about 65% of the country. Prices vary widely: Rural land can fetch $250 an acre in the brush country of far southwest Texas, to $3,000 an acre for timber and pasture land in Iowa, to a scenic, 37-acre property in southwest Colorado straddling both sides of a river for nearly $27,000 an acre.

Of course, not all plots are in the depths of the wilderness. Wagner Brothers Land Co., in Dunlap, Tenn., charges $20,000 to $30,000 an acre for parcels in the mountains north of Chattanooga that come equipped with utilities, but no house. In Colorado, ranch-size properties overlooking the snowcapped La Plata Mountains are attracting buyers from Hawaii, Florida, California and Arizona, says developer Durango Alpine Realty. These tracts, which are a minimum 35 acres, generally go for $10,000 an acre.

In some circumstances, it can make a lot of sense to buy land well in advance of your intention to build on it, especially if you find a scenic plot you're particularly fond of. Over the course of years or decades, the price of the land is likely to escalate faster than the cost of one day building a house on it. On undeveloped land, real-estate taxes are typically lower, and you have no expenses for electricity, water and insurance.

There are many pitfalls. First, even before you buy, consider having a survey done of the land you're interested in, or at least work through a local land agent who knows the area and terrain. Property lines aren't always well defined, and soils may be too wet to support a building in the spot you really want to build.

Also, pay attention to how you access the land. In some places, makeshift roads that cross a variety of property lines have become semipermanent through the years -- although nothing about them is legal. As a result, you may not have legal access to your property, resulting in lawsuits.

In urban developments, lots are often zoned to prevent certain types of construction or businesses. But that's not always true with rural land, meaning you could find one day that your dream property is bordered by a new mobile-home park. A local real-estate agent with land expertise will know the zoning and covenants in place.

Land prices often don't move in the same way home prices do. Despite the run-up in recent years in some housing markets, home prices are typically expected to rise alongside the rate of inflation. But with land, price appreciation is traditionally more closely tied to how much money it can generate from activities such as farming or grazing. And in general, land prices, when they cool, don't tend to fall as much as an overpriced residential market might, largely because while a housing market can be overbuilt, land can't.

Increasingly, however, recreational demand is defining land prices. Land has become such a popular investment "that if prices keep going up at the same pace, we could see a bigger correction than we'd want to," says Clint Bumguardner, president of West Texas Appraisal Associates, an Abilene, Texas, firm that appraises land from Texas to Montana.

One final consideration: Mineral rights. In some instances -- particularly in energy-rich Texas and the Rocky Mountain states -- sellers retain the rights to oil or minerals buried beneath the land you own. This can have ramifications years or decades later. Not only does it deny you your own Jed Clampett moment of discovering bubbling crude oil and striking it rich, but more importantly it means that the owner of those mineral rights can drill or mine on your property, and you must allow it.

John Bailey, an officer at J.P. Morgan Chase & Co.'s Specialty Asset Group, recently bought grazing land for himself 100 miles west of Fort Worth. Part of the property came with mineral rights, but the other portion didn't, which means the owner of those mineral rights must be allowed to come onto the land and drill for oil and gas.

Mr. Bailey points out that "they must pay you surface damages" for the loss of land use. "At your Shangri-la, you must be cognizant of this issue," he says.

Write to Jeff D. Opdyke at jeff.opdyke@wsj.com1

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