You’ve no doubt heard, at some point in your life, that each of us tends to be either “right-brained” or “left-brained”. If you’ve never been exposed to the difference between the two, consider these main trait differences:

Left-brainers tend to be more detail specific, logical, and linear in their thinking process. For example, when you show them a picture of a brick wall – they tend to count the bricks. Show them a photo of a daisy, and they’re likely to count the petals & stamens, etc.

Right-brainers see the big picture, and they are more intuitive and emotional. Show a the brick wall and they see a major barrier. Show the daisy, and they exclaim “Oh, what beautiful colors!”

Investors in the stock market also make left and right-brain investment decisions. Lefties may analyze charts, historical prices, S&P scores, Morningstar reports, and more – until 2AM – looking for the next perfect stock buy.

The right-brainers may simply watch the morning news, look at a chart or two, and simply “intuit” which stock to buy – intuition being their guidance tool.

I recently had a call from a very intelligent man in a nearby county – well-educated and very fact oriented. He asked pointed questions – followed by an email with his “baker’s dozen” investment questions.

Upon reading his 13 questions, I discovered that hidden within them, were another 48 questions. They sounded like this: “What percentage of the land is wooded? Of the part that is wooded, break down the percentage and species of each tree type. What is the diameter of each tree at chest height in inches? What is the value of each species of tree in today’s timber market?” Get the picture?

His own agent later explained that he had shown his buyer over 50 properties, but was never able to make a decision. According to the agent, as long as you kept answering his questions, he would keep asking more. That is known as “the paralysis of analysis”.

Now – try a right-brainer’s simple 3-part solution:

1. Price vs. Value – Deciding What Price to Pay

Learning the price is easy – ask the seller or his agent. Determining the value takes more time. You’ll need to know:

The Asking Price

The price asked on similar properties in the same area offering similar features and benefits. Since all land parcels are different, determine a price per acre average for those similar parcels.

List to Sell Percentage

Of those sold in the past 24 months, what was the final sale price compared to the original asking price? What was the list vs. sale percentage? How long did they take to sell? For example, a $600,000 property that sold for $450,000 sold at 75% of the listed price. Assume that after analyzing 6-7 properties, on average they sold for 83% of listed price. Your object is to buy at a price that would bring you a healthy profit if you re-sell at the discounted 83% of current asking prices. So, let’s say your objective is to buy at 63% of asking price. That’s just 20% below current selling prices. So… you find a 40-acre parcel priced at $301,204. You know that your objective is to re-sell it at 83% of that or $250,000. You would make an offer of $189,758 (63% of asking price).

In summary – did you make a 20% profit? NO! You made a 31.7% profit if you sold at $250,000. Here’s the math: Sale price – $250,000 – divided by purchase price – $189,758 equals 1.317. You receive your original investment of $189,758 PLUS the profit of  $60,242 – 31.7% profit.

2. Demand – What Buyers are Seeking

You are making a 5-year investment purchase and realize prices are at their lowest right now. Within 5 years, prices should rise to a more appreciated level.

Now, look into the future and determine what features/amenities buyers will be seeking in a land purchase. Here in the mountains, we know that Florida land buyers put long-range views at the top of their demand chart. We also know that North Carolina land buyers come mostly from the larger cities and demand water– a spring-fed stream or creek.

We’ve also noticed, in the news, an up-surge of families describing themselves as “Preppers” – folks planning to survive the failure of our country’s financial system. They’re putting up large quantities of food, and plan to live off the land, using solar, hydro, and wind for energy, etc.

At the top of “Preppers” lists is water, tillable ground for gardening and fruit trees, wildlife (game) for hunting, and valleys surrounded by high ridges for defense.

When considering demand in 5 years, will the buyers be Floridians buying the highest properties for their high elevation views (bitter wind, cold & snow), or will they be people within the state, moving out of large cities for their family’s well-being and defense?

The lesson here? Purchase property at the best price to value, that offers the most valued features and amenities to buyers in the future.

3. Value Added Considerations

The third consideration should be “What can be done with the property – as purchased – that will cause demand for it to rise over 5 years.

A good example is the first 114 acres I purchased here in the mountains. The property was a 3^rd generation family farm – first granted to the owner’s grandfather in the 1860’s by the state of North Carolina in need of major TLC.

The property lay at the end of a state-maintained road with a strong mountain stream down the middle, fed by 11 different springs originating on the property. Two major floods in the 1900’s, and thousands of other floods over the earth’s history, left rich soil in the center of the property – a level meadow area of about 20-30 acres. The balance of the property is a horseshoe shaped high ridge that protects the property on three sides from winter’s cold and wind – and unwanted intruders.

The level area was grown up in blackberry bushes. You couldn’t walk a foot without tearing your shirt or scratching your face and hands. Today, that flat area is an open grassy meadow – the result of twice annual mowing.

