Low interest rates, for one. In addition, says Texas A&M
University's Dr. Charles Gilliland, "a general lack of
lucrative investment alternatives makes the decision to
acquire land less costly than when stocks are booming."
It seems even high oil prices and the threat of interestrate
hikes have done little in recent months to slow the
enthusiasm for land across the South.
That enthusiasm is translating into higher prices. The
price of an acre of rural Texas soared 16 percent last
year, rising from $1,097 in 2003 to $1,274 per acre in
2004, according to the Texas A&M Real Estate Center.
That price surge is the largest single-year percentage
increase since 1974.
"The farming is pretty much status quo in this area, and
we're seeing buyers of recreational land becoming the
main drivers of land values," says Jeff Lott, senior vice
president of credit operations for the FLBA of South
Alabama. "We have buyers from surrounding states,
particularly Florida, who are looking to relocate to an
area where they can have a larger acreage base."
In this hot market, the key to making smart property
purchase decisions is to buy based on facts and information,
1. Research the market.
Because prices are rising, some sellers purposely
overprice their property hoping to catch the upward
trend. "Remember that the listing prices are simply
what people are asking for the properties. These prices
don't always reflect what properties are selling for," advises
Tim Knesek, senior vice president of Capital Farm
Credit in La Grange, Texas.
Find an experienced local Realtor who knows the marketplace.
Ask your Realtor for recent comparable sales in
the area before making an offer. Check with the county
appraisal district for their valuation on properties being
considered. And review the local multiple listing service.
2. Check into infrastructure.
Rural properties don't have city water and sewer
service and may have limited or no access to electric,
phone, cable television and high-speed Internet
services. Ask about road maintenance, trash pickup and
school bus routes.
3. Look for improvements.
Don't underestimate the value of existing barns,
camp houses and other improvements already
on the property, which can be very expensive to build
new. Most counties require permits for installing septic
systems and wells. Before buying a tract without water
and sewer in place, get estimates from local contractors
and talk to neighbors to find out typical well depth and
septic systems required for the local soil conditions.
4. Know codes and restrictions.
If you purchase rural property with the intent to
subdivide, check county subdivision laws and possible
extended territorial jurisdictions of surrounding
municipalities that may govern the area. Check for any
restrictions on the property you are considering. Take
the time to consider how the restrictions could affect
you and how they could be viewed by future buyers.
5. Take advantage of property tax
Every state offers some type of agricultural
property tax relief. All are geared at lowering the
taxable value of agricultural production land, and
reducing the property taxes on that land. Check with
your local tax assessor to determine if your potential
purchase may qualify for a tax credit, special appraisal
or direct exemption. If it has existing ag-use tax exemptions,
learn the steps for maintaining those exemptions.
Beware that some commercial lenders require the
buyer to rescind the exemption before making a rural
home loan: not so at Farm Credit.
6. Shop insurance rates.
Many insurance carriers will not write homeowner's
coverage outside the city limits. Farm Credit
lenders and local Realtors can recommend insurers
who offer rural property insurance.
7. Know your surroundings.
Pay attention to the land use and restrictions,
or the lack thereof, on neighboring tracts. Is
there an intensive livestock operation next door?
Does the property front a noisy highway, or proposed
highway? Is commercial development allowed on
"If you buy a piece of property and discover later
that there is a nuisance next door, it can give you real
problems when you try to sell it later," says Lott, in
8. Investigate environmental factors.
Two primary potential environmental concerns
are the presence of endangered species, and environmental
contamination from actions of previous landowners.
"Areas designated for endangered species can be
very restrictive in the use of your property," notes Knesek,
potentially impacting your ability to clear brush, add
buildings and fully enjoy your property.
Lott agrees. "You might think there is a lot of timber
value on the property, but if an endangered species has
been identified there, such as the Red Hill Salamander
that resides in some areas of South Alabama, you may
not be able to harvest the timber."
In addition, federal law holds landowners accountable
for cleaning up environmental contamination, even
when it occurred before they owned the property. Buyers
can get some protection from liability for environmental
clean-up costs by taking steps to determine any environmental
hazards before the purchase.
9. Set a realistic budget.
In addition to the initial purchase price, plan on
ongoing costs for maintenance and improvements
like fencing, ponds, outbuildings, new appliances, landscaping,
furnishings and general repairs. "Be prepared
for the cash needs for the property after your purchase,"
says Knesek. "Owning rural property is usually not a
It's best to plan ahead if improvements are needed. "If
the property you buy is not as improved as you'd like
it, consider what it's going to cost you to make the improvements
you envision. Also, consider real estate taxes,
upkeep of roads and planting game plots. All of those
things can be costly," Lott says.
10. Use local experts.
When it comes to buying and financing rural property,
go local whenever possible. Local Realtors
know the market, comparable sales and history of area
properties. Local lenders like Farm Credit understand
the nuances of rural lending and structure loan programs
specifically for rural property owners. "We can
review all the considerations with them and help them
protect themselves," says Ed Nelson, vice president and
branch manager of the FLBA of South Alabama office in
Montgomery. "From referring them to lawyers or putting
them in contact with someone who can help them manage
their timber, we've got a lot of beneficial relationships
that they won't get if they go elsewhere."
In addition, "many Farm Credit lenders grew up in, or
have lived in, the areas in which they have worked for
years, and that level of local knowledge can be invaluable
to a buyer," says Knesek. "Our goal is to not only save our
customers money with competitive interest rates, but to
offer advice and input that allows them to make decisions
that will help them avoid potentially costly mistakes in
their land investments."
- Sue Durio