How the Principles of Timing, Tax-Advantages & Financing Multiply Your Profits
Sometimes referred to as the “donut,” transitional land typically refers to agricultural land or wooded property that is transitioning to a higher and best use such as municipal development, residential development, or commercial / industrial development. The investment into farmland or undeveloped land requires proper due diligence and typically thinking with a long-term strategy. The estimated value and price per acre of farmland or undeveloped land in the transitional market is varied and in today’s market covers a wide range.
Land real estate can increase and shift in value for a variety of reasons. Typically these include a change in zoning, installation or expansion of roads, city utilities and the proximity effect of a new development.
When land goes from a non-use to a use or from limited-use to a higher and best use, there are increases in value. Owning land in this transitional period is vital to a higher multiplier of profits.
There are several tax advantages your investment into transitional land will have. Taking advantage of these benefits is key to real estate investments. Whether you are leveraging your purchase, utilizing a 1031 exchange for capital gains, or considering the variety of deductions to a hedge against inflation – transitional land represents one of the best opportunities for profits when appurtenances that qualify for depreciation are taking into account.
One of the most important factors in realizing higher profits is working with the right buyers at the right time. Whether they are investors, developers, builders, businesses or the end-users of the land, consulting with a land brokerage firm and land advisor with a network of these buyers is another key to success.
While every buyer of investment land and transitional land has a unique set of financial circumstances, there are many nuances to financing that factor into greater resale profits. From prepaid interest and interest only financing, savvy transitional land investors are very successful at pyramiding the profits from a land investment into greater and greater profits.
All said, the major emphasis on transitional land investment should be timing. A great first step is to build a relationship with those that are knowledgeable in the local land real estate market. Keep in mind that your land broker regularly works with buyer and sellers who have a successful track record in long-term planning to realize transitional land profits.
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Professional Land Broker & Advisor Johnny Klemme is a Published Author & Purdue Graduate
His reporting, interviews with Land & Real Estate experts, an advisory column and more can be found at www.PrairieFarmland.com/blog
Opportunity to invest in Indiana farmland is very strong. Today’s market has many similarities to the late 1980’s, where big changes and innovations in technology, data, and management are combining with market and economic factors of the global ag economy. Historically, by taking the long-view, farmland investments during similar time periods have lead to strong upticks in land values, cash rents, return to land and have been a strong hedge against inflation.
Food production from quality Midwest Indiana farmland has become increasingly significant as worldwide populations grow, climate changes affect production in the Western United States, and new technology or data science gain a strong foothold in agriculture. As such, great opportunities for investing in Indiana farmland exist today for a chance to take advantage of a period of growth, appreciation and cash flow. Historically, during times of inflation, land investments have increased as much as one and a half times said rate and are considered a vital part of an investment portfolio. This said, investing in Indiana farmland is not for everyone and those that do so understand that informed decisions are more profitable.
The fundamentals of farmland investments can be boiled down into a few key areas that a professional land broker should be well versed, adept and savvy in. Whether you are investing with cash or doing a 1031 tax deferred exchange, experience and know-how are key to profitability.
It has always been said that we do business with people that we know, like and trust. This is especially true for farmland investments. A balanced knowledge of agriculture, business acumen, the local land real estate market, and soils are key to long term profitability – as professional land brokers since 1977, we have the knowledge, experience and know-how to identify the right farms and just as important, how to steer you clear of the wrong farm land investments.
Seasoned land brokers excel at identifying farms that will provide reasonable cash returns with minimal to zero improvement costs. First time farm land investors greatly benefit from buyer’s representation where experience in the nuances of drainage, tile and soil improvements can make a significant impact on your bottom line and increase cash returns. Understanding historical data sets from prior tenants are increasingly important to savvy investors. When you choose a land broker, their knowledge of locations, soil types, drainage and farm data should be noticeable.
Not all soils are created alike; therefore it’s important to remember that farms in one area of Indiana can be completely different from farms in other counties. West Central Indiana counties such as Benton, Tippecanoe, Newton, Carroll, White, Warren and Montgomery contain soils that have the highest production value, price per acre and cash rents in the state of Indiana. The prices per acre for farms in these counties have a direct correlation to the production value of the land. Therefore, it is imperative that the land broker representing your purchasing interests be very familiar with area and maintains great relationships with local farmers and landowners.
Investing in farm land is a serious endeavor and attention to detail can mean the difference in as much as six figures worth of returns down the road. Investors deserve first class service from a land broker that can deliver on the details. Land brokers worth a darn do more than shuffle paperwork, they have the right tools to do the job, the ability to gather proper information, research and analyze major components of profitability such as soil type, soil drainage and tile systems, as well as cash rent rates, commodity and market expectations – most importantly, a professional land broker can tell you how these factors affect current and future land values.
Farm land investing requires thinking long-term. As you read this article, Indiana farms are being sold at prices that are prime for reasonable annual returns and potential increase in future value (appreciation) and price per acre. Opportunity exists today that may not be here tomorrow as inventory is low and more and more buyers enter the market – purchasing land we list for sale in record time frames. Farm land real estate experts agree that the long term outlook for farm land investments is very strong and the time for investment opportunity is today.
For more information Call or Text 765-427-1619
Johnny Klemme is a published author, graduate of Purdue University and Land Broker specializing in farm ground in West Central Indiana. Born and raised on a local farm, his commentary, interviews with Ag experts & reporting on issues important to farming and farmland real estate can be found at www.PrairieFarmland.com/blog
Committed to helping you achieve the highest returns
As the leading experts in farmland and wooded property sales & auctions in Indiana, we provide a complete range of buyer’s representation services for the acquisition and investment opportunity for Indiana Farm land and other agricultural farm investments.
Many people ask us about the tax saving techniques know as a “tax free exchange”or “1031 exchange”, or “like kind exchange.”
When selling farmland real estate in Indiana, this is an excellent way to save on capital gains tax, if you qualify. The “1031” comes from the Internal Revenue Code, Section 1031. It allows a person to defer paying taxes on the gain that may occur when selling real estate, or in our case farms in Indiana.
What questions do you have on 1031 Exchange? This book helps!
For Example: If you sell a farm, for example, for a million dollars and your cost/basis is only $100,000, then you would owe our Uncle Sam taxes on your gain of $900,000. BUT, with proper planning, the establishment of intent to exchange and the advise from your land broker, tax advisor and in some cases an attorney, you can exchange the farm or land by finding another property to buy with that gain. As such, you can “defer” paying the gain tax until you sell the other property.
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Geswein Farm & Land Realty, LLC
3624 Mulberry Drive
Lafayette, IN 47905