The only way in or out of the valley is through a narrow opening at the end of the state road. Old logging trails have been improved giving access to the property on ATV’s and locating game. The land is home to 8 bears and 16 eight-point bucks, plus wild turkey, coyote, bobcat, rabbits, squirrels, and other critters.

Overall, the improvements and value I’ve added, have greatly improved the property’s appeal to future potential buyers.

To enjoy a nice profit on your next land investment (and sleep more soundly at night) simplify your decision-making.  Buy property with 1) the features and amenities that will be attractive in 5 years, 2) at the right price, and 3) improve it.

The kids have grown, the company no longer uses the property as a retreat, the taxpayers want to downsize or the price offered represent a number of reasons why taxpayers decide to sell their ranch. When selling, taxpayers want to know what the tax implications are, if the capital gains taxes can be deferred, and what planning steps are required.

Two Tax Deferral Strategies

The tax implications of selling a ranch can represent upwards of 40 percent of the sales price. The state capital gains rate varies by state – the California state capital gains rate is 9.55 percent, while in Montana, it is 6.9 percent. Federal long term capital gains is 15 percent, scheduled to sunset to 20 percent on January 1, 2013 in addition to a 3.8 percent health care tax on individuals whose income is greater than $250,000 per year. Add a 25 percent recaptured depreciation on real property improvements regardless of bonus depreciation and the taxes add up, making a tax deferral strategy a “must have.”

1031 Exchange

If the taxpayer’s intent is to replace the real property, then a 1031 tax deferred exchange may be the best tax deferral strategy. In a 1031 exchange, real property can be exchanged for any real property as long as both old and new are located in the United States. The debt and equity in the old or relinquished property must be equal to or greater in the replacement property. Personal property must be exchanged for “like-kind” or “like class” personal property, or in other words a tractor for tractor, stallion for stallion, or bull for bull.

A 1031 exchange indefinitely defers the federal, state capital gains and recaptured depreciation taxes until the replacement property is sold. 1031 exchanges can then be initiated as often as needed. Real property can be exchanged separately from personal property. To learn more about agricultural 1031 exchanges, download a complimentary whitepaper on 1031 Benefits for Farmers and Ranchers.

Deferred Sales Trust

If the taxpayer’s intent is not to replace those eligible 1031 exchange properties, a Deferred Sales Trust (DST) allows the capital gain and non accelerated depreciation recapture to be deferred. The DST invests the net proceeds of the sale into marketable securities and annuities whose income is paid out per a schedule determined by the taxpayer. The capital gains can be paid as a balloon payment or incrementally over the year consequently triggering capital gains tax on the portion received. The trustee is usually Hocking, Denton and Palmquist, a well established CPA firm in California experienced with administering this type of trust. For a complimentary illustration, complete the questions to right found on the DST page.

Eligible Real and Personal Property

The ranch is made up of real and personal property. The real property is the land, buildings, grazing rights, fixed irrigation headers and water and mineral rights, assuming the state recognizes water and mineral rights as real property. Personal property is the agricultural equipment and livestock.

• Is the ranch house considered a second home, primary residence or an investment property held for the production of income in a trade or business?
• Is the taxpayer’s intent to acquire replacement property?

Ranch House

If the ranch house is not the primary residence and personal use is limited to no more than fourteen overnights per year, the home is 1031 eligible. If the ranch house is considered and treated as a second home for federal tax purposes, the capital gains taxes can be deferred in a Deferred Sales Trust.

If the ranch house is the primary residence, then Section 121 of the Internal Revenue Code provides a $250,000 and $500,000 capital gain exclusion. If the capital gain exceeds the exclusion, the Deferred Sales Trust can defer the excess.

Planning

Investigating and understanding tax deferral options is the first step. It may make sense to sell the current primary residence and convert the character of the ranch house to your primary residence to make use of the Section 121 capital gain exclusion again after meeting the IRS requirements.

Since its construction in 1940, Lake Greenwood has become a valuable asset of the local community as well as for the entire Upstate of South Carolina. This 11,400 acre lake, which is the main water source for Greenwood and much of Greenwood County, also serves as a hub for a number of recreational pursuits which have fostered significant population and economic growth in this region. History has revealed that both positive impacts and challenges result from increased levels of population and economic activity in a given area – and the Lake Greenwood community is no exception to this rule.

