Why Buy Land Now?

While there are excellent land values all across the country, here are a few places that are worth taking special note of because of the magnificent values that can be at each.

1. Flagler County, Fla.
Where: Between Daytona Beach and St. Augustine
Why it’s hot: Beaches to the east, lakes to the west
Where to buy: Five acres of farmland west of U.S. Highway 1 (only 20 minutes from the beach) sells for $100,000.

2. White County, Ga.
Where: An hour N.E. of Atlanta
Why it’s hot: Blue Ridge Mountains, Chattahoochee River, and temperate climate
Where to buy: Sites start at $35,000, but check the county’s development restrictions first

3. Burnet County, Texas
Where: An hour N.W. of Austin
Why it’s hot: Hills and valleys, woods and water. Property tax breaks for agricultural uses.
Where to buy: Three- to four acre “view” lots near the town of Burnet start at $100,000; head east to Bertram or Oatmeal, and they’re $25,000.

4. Taney County, Mo.
Where: South of Springfield
Why it’s hot: The Ozarks, plus Branson, Mo.’s music scene
Where to buy: Most anywhere: $10,000 gets you two acres on a lake; $2,000 puts you on a ridge with a view. But rocky terrain adds to building costs.

5. San Juan County, Wash.
Where: Off state’s N.W. coast
Why it’s hot: Unspoiled coastline, unlimited boating
Where to buy: Just five of its 172 islands get public ferries, and space is scarce there. Land for less than $100,000 is a deal; anything by the water is at least $250,000

This post will conclude our look at first-time, Gen Y home buyers. Now that we’ve discussed the outlook on the housing market landscape for first-time buyers, and discovered where the best housing markets are, we can explore how to get the most bang for the buck, so to speak.

Getting the Most for Your Money
A real estate investor from NJ, who wants to buy land in the hard-hit market of Cape Coral, FL, has found lots for sale on or near the water at about a third to half below their peak prices of two years ago. On a larger scale, Ray Alcorn, an investor in VA, is picking up parcels of land after two years on the sidelines. He has bought more than 100 acres throughout VA this year, much of it at reduced prices.

“It’s just crazy out there right now,” said Mac Boyd, 65, a real estate broker in Arcola, IL, who has sold farms for more than three decades. “The land market has never been stronger.”

Emily Wilson, a realtor in Shelbyville, TN (south of Nashville) was asked to comment on land sales in her area. She stated “acreage is selling better than homes in our area. We sell a lot of horse farms and high dollar properties…but if I were depending on starter home sales for a living, I’d be crying hard times. Instead, our company sales are up $1 million over this same time last year.”

Fort Worth-based D.R. Horton, the nation’s largest home builder by unit volume, is selling off thousands of lots in outlying markets while holding on to land with development potential closer to major metropolitan areas. The parcels closer in are located in markets that are expected to rebound more quickly. The sales figures cited indicate that Horton sold 2,000 lots in Southern California for $7.8 million, a 90+ percent markdown from the estimated $110 million purchase price. In a separate transaction, Horton also sold a 4-acre parcel near San Diego for $4.4 million, a 75 percent markdown from the 2005 purchase price.

Also worth noting in the article is the figure on new-home sales, which are now at a 17-year low.
Land in the Heart of Dixie has been an excellent investment. That’s the conclusion one draws from a recent report titled Alabama Farm Real Estate: A Comparison of Returns and Values Since 1970, which was prepared by John Adrian and Walt Prevatt, professors and extension economists at Auburn University. Here are the high points. In 1970, buyers were paying on average $200 per acre for Alabama farmland. In 2007, the average price per acre was $3,100, a 1,450% increase over the period or 40.3% per year.

This figure covers a substantial timeframe, but it does offer insight into the underlying market conditions inherent throughout much of the state. Farming and agriculture have long been key drivers buoying rural land values in Alabama. Numerous additional factors have pushed up demand, including the recent stretch of historically low interest rates and the popularity of 1031 Exchanges. And then there are Alabamans themselves. These people love to hunt. They love to fish. They love to get out on the land and out on the water. Residents of Birmingham, Mobile, Montgomery, and Huntsville are excellent examples of urban dollars propelling the market for rural and recrea,

tional land to even higher levels.

