Jonathan Goode- Land for Sale in West Alabama

An Ounce of Gold or an Acre of Land?

Yesterday I noticed that the price of gold has risen to $1600 per ounce, and the thought struck me that land in my part of west Alabama is selling for approximately the same price per acre. I posed the question to two local business owners whether they would rather own an ounce of gold or an acre of land. Both men responded that they would rather own land. This is an intriguing question about investing and value.

Full disclosure, I am not a research economist, an analyst, or an investment advisor; I am a real estate agent that specializes in selling rural land, so here is how I approach the answer to the question.

 The Caprice of Gold

 Gold has been a highly prized commodity for several thousand years. Gold matches well with the criteria Aristotle laid out for a good money in that it must be durable, portable, divisible, and have intrinsic value. Gold is a good store of value, and its scarcity has contributed greatly to the desire of people to own it.

 From a layman's perspective the price of gold seems to rise when there is a decrease in the confidence in the strength of our nation's currency. Gold began its current run up in price in 2001 at $265 per ounce and has climbed to a high this week of $1602 per ounce. That meteoric rise is being touted by experts as a reason for investors to jump into the gold market. I question that logic for 3 reasons:

Gold is at an all-time high. The real estate market bust that we are in has made me skeptical of buying anything at premium prices. If the market goes south, who is left holding the bag?

Gold is Capricious. In 1981, the price of gold had been experiencing strong gains, right before the bottom fell out and gold lost 2/3 of its value in one year. It wasn't until 2006, that gold actually reached the price it had seen 25 years before. For gold to have any value, you must have other people who are willing to agree to the value of your commodity. When an item is assigned great value but has little utility, I am always cautious.

Gold has a historic bull's-eye on its back. Feel free to disagree with me on this point, and yes I do know our currency is not tied to the gold standard any longer, but hear me out on this. 1n 1933, President FDR signed an executive order making it illegal for any citizen of the US to own more than $100 worth of gold. It wasn't until about 1974, that citizens were allowed to own gold again. With the recent spikes in gold prices and the falling value of the dollar, it seems plausible to me that trading of gold could be more heavily regulated with price controls or even stopped if the government decided it was in their best interest. I would simply cite the increased government attention at regulating the speculation buying of oil as support for that argument.   

The Utility of Land  

 I like land as an investment for several reasons.

Land has utility. I am a function over form guy; you can tell that from my wardrobe, from my vehicle, and what I spend my money on. I believe in investing in land because you can grow food, timber, find water, mine useful substances, shape it, hunt and enjoy it. Land can sustain your life or your livelihood in many ways. Just last week I was talking with a farmer from Iowa who is having his best corn harvest ever at 220 bushels to the acre. That is a staggering amount of corn from an acre of land. Corn is just one of dozens of useful and essential commodities that can be grown on your land.

Land is historically a sound investment. Most people have heard the old saying, "Buy land, they're not making any more of it." Land has a certain degree of scarcity that contributes to its value, like gold and other precious metals. The USDA reported the average cropland price per acre in Alabama in 1997, was $1270. In 2010, the USDA survey shows a $2700 per acre price for cropland in the state. That is a 112% increase in price over the past 14 years, for a nominal rate of return of 8% annually through that period.  

Private land-ownership is essential for our government to function. Local governments across the nation depend on private landownership to stay in business. Each local government appraises real property and assesses ad valorem taxes on landowners. These property taxes are used to fund schools and other essential government functions. It is highly improbable that the right to private landownership would be denied or that vast amounts of land would be taken by imminent domain. Where the government might see a potential threat to its currency in a commodity like gold, private landownership would still be an essential revenue stream for local governments.   

Land equals Opportunity. America has been called "The Land of Opportunity", and I would say that land equals opportunity. It is exactly because of the historical value and multitude of uses of land that it presents so many opportunities as an investment. You have flexibility (in some types of soil) to grow row crops, or graze cattle, or plant trees based on whatever has the highest rate of return. Land has potential for development and there is always a highest-and-best-use consideration for a property. Owning land is an avenue to having revenue generating streams as well as possessing an asset that has real value.

John D. Rockefeller is quoted as saying, "The major fortunes in America have been made in land." I tend to agree with his assertion, after all he managed his wealth successfully. Given the choice between an ounce of gold or an acre of land, I take the land every time.

In order to get the best deal when investing in rural land, you need to be able to act quickly when an opportunity presents itself. Being able to decide on the spot whether a property is the right investment can mean the difference between making tens of thousands of dollars and missing out completely.

In the last week I dealt with an investor that missed out on a prime opportunity and also spoke with another one that hit a home run and doubled his money in a few weeks.

A few weeks ago an agent informed me about a new listing on some hunting land in Perry County, Alabama. It was priced as a wholesale buy, so I went the next day to preview the tract. On the way I called a buyer I had been working with for a year to let him know he should be ready to move if this tract was good. As I walked the land, I was impressed with the mature timber and potential the tract offered. This was a no-brainer as an investment. My buyer looked at the tract and 2 days later made an offer. He tried a low-ball offer to "just see" what they would say. The sellers finally countered back 2 days later at full price. My buyer waited a day and agreed to their terms. Over the next 36 hours it all fell apart. The sellers decided they needed $40,000 more than they were offering the property for originally. Due to some behind-the-scenes advice from a relative the sellers decided they were pricing their land too low. I firmly believe that if we had made a full-price offer on the spot, we would have been able to close the deal. Had we not taken a week to come to terms, I believe we would have been able to flip that property quickly and make a tidy profit.

The investor that made money previewed a relatively small timber tract that happened to be loaded with mature timber. He negotiated a price of $1000 per acre for the tract. The timber value alone on the tract was worth more than double what he paid for the land, and he sold the land to an adjoining owner after he cleared the timber. They only held the property long enough to harvest the trees and then sold the tract. After all was tallied they got a 100% return on their initial investment. He was able to do so well because he saw an opportunity and acted quickly to secure the deal.

The moral of this story is: Prepare yourself so that when an investment opportunity arises you can quickly evaluate and act on it. Here are a few things you can do to help you be ready when the right deal comes along.

1. Educate yourself about the Rural Land Market. Browse land listing websites, talk with a land agent, get comparable sales information from lenders. The key is finding out what people are currently willing to pay for land in your area.

2. Clearly outline your investment objectives. Is your desire to turn a profit quickly or achieve a maximum return? My personal philosophy in this market is: "Buy low, sell low." If an investor is seeking to make gains in the short-term, the tract needs to be priced lower than competing properties. If the objective is to maximize profits, then an investor needs to be able to buy and sit on the asset until it appreciates.

3. Identify your target market. Who would be interested in a property of this type? What do potential buyers expect when looking at rural land? Is a tract set up for hunting, timber, horseback riding? Does the property offer power, utilities, trails, road frontage, easements, surveyed boundaries, a water feature, or food plots? The presence or absence of these features affects pricing, and should be factored into your decision to invest. Assess the features and who would be interested in purchasing land like that.

There are many other components to making good investment decisions and many ways to make money buying and selling rural land. If you look long enough and know what to search for, the right opportunity will eventually present itself. By doing your homework on the front end and staying current on the rural land market you can increase your chances of being ready to pull the trigger when the right ones come along.

If you would like more information about what is happening now in the rural land market in West Alabama, please feel free to contact me.