According to the Saluda-Reedy Watershed Consortium (SRWC), “a broad based coalition of universities, non-profit organizations, government agencies and private businesses which have conducted a wide range of research on Lake Greenwood and its watershed”, several obstacles concerning water quality must be overcome in order to ensure the future health of Lake Greenwood. The 745,600 acre Saluda-Reedy Watershed (SRW) and Lake Greenwood have a long history of dealing with unwanted effluents. For decades the Saluda River and the Reedy River carried away many types of wastes from growing industry and development in the Upstate. The implementation of regulations on unwanted industrial effluents such as the Clean Water Act of 1972 made a major impact on the current water quality of the SRW and Lake Greenwood. However, Lake Greenwood and the SRW currently face new health threats – the SRWC has identified sediment from upstream development, stormwater runoff, and phosphorus from wastewater discharges as the main causes that affect the cleanliness and levels of water in Lake Greenwood.

A study by the SRWC reports that 307 acres of Lake Greenwood has been lost to sedimentation in the upper part of the lake. If this process continues there is the potential for negative impacts such as the loss of waterfront land, harmful pollutants, and decreased boat and recreational access. Major algae bloom, which Lake Greenwood experienced in 1999, is another real threat…

“[w]hen an overload of phosphorus and nitrogen are introduced to the lake, algae growth can increase to an uncontrollable level. As the algae dies and sinks to the bottom, the decay process consumes a substantial amount of dissolved oxygen. A combination of low bottom-water oxygen levels and high surface water temperatures that often occur in the summer can leave many fish and other aquatic life with little or no suitable habitat.”

Land use along the shore of Lake Greenwood is another critical aspect of the water quality. Some lakeside development produces soil erosion, loss of shoreline vegetation, and toxic runoff which contribute to poor water quality.

This research makes a strong argument that the health of Lake Greenwood is in jeopardy. Growth and development in upstate South Carolina have once again reached a level that is causing detrimental impacts to Lake Greenwood. However, these findings also shed light on the implementation of proven methods that helped Lake Greenwood overcome water quality problems forty years ago. Although government regulations and policies like the ones implemented in the past are part of the solution, they are not the only effective measures to help improve the water quality. Conservation easements on properties within the Saluda-Reedy Watershed can have a major impact in the effort to improve Lake Greenwood’s water quality. These properties consist of those with Saluda & Reedy River frontage as well as lake front parcels and the preservation of land within this watershed will have a direct effect on reducing the amount of pollution that enters Lake Greenwood.

In addition to qualifying for conservation easements, large acreage tracts with significant frontage on Lake Greenwood are unique pieces of real estate with regards to the current real estate market. Unlike large timber and recreational tracts in this area, a strong demand for lake lots is in place resulting in stable values throughout the economic downturn. This market indicator reveals that undeveloped lake frontage has good investment potential from a lake lot development perspective. A savvy investor should recognize the enhanced investment potential of a large acreage tract with significant frontage on Lake Greenwood. A property with these features offers significant tax benefits through a conservation easement on designated areas as well as mitigation opportunities for sustainable lake lot development. In addition, the stark contrast of the current market for lake lots and large acreage recreational and timber tracts allows an investor to assess the value of a large acreage tract with significant lake frontage from two separate vantage points which is advantageous.

Lake Greenwood is a treasured resource of Upstate South Carolina and for the last seventy years this lake has contributed to the economic growth of the area while also facing water quality challenges. This constant struggle is a familiar story for waterways and wetlands across the southeast and the decision to sacrifice clean water for financial returns and vice versa is never easy. Fortunately, in some circumstances the two are not mutually exclusive. Sustainable development, if implemented properly, can facilitate the co-existence of clean water and financial returns given certain market trends and property location. These conditions currently apply to large acreage tracts with significant undeveloped lake frontage on Lake Greenwood resulting in a rare opportunity to assist in the protection of Lake Greenwood with a positive return on investment.

Photo courtesy of Green Hill Land and Timber - ghland.com

How many researchers does it take to change a light bulb? Actually, it just takes one, but you’ll have seven others standing around debating about the correct methodology. And that brings us to a challenge with investment data and research:  if we think a data set or analysis “should” exist, it often doesn’t. And if it does exist, it’s probably out of data (especially in forestry). Therefore, my team at Forisk views the systematic aggregation, tracking and analysis of facts related to timberland markets and wood bioenergy as fundamental to forestry investment research.

That said, what’s going on out there?

US Timberland Ownership Led by Private Firms

Part of Forisk’s timberland investment research focuses on how private timberland ownership changes over time. Estimates of the “investable universe” of timberland in the US range from 60 to 100 million acres; we count approximately 210 owners that each own and manage 25,000 acres or more for a total of ~82 million acres. Of these acres, 20% are owned by the four public timber REITs (Plum Creek, Potlatch, Rayonier and Weyerhaeuser) and 37% are managed by 27 US-based timberland investment management organizations (TIMOs). The 43% of acres associated with “other private” owners include forest industry firms, private individual and families, conservation groups and other non-forest industry firms and institutions.