First-time home buyers should be excited about the amazing values that are available right now. So let’s talk about THE BEST places to start your search.

Where are the Best Land Values?

All of the best bargains were found in Louisiana and Texas with Dallas being the most undervalued big city, by 30%, according to CNNMoney.com.

But the PMI study takes a longer view, predicting where home prices will be in 24 months. The insurer’s new risk assessment warns that there is almost a 100 percent chance that home prices in markets including Riverside, Calif., and Orlando and Fort Lauderdale, Fla., will be lower in two years.

Big declines are also likely in many other Florida, California and Nevada markets. “This down cycle in housing is very different from those in the past,” said PMI spokesman Nate Purpura. “Typically, employment tanks and foreclosures follow. In this cycle, the foreclosures came first, then the unemployment, and now we’re hitting a second wave of foreclosures brought on by the unemployment,” he said.

“It’s essentially a double-whammy in the housing market, and we’re likely still somewhere in the midpoint.” But unless the current crisis causes a radical reduction in the number of new households, we are going to keep on building. Much of America’s new housing is provided in the four fastest-growing metropolitan areas: Atlanta, Dallas, Houston and Phoenix.

We would have truly found our way to the 1930s if construction in all of those places dropped essentially to zero. As long as we are building in those places, then construction costs in those areas provide a lower bound on where housing prices will land, since builders will still need to cover their costs. This reasoning suggests that we should expect prices in Phoenix and Miami to land somewhere closer to construction costs in those areas, and we should expect prices in Dallas and Houston to stay relatively steady, since these places more or less skipped the recent boom.

Now that we’ve discussed some of the motivations for Generation Y to become first-time home buyers, there is still one huge question left to ask - “WHERE?”

Where to Buy Land

The Dallas-Fort Worth area came off best in the latest forecast of future home values. North Texas metro areas were ranked as the least likely in the country to experience a sustained home-price decline in mortgage insurance giant PMI Group’s newest report.

The Dallas Ft. Worth area has less than a 1 percent chance of having lower home prices in two years, according to PMI Group’s risk study. The California-based insurer ranks about 50 U.S. cities based on the likelihood of declines in home prices. All of Texas’ major markets were at the bottom of PMI’s ranking, which was released Wednesday. “Texas is looking better than anybody else,” said PMI economist David Berson. “The economy is doing much better in Texas than other places, and you didn’t get the huge run-up in prices that needs to be worked off.”

Even so, home prices in North Texas are down about 2.5 percent from a year ago, according to the latest estimate from Standard & Poor’s Case-Shiller index.

As we continue our series about the housing market from a Generation Y perspective, we’ll continue to explore the challenges facing first-time home buyers, and the opportunities.

A Flood of Information

Most people I know have heard reports in many different media outlets about the problems facing current homeowners. However, there are rarely any reports about the benefits of investing in real estate, especially when prices are dropping.

The media has cast a negative light on the real estate industry as a whole, while young clients need to be informed about the positive aspects of homeownership. For example, the first-time homebuyer tax credit is a great deal for young buyers, but few seem to know that it even exists. Providing correct, current information about housing concerns is probably the most important tip I can give anyone trying to sell my generation on real estate. Furthermore, making such information readily available to a digitized generation would be a great step in the right direction.

Technologically Savvy

My generation has internalized the Internet. This internalization has a significant impact on the home-buying process: so far, my entire search has taken place on the web. In my search, I have used just about every website available to buyers. Here’s what I found most useful while perusing different real estate websites: property mapping, photos, and overall ease-of-use. In searching for properties in Chicago, I do not know every single street name or where they are located. Sites that can show me the properties on a map made my search much easier.

