Real Estate in Its Purest Form
Kiplinger columnist Jeffrey R. Kosnett recently mentioned McKeough Land Company in his article “Real Estate in Its Purest Form,” noting that “some of the best-sounding properties are sold directly by specialized land dealers.”
“Real Estate in Its Purest Form: Residential real estate prices may be falling, but the cost of land is going up and can be a solid investment.”
By Jeffrey R. Kosnett
Kiplinger’s Personal Finance
March 30, 2007
A few weeks ago I drove from Maryland to Florida and back. On long trips, I usually turn onto some two-lane state and county highways. This time, I had a mission: to watch for land on the market and get a sense of whether pure unimproved real estate is a plausible investment.
One of the best-performing types of investment property lately has been land, specifically farmland or rural land that can be used for recreational activities or can be subdivided into parcels for homes with panoramic views.
The lure of land isn’t a temporary phenomenon. Land has long been a desirable holding among long-term buy-and-holders who don’t need current income or tax losses and can buy for cash or pay bank-loan installments from current income. Or consider the case of a Kiplinger’s reader from northern California who just sought our opinion on a plan to take $125,000 from certificates of deposit and buy additional acreage adjacent to his six-acre country home. The beauty of the reader’s plan is that it would combine the intangible value of having the acquired property serve as a buffer against unwanted development with a plan to hold the land for 10 to 20 years and sell it, perhaps in pieces, as a retirement investment.
Realtors list land, but some of the best-sounding properties are sold directly by specialized land dealers. McKeough Land Company (www.mckeough.com), a Michigan company, has expanded rapidly the past few years and now sells recreational and second-home land in six states. McKeough buys land (often farms from heirs who don’t want to farm) and gets it zoned and partly developed so that it’s pretty much all set for buyers to build on the property. The prices vary with views and water frontage. McKeough handles the details, such as zoning matters and making sure the land perks. So it becomes more like buying a suburban housing lot than a piece of wilderness, even though McKeough’s parcels are in rural areas.
Wherever you’re looking, you can go by assessments. Whether you’re in Montana or Wyoming or North Carolina or in your home county, one of your first stops should be the local assessor’s office. Real estate agents and brokers are disinclined to talk down property, but in my experience, real estate people who have dealt in land for many years and know a lot of the local shakers are straight shooters. They’ll tell you, for example, that in a Gulf of Mexico waterfront area, the best land investments are parcels that have room for larger boats, because rich buyers who pay top dollar and don’t think about every buck tend to own bigger boats. In a semi-suburban area around Raleigh, 7% to 8% annual return is a fair guess, figures Keith Brouillard, the Carolina Forestry co-owner. The appreciation may be a little higher for land that’s close enough to the cities to attract buyers who want to build family homes and drive to work. More than an hour way from town and the prices (and the taxes) are lower. But there’s less of a scarcity factor for more-remote property, so you should figure that the value of the land will appreciate more slowly.
Two other aspects of land investing to consider are financing and foregone income. Land isn’t like a house with a traditional mortgage. You can borrow to buy land, but the interest rates are generally a couple of percentage points higher than on buildings and the term may be shorter. Land dealers, like realtors who sell houses, may have relationships with local banks and can help you find the money.
Owning land gives you a lot of flexibility and comes with some terrific intangibles, including a sense that you really own a part of America. As I drove on U.S. 401 in North Carolina between I-95 and Raleigh, I saw a lot of really beautiful tracts for sale, interrupted by little villages with neat stores and little cafes. Who could resist the picture of a custom-built house with green views in every direction, with breakfast on the deck, buffered by acres and acres of nature?
Excerpted from Kiplinger.com with permission on March 30, 2007.