The top 300 timberland owners and managers in the US account for nearly 84 million acres of private timberlands in the North, South, and West. The top 10 alone account for 32.5 million acres. Detailed analysis of these ownership groups highlight the continued shifting of acres to institutions, and the increased activity by private individuals and “family offices” in timberland markets.

Bioenergy Projects Looking for “Solid Ground”

The wood bioenergy sector in the United States continues its extended round of musical chairs. As of January 30, 2012, Wood Bioenergy US reports that projected wood demand for all announced projects in the U.S. dropped 7.4 million tons year-to-date, a 6% decrease since December 2011. This is largely attributed to the removal of several large biomass co-fire projects from the Wood Bioenergy US database, particularly in Ohio. Utilities claim that biomass remains uncompetitive with other alternative compliance options (note: natural gas). Also, some coal units are scheduled to shut down to meet EPA MACT requirements.

In liquid fuels news, the USDA granted ZeaChem a conditional commitment for a $232.5 million loan guarantee from the 9003 Biorefinery Assistance Program. The loan guarantee could help fund a 25 million gallon/year commercial biorefinery. ZeaChem plans to build the commercial biorefinery at the same site as its demonstration plant in Boardman, OR. Elsewhere, LanzaTech purchased the former Range Fuels site in Soperton, GA for $5.1 million in a foreclosure auction. The company plans to use wood residues to produce fuels and chemicals.

Enviva’s first shipment of pellets left from the Port of Chesapeake on December 31. The vessel, bound for Europe, contained 28,000 metric tons of wood pellets. Enviva began operations at the Ahoskie pellet plant in November. Two additional plants are in the planning stages in North Carolina and Virginia; both will also use the same port.

Meanwhile, demand for wood from traditional forest industry users has remained flat as manufacturers look to better housing news in 2012 and 2013. Also, the pulp and paper industry continues to enjoy strong markets and productivity.

Demand for Timberland Remains Strong

One fact continues to percolate up during our ongoing timberland market research: demand for timberland assets remains strong from institutional investors and forest industry firms. After decades of timberland divestitures, forest industry firms are reevaluating the options associated with acquiring timberlands to support raw material needs and to address the question “what’s the best use of our investment capital in 2012?”

In Part 1, the idea of various land specific websites was discussed. This time let’s surf around the topic of social media. Not that long ago everything was e-business, e-commerce, e-books and now it is just normal day-to-day regular business to have a website, shop online and read digital books. The same thing is happening with social media. To re-phrase an old saying… what was once new is old again.

Social media began with an online place for your “stuff” (most notably the music crowd that adopted MySpace in droves when it debuted) then along came likes, tweets, posts, and now timelines. But now it’s not really social media as a “New” category anymore – it’s business. Nearly every brand has a Facebook page or Twitter account and although new tools show up like Klout and Google+… it really all is just forms of marketing.

New social networks like Chime.in are popping up like popcorn all the time. How could anyone let alone your land agent keep up with all these social profiles? They should be outside on the land and not face plowed into a computer screen, right? True enough maybe but the cold hard fact is that nearly everyone starts their real estate search online long before they contact an agent. The National Association of Realtors had a stat a couple of years ago that was nearly 87% of buyers start their searches online first before contacting anyone. That number has likely increased even more.

So how do you know if your land agent is marketing your land on the right social media sites? The short answer is you don’t! No magic silver bullet exists that puts your listing on every single place but as with most things there are some hot spots. The major players are Facebook, Twitter, LinkedIn and now Google+ might be added to that list. So should your land be listed in all these places? Probably not. However, agents that network aggressively will have profiles on these sites and keep them current. An agent flooding their news feeds with listing advertisements will be ignored lightning fast as users quickly hit the “Hide” button.

A quick and easy way to look up what profiles a person or brokerage has is to see if they have a Follr profile like this or an About Me profile. These sites or others like them list all the profiles in one place and make it easy to see at quick glance which networks they use. The number of profiles is not necessarily indicative of effective social media presence because sometimes profiles get setup at hundreds of places but they are never maintained so look for activity at least monthly or in some cases weekly depending on the network. So we’ll use the top websites as examples of how land might be marketed.

Facebook

First, Facebook. WHY? Well, because the whole universe is on there it seems. Facebook individual profiles are not the best place to market anything but likely the agent would have their job description and links to their websites or listings from their profile. The other option is a Facebook Business Page which is probably where most agents post information about new listings or they might even have a special tab setup just for listings. However, an overlooked source on Facebook is group interest pages like hunting pages where someone might be posting that they are looking for hunting land. This is a perfect opportunity for an agent to pop in and comment that they have a listing that might work. A word of caution though… Social media is time consuming and not everyone is going to be active on all sites so just because an agent is not posting and commenting all over the place does not mean they are not marketing your land.