And I must admit that, although I may have missed out on some great properties, I rarely found myself giving more than a quick glance to listings without multiple photos. I want to get a sense of what the properties look like so I can decide whether or not to schedule a showing. Finally, websites that list homes need to be simple and well thought out so that first-time buyers can easily and quickly search and find homes without having to jump through hoops to get to the best listings.

Patience IS a Virtue

Be patient in explaining to first-time buyers the process of homeownership and the currently available incentives. More than half of the people I’ve spoken with are unwilling to consider purchasing a home because they’ve heard all about foreclosures and the slumping housing market. This attitude requires REALTORS® to be extremely patient and understanding of these fears while teaching young, first-time buyers about the advantages of owning a home. Being honest and upfront with these clients can also help to gain their trust. Is the current market perfect for every buyer? Of course not. However, for many, there are some truly great opportunities available to those willing to find them.

The new generation of first-time homebuyers is creating a new segment in real estate, and a new type of REALTOR®. Still-falling home prices, an increasing inventory of properties, and government incentives for first-time homebuyers present a great opportunity for young professionals. And that signals opportunity for REALTORS®, especially those who can provide this new segment with the level of technology we have come to expect. The only issue is counteracting the negative skew of the industry presented by major media outlets. Focusing your efforts on a case-by-case basis in order to alleviate the fears of buyers could prove incredibly profitable in the long term.

In this financial environment of seemingly no winners, there is in fact one group of buyers that have an advantage: First-time homebuyers. Why? Because they have nothing to sell and plenty to gain, as sellers stress over the glut of homes on the market.

The economy continues to fluctuate so enormously that young professionals in their early to mid-twenties are apprehensive about the real estate market. What is at the core of the issue for young first-time homebuyers? A more relevant question might be what REALTORS® can do to help alleviate foreclosure fears.

Vintage Oaks

Let’s put ourselves in the shoes of Generation Y home buyer. I’m a 23-year-old in search of a home, I have a perspective that I have found to be relatively rare. I recognize that my generation has a great opportunity to take advantage of the tremendous surplus in real estate. Although the credit issues facing the country may make it difficult for some to secure favorable loans, the incredible numbers of available homes, combined with falling prices, presents a near-ideal opportunity for first-time buyers to snatch up some real bargains.

Sounds great right? Unfortunately, through conversations with many friends and acquaintances in their early to mid-twenties, it doesn’t appear that many are interested in even discussing homeownership. From what I’ve heard, this lack of excitement has a simple cause—most of my generation lacks quality information about the real estate market. Whenever the conversation arises with friends and acquaintances, I cannot help but wonder where many of my friends get their information. Very few seem to understand how the industry works or how to go about searching for a home.

This younger generation of buyers contains great potential for REALTORS®, and so I’ve come up with a few tips that I’ll be discussing over the next few posts. I think these tips will be valuable, not only for understanding the fears of young buyers, but also for gaining their trust.

As we continue looking at the groups of people who are buying land, it would be impossible not to mention international buyers. Wealthy international buyers are definitely in the market, including Mexican nationals who feel safer having some of their investments in the U.S.

Big money is looking for a place to park. They’re not going to put their money into stocks or bonds. They’ve got it in cash, and they want a tangible asset.Those buyers mostly want several hundred acres and don’t care if there’s a large ranch house or hunting lodge on site. People are just paying for the dirt.

The weak dollar makes Texas land less expensive to foreign investors and some have already taken advantage of the situation by purchasing timberlands in east Texas. As of July, there did not appear to be a rush of offshore investors into the market.

However, some U.S.-based buyers appear to be anticipating future inflation as they aggressively seek out properties that are not offered for sale.  These forces undeniably continue to exist.

In the next part of the “Who is Buying Land Now” series, we’ll talk about the big guys - the Institutional Funds. Big investors are already on the lookout.

Nearly two-thirds of real estate professionals surveyed last year by the international law firm Bryan Cave said they planned to invest abroad within the next 12 months. And institutional investors — which sank dizzying amounts of money into domestic REITs last year — are also increasing their exposure to international real estate.

