Land Investment--How to Grow Your Portfolio By Owning Land

October 27, 2020

The benefits of land ownership as a long-term investment strategy

Your income-producing land as an investment strategy—farms, ranches, resorts


Income is important, but investment returns are a critical component of land ownership


Almost 20 years ago, I was a new landowner. At the time, I was a busy wilderness outfitter running a herd of 45 horses. We had been leasing winter horse pasture and it was getting expensive to board our horses over the winter. It was time to buy some land. Once the purchase was made—118 acres of irrigated ranch land—the old rancher who sold us the land took me aside. “You may think you’re buying land to raise cattle or board your horses,” he said, “but in truth you have now become a land investor. After it’s all said and done, this will be one of the biggest investments you’ll ever make. The day you sell your land is when you will realize the value of this investment.”


Land appreciates in value over the years—a solid investment strategy


Recently I spoke with a very savvy investor and asked him about his successful strategies over time. He had built commercial properties and subdivisions and done very well. However, he said, “Over time, the farmland that we bought has been one of my best investments. In the 20 years since we bought land, it has tripled in value.” My experience mirrors his. If someone asks me what I paid for my land, I’ll tell them, and usually their jaw drops. “You stole it!” they’ll say. “I wish I could have bought land at that price!” Well, today is a new day, and 20 years from now, someone else will be saying the same thing.


Income returns in addition to investment returns = solid investment performance


If you just bought a piece of land and walked away from it for 20 years, paying the taxes and keeping it maintained, you would still probably make money on it. However, income-producing land is highly sought after and can produce rental returns. In farm states, it is very common for tenant farmers to rent land from absentee landowners and pay a decent cash rent. In some areas, it’s enough to pay the taxes and maintenance, where in other areas it can produce a return of 5% or more. However, when you combine rental income or passive income with annual appreciation, land investment can be a whopping return. AcreValue calculates an average annual return of 11.5% over the past 30 years. That beats the heck out of the stock market.


Land can be bought in a self-directed IRA using financing to leverage your purchase


It’s possible to enjoy the tax benefits of an Individual Retirement Account—which most people relate to investing in the stock market—with land investment. Ask your tax professional about how to set up a self-directed IRA and add land to your portfolio. Most investment advisors hate this idea because you’re thinking for yourself and they don’t make a commission if it’s not a stock investment. In truth, it can be a great strategy to increase your net worth and long-term portfolio. You can also use financing to buy land. Let’s say you put $200,000 down on a million-dollar farm and it appreciates 5% a year in value while the cash rents make the payments for you. That’s a $50,000-a-year appreciation when you only put down $200,000, or 25% a year on your real investment.


Creativity can create income—hunting leases, “glamping” sites, AirBnB rentals, horse boarding


There are many ways to optimize your earnings on a tract of land, whether you farm it yourself, lease it to a farmer, harvest the timber, or lease it for hunting. Many landowners are now exploring the idea of allowing guests to enjoy their property, using it as a private campground, AirBnB rental, or wedding venue. Have you heard of “glamping” sites? That’s the concept of a luxury or “glamorous” campsite for city dwellers to come to the farm and have a tricked-out camp already set up for them. A friend of mine has set up several glamping sites on his property, and he’s raking in $750 a NIGHT from his campers! Personally, while my wife and I raise hay on our property and do make some money from hay sales, our biggest money-maker is Labrador retrievers.