LinkedIn

Next up, LinkedIn. This is definitely not a place to advertise listings but it is one of the best places for agents to network and connect. The profile should be current with links to their listings or website but again posting listings in the news feed will not be useful. However, there are several groups where listings can be promoted and discussed. We have used some of the cattle and beef networks where we keep up on hay and alfalfa topics and have posted links to our pasture listings when appropriate. LinkedIn also has several real estate groups where listings are allowed but moderation is key or the listings will just get lost in all the noise.

Twitter

Finally, we have Twitter. Basically a shortened bullet point version of other sites like Google+ or Facebook. You have to talk concise and fast on twitter and the news feeds move so fast that just like the commercial – it will be so… 47 seconds ago. Twitter users hate automatic tweets from other sites so if a twitter account is linked to Facebook and the comments are being automatically posted – they are cut off after 140 characters and then the person has to go click on the Facebook link which defeats the purpose of being on Twitter. The 3 best advantages of Twitter are lists, hashtags and chats. Lists are one way to group users together so you can read news feeds from specific followers. Hashtags are the number pound (#) sign before words on Twitter and they make it easier to find tweets on topics you are interested in. For example, by searching for #LandThink you can pull up only tweets with those hashtags. Hashtags get very popular during breaking news like #Egypt or #Japan and of course Charlie Sheen’s antics can be followed via hashtags. Hashtags go hand in hand with chats as well. You can follow a topic of discussion by following that particular hashtag. #haytalk is only about hay but they also have specific chat times where in real time they discuss issues like livestock feeding and forage management. There are hundreds of chats going on each week and finding new places to connect on any topic is very easy on Twitter.

So how do you navigate the maze of social media and know which places are best? You don’t. Maintaining a few good profiles and making meaningful and helpful posts about relevant topics is a general rule of thumb. Keep in mind that this is just a discussion about one aspect of marketing and that each property will have unique marketing requirements due to its attributes and location. Each agent is also different and has tools that work for him or her the best. Not one social media platform or one website is the best or the only place a property should be posted. Social media is just another tool in the box and in the end that really is all you need… a good toolbox.

The answer to the question in this title is pretty straightforward – not only are large acreage recreational property values lower than they have been in almost ten years, an abundance of quality tracts are also currently on the market. The first thought that this response most likely evokes from a prospective buyer is, given the current uncertainty with the economy, the smart play is to wait, let prices continue to drop, then pull the trigger on that dream property. This scenario sounds simple enough – why would anyone want to buy right now?

Although the odds of finding that perfect property at a very reasonable price are high right now, this window of opportunity will not last forever. Land prices will eventually bottom out and start the recovery process. Even more important than the recovery of land prices to a potential buyer is the inevitable reduction of quality tracts on the market.  Once land prices stabilize, the first tracts to go are sure to be the best ones. By waiting for land prices to continue falling, a buyer is risking an opportunity to purchase a quality tract at a great price that probably has not been on the market for a long time and most likely will not be on the market again anytime soon.

The purchase of a large acreage recreational tract is typically a substantial long-term investment which requires much deliberation. The main objective for a majority of buyers is getting a great deal on a tract that meets all of their requirements. Many buyers are currently hesitant to move forward in the purchasing process and this hesitancy is justified by the uncertainty of land prices recovering. For those considering the purchase of a recreational property take a look at the following statistics from the United States Department of Agriculture during the Great Depression:

“Agricultural land values saw the largest percentage declines of the century in the early 1930′s, the beginning of the Great Depression. Agricultural land values dropped 37 percent over a period of 3 years and remained between $30 and $33 per acre throughout the 1930′s. Following the Great Depression, land values were revitalized and began a climb that continued until the early 1980′s.”

Over the last three years the majority of large tracts of recreational property in upstate South Carolina have been losing value. Overall, these properties are currently pushing a 30 percent loss in value since land prices started declining. An increasing number of recreational properties currently on the market have experienced major price reductions that reflect this 30 percent loss in value. A legitimate argument is the current recession has lasted longer than anyone anticipated and we are close to a recovery but it will be a slow one. If this argument proves true a valid assessment of current land values is that although they have bottomed out, the time frame for recovering value will be significant. As the slow recovery reveals itself the transactions on quality recreational tracts will increase in frequency as buyers gain more certainty that land values are increasing. Therefore, the best time to get serious about purchasing a large acreage recreational tract is now. The substantial inventory of nice recreational properties with values 30 percent below pre-recession values will not last long and continuing to wait could very well result in missing out on the chance to purchase that ideal tract at a great price.

[This is Part One of a two-part series investigating the economic potential for investing in the management of land, wildlife, biodiversity, and water resources. Part One covers economic incentives from government programs for establishing conservation practices. Part Two will address private sources of revenue that can be generated from establishing creative and multi-use land use practices and programming.]

