1/11/15: Dirt to Dollars – Investing in Raw Land that Cash Flows

Best-selling author James Rickards (Currency Wars and The Death of Money) recommends land as a place to store and protect wealth from the dangers of paper currencies.

A falling dollar creates financial turmoil.  James Rickards recommends land as a safe haven.In spite of the recent blip up, the dollar has a 100 year history of going DOWN, so it probably makes sense to “sell” dollars when they’re “high” and buy real assets…like real estate…especially when those real assets are on sale.

BUT…the challenge is that land doesn’t cash flow like little green houses.  Or does it?

In the broadcast barn to explore how to get more green from your acres:

  • Your erudite host, Robert Helms
  • His not-so-glamorous co-host, Russell Gray
  • Special guest and renowned financial commentator (The Gartman Letter), Dennis Gartman
  • Special guest and agricultural land expert, Steve Bruere

The beautiful thing about real estate…one of many beautiful things…is there are SO many different ways to make money.

Real estate investors can do just about anything a paper asset investor can do, but be much more insulated from the corruption and rigging in financial markets.

Most people think of real estate investing as the house they live in…maybe a second home…or even a rental property.  More serious investors look at multi-family, commercial, retail…and maybe even industrial.

But if you think back to the very beginning of real estate ownership, the PRIMARY purpose of land was to produce food.

And last time we looked, food is still a pretty important commodity.

So while residential real estate investors…landlords…need to pay attention to jobs and wages, agricultural real estate investors (and mineral investors…like oil and gas producing properties) need to pay attention to commodities.

It isn’t really more difficult than employment and wages.  It’s just different.

And if you want your land to cash flow, you don’t need little green houses or big red hotels.  You can rent your land to farmers.Make your land cash flow by renting to a farmer

This is a subject that’s intrigued us for quite some time.  When financial markets are jittery, it can be smart to focus on “primal” investing…things that are essential to human existence.  Because even in difficult financial times, there’s always a demand for essentials…like food and shelter.

Dennis Gartman is the author of The Gartman LetterIn this episode we visit with Dennis Gartman, who’s one of the most well known and respected financial commentators.  We ask him about macro-economic factors which impact not just farmland and commodities, but residential real estate as well.

You should listen to his comments, but the short of it is he likes housing.  Cool.  So do we.

Next up is Steve Bruere.  Steve is a very experienced farmland broker from America’s heartland.Steve Bruere is a land broker with Peoples Company

We’ve been talking about agricultural investing for the last couple of years, but haven’t focused much on U.S. farmland.  Steve helps us understand some of the how and why of U.S. farmland investing.

More mouths to feed means perpetual demand for food and famrlandWhen we look at the world, we see more mouths to feed.  And while we’re not quite sure where all those mouths will want to live and work, we’re pretty sure they’ll all want to eat.

And because the fruit of the land can be shipped to where the people are, farmland investing can be a great way to get in on the action without having to rely upon the local economy.

Just think about investors with properties in the Bakken.  If oil prices stay down long term, North Dakota might not be very profitable for real estate investors.

Another nice feature is that renting to a farmer is like owning a hotel property and renting to a hotel operator…or like renting a commercial property to a business.  EXCEPT…you don’t have the tenant improvements and other expenses of maintaining a physical structure.  It’s more like a NNN lease.

So farmland investing can be a great way to store wealth in real estate long term, while generating cash flows while you wait.  And if the the local path of progress brings people to your pasture, then you can put up some buildings…or sell to a developer…and move your equity to a new market.

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5/18/14: Lots of Real Estate – Strategies for Investing in Land

Land investing is a very unique aspect of real estate investing.  Raw land typically doesn’t provide income or tax breaks.  And without a tenant to make the payments, there’s no amortized equity.  Besides, with no income, borrowing to buy land can be risky business.

So why do it?

Well, as you might suspect, there are…lots of reasons.

In the studio for this episode of The Real Estate Guys™ radio show:

  • Your well-grounded host, Robert Helms
  • His dirt-poor co-host, Russell Gray

While the Holy Grail of real estate investing is passive income, it takes equity to acquire those income producing properties.  And it’s wise to have adequate liquid reserves to handle maintenance, repairs, turnover and marketing.  Of course, if you use debt to acquire your income properties (and why wouldn’t you?), then you’ll need to have additional reserves to service that debt when the property is sitting vacant.  So liquid cash (currency of something else that is readily convertible into currency) can be pretty handy.

Of course, once you have all the currency you need, not to mention that once your empire of income properties starts pouring out piles of positive cash flow, you might want a place to park some of that money for the long term where tenant and toilets aren’t involved.  Someplace not subject to counter party risk…and in something that will retain it’s relative value, no matter what happens to the currency.

Land can be a great place to store long term or generational wealth.So reason #1 for buying land is long term preservation of wealth…even generational wealth.  Think of it like gold or fine art.

In fact, if you’ve been listening to James Rickards (author of Currency Wars and The Death of Money), he’s an advocate of using real assets (versus paper currency) as a means to store long term wealth.

In other words, instead of building up a savings account full of dollars, convert those dollars into real assets by buying things like land, precious metals and fine art.  His point is that these items have a long term history of being relatively safe stores of value in unstable economic times.

Of course, if you’re strategic about the land you buy, you could end up doing more than simply storing value (hedging against inflation).  You might actually make a profit (appreciation) as the land becomes more desirable (location and path of progress).

And if you’re feeling more ambitious, you could “force equity” by improving the land.  This could be as simple as sub-dividing, changing the zoning or acquiring other entitlements.  In this case, the land might appear completely unchanged to the naked eye.  But the legal rights and permissions associated with the land could make the land more valuable to the next buyer.

Of course, that brings up the question of exit strategy.  One of the basic tenets of real estate investing is not to get into a deal you don’t have at least one (and preferably more) clearly identified strategies for getting out.

When it comes to land, the best way to think about possible exits is to understand the life cycle of a property.  Of course, land almost always lasts forever, so you could argue the life cycle is forever.  But for our purposes, we’ll think of land as starting out as raw (no entitlements of infrastructure like sewer, power, streets, etc).  From there, it becomes entitled, infrastructure is added directly on the land or nearby, improvements (buildings) are added, and eventually human beings live, work or play on the property.

Most people think of real estate only in it’s “finished” state (ready for human use).  Land investors see the whole cycle.  And each step along the way, value is added to the land.  And anywhere along the line, the original land owner can hand off the development baton (sell) to the next guy who’ll take it to the next level.

Obviously, the closer the land gets to a finished product (and depending on what the finished product is), the number of potential buys grows and the property becomes more “liquid” (easily sold and converted to cash).  Like a bus, you can get on at the beginning, in the middle, or near the end, and ride as long as you like.

Land investing is usually long term which makes it ideal for retirement funds.  Especially because tax advantaged accounts don’t really need the tax breaks…and land doesn’t provide any.

But land, like any asset, can also be flipped quickly for a profit if it can be acquired or controlled at a price below what someone else might be willing to pay.  Again, keep in mind that there are typically fewer buyers at the front end of the life cycle.  Of course, you only need one!

One final note…

In addition to being a long term store of wealth, land can also be a powerful part of an international asset protection strategy.  As FATCA compliance descends on the global investors, land is an asset which remains more private and unattractive to revenue starved governments than off-shore bank and brokerage accounts.  So if privacy and asset protection are high on your list, you might consider using off-shore land as a place to store long term wealth.  Who knows what that little Caribbean island will be worth some day???

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