Among those increasing allocations into global REITs is the California Public Employees’ Retirement System, known as CALPERS, the largest public pension fund with more than $200 billion in assets.

At the same time, domestic REITs are acquiring more foreign property or forging partnerships. They include companies like ProLogis, the AMB Property Corporation and the Simon Property Group.

Some of the funds rolled out last year include the Franklin Global REIT fund, Cohen & Steers Asia Pacific Realty Shares and the ING International Real Estate fund. The first foreign real estate index fund — the Northern Global Real Estate Index fund from the Northern Trust Corporation — also made its debut, along with the first global real estate exchange-traded fund: the streetTracks International Real Estate E.T.F., from State Street Global Advisors.

Investors of all types can find property for sale with the help of brokers as well as through online commercial listing services like LoopNet.com and CoStar.com. Thomas P. Byrne, LoopNet’s president and chief operating officer, says undeveloped land makes up about 15 percent of his company’s 600,000 listings.

CoStar’s chief executive, Andrew C. Florance, says 148,000 land listings are now on his site, totaling around six million acres, or “two times what it was two years ago.” The floor under timberland is its long-term appreciation. That’s why pension funds, endowments, investors and trusts are putting money into it.

After posting four articles about Baby Boomers and their inclination to buy land, we’ll now begin looking at other groups who are jumping on the land bandwagon and capitalizing on what an excellent investment land can be.

Smaller investors understand the importance of portfolio diversity, and are  finding more opportunities to branch out. In addition to the expanding number of foreign real estate stocks that can be bought through brokers, there are more mutual funds focused on international property.

For the less intrepid investor, there are passive investments. Those with larger sums could put their money into private funds offered by companies like Mr. Blackbourn’s Everest Holdings and Mr. Shapiro’s Timbervest. There are also dividend-paying timber REITs, which hold portfolios of timberland. Their shares are publicly traded.

Mr. Shopoff’s REIT, which is publicly registered but sold privately, will focus on undeveloped and underdeveloped land. The minimum investment is $19,000. “We hope to capture appreciation in excess of 30 percent compounded annually,” Mr. Shopoff said.

Even some buyers without deep pockets are finding ways to afford the home they want to retire to. Some buyers are selling their homes deciding to rent instead in order to use the cash to build a nest egg and buy a retirement home. Prices on retirement homes purchased in resort locations are often volatile, negating the idea that the homes are an investment. That doesn’t mean they won’t appreciate, though.

While all real estate is susceptible to price declines, unique properties, such as those on a lake, tend to appreciate over time at a faster rate than traditional residential real estate because you can’t just replicate these kinds of properties in a subdivision.

Take a quick peek at who the largest landowners in America are by visiting http://www.landreport.com/americas-100-largest-landowners/

The fourth and final part of our segment about Baby Boomers and their land buying preferences focuses on their general trend to gravitate toward the country. Why is there a surge of interest to move outside the big city?

Boomers are moving to rural areas to experience the beauty, peace and serenity of the country. Unlike previous generations, they are retiring earlier and want to live where they can hike, bicycle, garden, start a horse farm or simply commune with nature. Ultimately it is to leave suburbia and its complications. It is a dream for a new start in the “second half” of their life.

Boomers are buying raw land in all shapes and sizes 

What type of land are Boomers purchasing? Remember it is about the destination – living in a rural setting. Most envision living on a small parcel of land (20 acres or less). They don’t desire a large tract of land as their focus is living near a small town (near a Super Wal-Mart and medical care).

Ryan Folk, editor of LandFlip.com keeps his finger on the pulse of recent land sales. According to Mr. Folk, what is selling? He says “Small home-site/retirement tracts under 20 acres… [and] very large, beautiful farms, ranches and plantations.” 

Not only are small parcels of land selling, but there is also a growing segment of Baby Boomers that are purchasing 100’s and sometimes 1000’s of acres.

Many Boomers have the financial means to purchase larger tracts of land. There hasn’t been a better time in our history to profit from land. Right now there aren’t enough investors to reap the rewards of profiting in vacant land real estate.