On March 1, 1872, Congress signed into law an act that established Yellowstone National Park, the first of 58 protected areas to eventually be designated as national parks. Thus signaled the start of an era in national policy characterized by heavy public investment in conservation and land management.

As of 2010, 138 years later, the Bureau of Land Management held nearly 248 million acres of public land. However, this represents a decrease of two million acres from 2009 and a decrease of 5.5 million acres from 2008. This reduction reflects an effort on the part of public officials who would prefer to see the federal government take a more limited role in conservation efforts while also using the revenue from sales of public lands to pay down the national debt. It also demonstrates a shifting priority away from direct public investment in conservation through outright land purchases and toward providing incentives to individuals and organizations to purchase and manage the land themselves.

While some see this shift as troubling because it means conservation efforts are more haphazard and subject to the varying goals of individual landowners, others see it as an incredibly lucrative opportunity to invest in conservation. Take T. Boone Pickens, for example. Recognizing the economic potential of Texas ranches, he has made a name for himself (and a lot of money) by buying working livestock ranches, improving them with wildlife enhancement programs, and then reselling them. As he recently told The Land Report, “We always made a profit from the ranch sales. But what I really feel good about is knowing that we left the land in better shape than we found it.”

Now it should be noted that Pickens benefitted from a particularly generous set of public incentives with which to offset the costs of his land management programs. You see, Texas implemented a program in 1995 that allows landowners who implement specific land and wildlife management practices to have their land appraised as agricultural land, thereby greatly decreasing their annual tax burden. For those who live in states that do not provide such generous incentives to invest in wildlife management, however, there is an array of state and federal programs that provide payments to landowners for engaging in other various conservation-oriented practices.

While these include such obvious options as securing a conservation easement, landowners also have the option of enrolling in less-permanent programs like the Wildlife Habitat Incentive Program (WHIP), the Conservation Reserve Program (CRP), and the Conservation Reserve Enhancement Program (CREP). In each, government agencies provide cost-sharing and annual payments to landowners that agree to set aside their lands for five- to ten-year periods and commit to protecting and improving wildlife areas, in the case of WHIP, or taking agricultural lands out of production, in the case of CRP and CREP. Case studies abound of landowners who have used these, and other, public programs to help establish and fund conservation efforts and then benefitted greatly from the increased property values when they eventually sold the property.

One of the best examples is that of Robert Macdonald of Triple Chance Farm in Cambridge, Maryland. After recognizing that he could not generate sufficient income from growing cash crops on his land Mr. Macdonald decided to take his land out of production and instead establish an “outdoorsman’s paradise.” With financial incentives from the CRP, CREP, and WHIP programs, Mr. Macdonald developed and instituted a maintenance plan geared toward planting native species that would provide habitat for quail, woodcock, and other bird species. After improving his land over the course of 30 years, Mr. Macdonald fielded bids from five families all vying for his property when he sold in 2009 in the worst real estate market since the Great Depression.

In this era of economic uncertainty, investors are looking for safe bets in the market. Since the housing bubble burst, real estate investment trusts have outperformed the broader market by considerable margins. And best of all, they’re set to continue that trend this year. With help from state and federal programs, landowners can promote greater biodiversity, healthier wildlife populations, and improved water quality, all while earning a strong return on their investment. As T. Boone Pickens put it, what better feeling than to know you’ve improved the land around you and walked away with a few more dollars in your pocket as a result?

Remember several years ago when gasoline skyrocketed to $4.00 per gallon? Of course you do, but did you quit driving, or even change your driving habits much? Probably not.

Now, what if the price had gone to $41.60 per gallon? Think you might have changed your driving, or even stopped driving at all.

In the North Carolina mountains, that’s exactly what happened in April of 2009 when asking prices for 100 acres or more of mountain land shot up to $42,211 per acre. At that same time, the average selling price was a mere $4,017 per acre.

Can you guess what happened next? Yes – that’s correct – land buyers simply said “I don’t think so!” – and promptly disappeared from the land market. That unbelievable level of asking prices was the single most destructive move to hit the land market in North Carolina.

So… How did asking prices manage to climb to such oxygen-deprived levels back in 2009? Better yet, was there already in place something that might have prevented the destructive rise in asking prices?

Most land brokers, also being REALTORS®, subscribe to the REALTOR® Code of Ethics – right?  Take a look at the very first Article in that Code:

Article 1

When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client.

Better yet, look at how the following clarifies that first Article:

Standard of Practice 1-3

REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.  

Nevertheless, in a market where actual selling prices averaged $4,107 per acre for 100+ acre parcels, brokers were taking listings with asking prices that AVERAGED $42,211 per acre. Is that what is called “protecting and promoting the interests of their client”?

