Is 2021 the Year To Invest in Rural Land?
For Investors Seeking Stability, Rural Land Offers Renewed Appeal
2020 was a challenging year for pretty much everyone. Even if your business and investments weren’t negatively impacted, or perhaps even benefitted from the tumultuous economic circumstances, stability and long-term forecasts were in short supply across the board.
As real estate investors sought that elusive quality of stability in these unanticipated circumstances, many turned to one of the most tried and true options throughout the history of civilization: land. In fact, the increased demand for undeveloped land resulted in record-breaking sales volumes and 30% year-over-year sales growth in the second half of 2020 at National Land Realty, the land brokerage firm where I serve as the CEO.
2021 is looking to be an equally impressive year for land investment. In particular, my firm has seen significant interest in rural land for residential use. This makes sense given the impact of the pandemic, and some of the large societal changes it’s spurred. As people anticipate being able to work from home on a permanent or semi-permanent basis, they are interested in relocating away from cities and suburbs to more rural areas where they can reconnect with nature and more easily isolate themselves from others.
Most notably, there has been increased demand from professional couples with young children, who are seeking more indoor and outdoor space for their growing families, as well as empty-nesters, who have a newfound freedom to relocate.
Benefits of Rural Land Investment
In addition to providing a spacious bucolic environment in which to hang one’s proverbial hat, large rural residential land investments — around 100 acres or more, for instance — create potential sources of additional revenue for investors. Options such as selling eggs or hay, renting out land to campers, building renewable energy (solar or wind) installations or even mining are all possibilities for those with an entrepreneurial mindset.
Even if you choose not to monetize your land investment, it can still create significant opportunities for landowners to live a more self-sufficient lifestyle. Game hunting and farming are just some of the options available in this regard. The trend of returning to basics and becoming more self-sufficient has been building for the past two decades, but like so many other societal inclinations, it has accelerated and matured during the pandemic.
Some buyers may elect to use their rural land as a plot for a vacation home or personal recreational space, while others will view it as purely an investment opportunity. For the latter group, there is the potential to lease all or part of the land to a local farmer, or put the land to recreational use through hunting and/or fishing rights. Meanwhile, the land will likely continue to gain value and eventually become viable for other development or use scenarios.
Rural Land Markets To Consider
Over the past 12 months, rural land has appreciated throughout the nation, but it has performed particularly well in the Sun Belt. One reason for this region’s superlative performance is that the current pandemic-inspired migration from cities to more rural areas comes on top of a significant migratory stream from the Northeast to the Southeast that predates the coronavirus. According to the Census Bureau, in 2018, about 1.2 million people moved to the South from another region.
Moreover, as described in PwC’s and the Urban Land Institute’s “Emerging Trends in Real Estate 2021” report, Sun Belt markets will generate 28% of all new jobs between 2019 and 2025. Today, the rural land areas that are a one-hour drive from cities such as Atlanta, Georgia; Birmingham, Alabama; and Houston, Texas; are offering some of the best investment prospects. Because of these factors, it seems likely that the value of rural land will continue to grow in 2021 in many parts of the country.
Understanding the Limitations of Land Investment
Of course, investors need to do their due diligence first, and if they are new to land investing this means being cognizant of what distinguishes land investing from equity investing. Land is not as liquid as equities are, for example, and investors who are insufficiently prepared will risk overpaying for the land, or for any improvements or additions they deem necessary or desirable.
The required research doesn’t only involve understanding where opportunities lie and what market prices are in a given region. Potential investors need to investigate zoning regulations and restrictions; develop an understanding of the land’s access to current and planned municipal sources of water, power, sewage, roadways, etc.; and determine whether there are any environmental concerns that could impede or impact the land’s use or development.
Further, an investor will want to understand the tax code and appreciate how mitigation and conservation easements impact the business case for land investment. A conservation easement is a legal agreement between a landowner and a land trust or government agency whereby the landowner retains many of their private property rights, while agreeing to preserve the land against future development. While these limitations can often make potential investors wary, they can provide a variety of significant tax benefits and, by protecting the land’s natural beauty and maintaining its traditional use (i.e., agriculture, timber, etc.), enhance long-term appreciation.
Rural land investment may not seem as quite as exciting as purchasing shares in the latest hot tech company or buying into the newest real estate trend. But what these assets lack in thrills they compensate for with stability — and, in 2021, a lack of volatility has newfound appeal. Over the next 12 months, rural land will offer plenty of opportunities to investors who are willing to take an innovative approach, which in this case means, ironically, finding their way back to an investment class that has proven its viability over the course of hundreds of years.