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Land Investing Draws More and More Interest

The article below is an interesting one that came out in Business Week. We have been seeing an increase in the investing in land go on for a few years now. You just don’t see that many people writing about it. There are not many places where land values have not increased in value at percentages greater than the stock market has performed. Historically, when real estate prices gain a good amount of momentum it’s usually because of one main reason pushing it (like oil). This Land Grab is interesting because there are a few different factors affecting it all at once.

We’ve witnessed all of the following reasons that have fueled the great increase of land purchased:
1.) Baby boomers retiring ro rural areas
2.) Second home purchasing for recreational use
3.) Stock market performing poorly
4.) Ethanol production
5.) Increase in the US oil production

All of the reasons lead to one result: supply decreasing which in turn drives demand up even more. Check out the article below. Let us know if you feel the rural real estate market is getting hotter or colder. We just can’t see a slow down.

Up On The Farm from Business Week by Emily Thornton

Here’s the dirt on where the real smart money has been heading lately: It’s going into the ground. Since 2000, the average price of U.S. farmland has zoomed 74%, to a record $1,900 an acre, while the benchmark Standard & Poor’s 500-stock index has risen only 7%.

Prices are soaring, in part, thanks to demand for corn for biofuels and for building sites for new homes. That raises the chance that prices are at a peak. Beyond that, farmland is inherently risky: Crop cycles are variable, and tenants often have trouble paying rent in poor harvests. “It’s the volatile end of the more volatile end of real estate,” warns Alan Dorsey, the alternative investment strategist at Lehman Bros. (LEH ).

Still, high-net-worth investors hoping to diversify their portfolios are buying farmland because the returns are not correlated with stocks and bonds. A small but growing group of advisers is helping them plant their stakes. Many of these advisers predict it will still be possible to reach annual returns on U.S. farmland of about 10% to 12% over a long investment horizon. The current rally in agricultural commodities could drive returns significantly higher. “The vehicles to invest in farmland are limited now, but will grow in 2008,” says Cynthia Steer, chief research strategist at pension consulting firm Rogerscasey.

At the high end–a minimum $40 million investment–one option is a separate account in which to build a portfolio of properties. For a management fee of roughly 1%, Boston’s Hancock Agricultural Investment Group (MFC ) will assemble 10 to 20 U.S. farms in diverse locales that produce a variety of crops. Westchester Group Inc. in Champaign, Ill., works with individuals aiming to invest several million dollars to build their own farm portfolios.

Below that level, you might get more diversification from a pooled investment. For example, Soy Capital Ag Services in Kankakee, Ill., is raising a farmland investment fund to acquire Midwestern properties. If you’re set on a single property, Hertz Farm Management in Monticello, Ill., will help individuals willing to spend $200,000 find a farm, though a quality parcel runs $400,000 to $500,000.

The boldest investors are going into emerging markets. Hertz Chairman Joel Hertz picked up 14,000 acres in Brazil for a group of individuals who each contributed a minimum of $25,000 to a roughly $15 million private placement that is not yet entirely invested. Don’t worry. The group is not clear-cutting the rain forest, but acquiring existing farmland far from it. Says Hertz: “It’s a place of opportunity.”


Tuesday, February 17th, 2009 Land News