In defense of those brokers, property owners wishing to sell were, at the same time, succumbing to plain old human greed. Reacting to false, unfounded rumors of huge sale prices, they were making unreasonable demands on their brokers to list at ever-higher prices. Brokers, under the onslaught of demands from sellers, capitulated and took the listings at unwinnable prices – and the land market collapsed under the weight.

Now – we all know we are not in control of mankind’s greed for affluence. Brokers do have one powerful tool at their disposal however. On the grounds of the U.S. Air Force Academy in Colorado Springs sits the ‘‘Eagle and Fledglings Statue’‘ – given as a gift to the Academy in 1958 by the personnel of Air Training Command. This statue contains the following inscription by Austin Dusty Miller:

“Man’s flight through life is sustained by the power of his knowledge.”

Very simply, there’s power in knowledge! Therein lies the broker’s solution to accepting grossly overpriced listings – KNOWLEDGE.

If a broker specializes in land (another powerful concept), he or she can list only properties priced to sell instead of wallowing through months and years without showings and buyers. This is accomplished by acquiring a complete knowledge set of actual sale prices over a period of years for land – and only land.

The first step is to acquire from the county tax office a database of all property owners owning over 100 acres. These records can often be acquired over the Internet (Google the “GIS” for your county), or by requesting a CD with the information from the tax office. These records general include the last sale date, and some reference as to the last sale price.

With that information, a fruitful database of actual sales can be compiled showing acreage, last sale price, sale price per acre, Parcel ID #, and name and address of the owner. Once you have 5 or 10 years of actual sales, and can present that data in a friendly, readable form to sellers, you will have ½ of the necessary knowledge needed to list property at fair market value. Notice that I said only ½ of the knowledge.

“What’s the other ½” – you ask? Property for sale now by all other brokers in the area will complete your knowledge base.

If a broker belongs to MLS, listing information can be researched through the MLS land listings. The database of property for sale now should include a Parcel ID number, the asking price, the acreage, and the asking price per acre. Convert that data into a table that is easy for property owners to view and decipher. Be sure to use some identifying information such as owners name, Deed Book and Page, or Parcel ID number. This gives your table added credibility to the person reviewing it.

When reviewing your tables with potential listing property owners, begin with past sales first. Explain that all information was taken directly from the local tax office – not your personal files. By presenting past sales in an objective manner, you reduce the raw emotion likely when they find prices  not as high as they thought.

Next, move on to properties currently listed for sale. These properties will be the competition faced by the property owner once they list. They are normally higher – being asking prices – and are likely to be more pleasing to the prospective listing individuals.

Be wary of listing property at the same level as others for sale now. Being higher than what past buyers have been willing to pay, these asking prices are the “wished for” prices of present owners – and not necessarily indicative of present value.

In summary, many properties in today’s land market are flat out overpriced – well above what any respectable buyer will pay. The broker who educates prospective sellers about the realities of today’s land marketplace will come away with attractive properties – at fair prices. What’s more – buyers are always waiting!

When you decide to sell your land – whether it be farmland, timberland, ranchland or hunting land, be sure to ask the agent about the websites where your land will be listed. After you ask about websites then ask about social media websites. We’ll do a two-part series and cover social media next time so let’s start with websites.

For residential properties the big three are Realtor.com, Zillow.com and Trulia.com. Although some may include Yahoo, it is really just a Zillow feed. For all practical purposes these websites are useless when it comes to the land market. They are not setup for easy searching for rural properties. They require “Actual Addresses” and for the most part they are just cumbersome and difficult to navigate for any type of vacant land properties.

For land the big three are LANDFLIP.com, LandsofAmerica.com and LandWatch.com. We all have our favorites, but for the most part these websites list more land than all other smaller land targeted websites combined. There are others that feed off or have merged with other sites but these are the main ones that buyers will find first in any search.

So, if your agent is focusing all efforts on MLS advertising which mostly only reciprocates out to residential websites to sell your land then you are likely not getting the full marketing you need. Land buyers search out specific land terms and visit land websites often. Most buyers will tell you that they have had a search setup at a land specific website for months or some cases even years in a specific county or even several counties. Recently, a buyer lead contacted us and told us that they found a land listing that they were very interested in but that the listing agent was from out of state and sold houses at their website. They wanted someone who was actually from our state that specialized in land to help them. They did not even call the listing agent on this property. Instead, they searched out the words “land” and the specific area. So, if your agent is not even getting calls about their listing then you have a major marketing problem.

Another issue with listings is IDX, MLS feeds, and syndication. Unh? What is all that mumbo jumbo and why should you care? Most folks do not care about these terms nor do they even need to know the technical details but your agent should know exactly what they are and whether they use them or not.  If an agent chooses to list land on the Multiple Listing Service (MLS) then agreements can be made and those listings can be shared via IDX at other agent websites with specific rules. Syndication is where the listing feeds out (or syndicates) to other websites. For example, most MLS’s will syndicate their listings to Realtor.com meaning that the agent does not have to go to Realtor.com and re-enter the listing. This all sounds great but the problem is that not all websites bring in the same data nor do they all present it the same way. Some will only list the brokerage name and no agent contact information, some will only import one photo, etc. and the list goes on. It can become a nightmare for an agent because when the listing sells they find it nearly impossible to get it off all the syndicated websites.

The bottom line is that you need an agent that understands and knows exactly where their listings are posted. Also, they need to be able to edit or delete those listings at each and every site. Nothing is worse than having an old listing that a buyer calls on and they are told it already sold. It frustrates the buyer to no end especially now that most of the major websites offer agent advertising by zip code. A buyer will click on a listing and then see three buyer agents that have paid to be there. The buyer contacts one of them and usually the advertiser has no clue about the listing. Buyer frustration cycle starts all over again. Buyers give up and start searching out the listings and specific companies that sell land and contact the listing agents directly about the property.

A major real estate firm recently announced it will stop sending listings to Realtor.com and Trulia.com. This is not a small specialized local company it is a huge brokerage covering multiple markets. You can read all the details about the specifics but the major point is that it is a residential firm not a land brokerage. They recognize the importance of their listing posts and they want their agents to actually get the inquiries and leads for their own listings. Each area will be different and no blanket statements can be made about which site or which listing strategy is best. However, one thing is certain your listing agent should have a plan for the marketing and know exactly where the listing has been posted.

Websites that focus on certain keywords for search engine optimization (SEO) are one of the best tools a land agent can use. LANDFLIP just announced a new specialized search for land listings this week called RANCHFLIP.com. These are exactly the types of tools that you should be looking for your agent to have in their marketing plan.

Marketing includes more than just websites. In Part 2 we will cover social media marketing.

Early in my investing career, I bought shares of Crown Pacific Partners, a timberland-owning firm headquartered in Portland, Oregon. During market declines in the late 1990s, the firm subsidized its shareholder distributions through borrowing and cash generated from non-organic business activities. In other words, the firm ate its seed corn. Crown Pacific filed for bankruptcy in 2003.

My shareholding experience with Crown Pacific influences my research to this day; it provided valuable lessons on the available (and unavailable) levers for cash generation and risk mitigation with timberland investment vehicles. At the end of the day, timberland owning firms – such as public REITs Plum Creek (PCL), Potlatch (PCH), Rayonier (RYN) and Weyerhaeuser (WY) – must embrace situations imposed by external markets and optimize firm performance for shareholders. How did timber REITs fare in 2011?

Big Decision in Tough Markets

Potlatch leadership dug deep in late 2011 to make the sector’s “stone cold decision of the year” to reduce dividends and harvest levels. These decisions by the PCH Board and senior management (1) placed long-term asset values and maximization over short-term yields and (2) embraced the realities of knowable, quantifiable impacts on wood markets relative to speculative forecasts of key demand drivers. Cheers.

Equity markets embraced the resulting 39% reduction in Potlatch’s yield. While share volume spiked on the day of the announcement, PCH’s share price declined 2.2% after two days of “post announcement” trading. This left its dividend yield at 4.1%, in line with the other public timberland-owning REITs. According to the FTR Index, the timber REIT sector now has a 4.0% dividend yield.

Timber REITs and Timberlands Outperform US Treasuries Long-Term

U.S. Treasuries remain a common benchmark for private timberland investments. Why? Relative safety and low risk over long time frames. However, U.S. Treasuries, thanks to a robust secondary market, are more liquid than private timberlands, making them convenient benchmarks for publicly-traded timber REITs, as well.

We also care about Treasury yields because when they increase, so do interest rates on fixed-rate mortgages. This increases the cost of buying homes and decreases the demand, and prices, of those homes, which can slow the economy. This coincides with another reason why timberland investors take such a strong interest in Treasuries:  they affect the costs of building and buying homes, which influence the supply and demand of forest products such as lumber, OSB and plywood.

On an annualized basis and year-to-date, how have timberland investment yields benchmarked to 10-year US Treasuries? For the ten year period from 2001 through 2010, both private (less liquid timberlands) and public (more volatile timber REIT stocks) investment vehicles outperformed US Treasuries: timber REITs returned 6.65% annually, private timberlands according to NCREIF returned 6.82% per year, and US 10-year Treasuries returned 3.99% per year on average.

Conclusion: Timber REIT Kudos for 2011

In 2011, timberland-owning REITs, as a sector and led by Rayonier’s 27% gain, outperformed the S&P 500. As measured by the Forisk Timber REIT (FTR) Index, publicly-traded timber REITs returned 5.69% versus 0.00% for the S&P. The FTR Total Returns Index, which accounts for dividend distributions, earned 9.62% in 2011.