Land purchase - is this a good deal?

[WaitForIt]

Location: near Windom, MN (Cottonwood county)

~38 ac

Lakeshore on shallow (6ft avg. depth) 'green' lake - not a great deal of recreational value

The land consists of 28 acres rolling CRP and about 8-9ac of forest along the lake.

Asking price: $50k (appraised tax 2009 value is $40k)

CRP payments: $2500/yr, just renewed for 10 years in 2008

taxes: ~$250/yr

The CRP portion of the land is planted in native grasses and holds pheasant and some deer. I am primarily interested in this as a buy and hold investment, I would probably get out there to hunt pheasant 2-3 times and maybe a weekend deer hunt with bow and arrow but thats it. It is not my ideal property from a strictly hunting viewpoint.

I am having a hard time pricing land out that way - I see anything from $3k/ac for prime farmland down to $1200/ac for marginal lands. I am assuming this land is the latter, though I'd have to see the soil maps for sure. It was farmed at some point in the past but has been in CRP as long as I can remember.

The land is owned by my uncle who due to financial circumstances has to sell quickly. I am assuming that he has consulted a realtor and was advised that non-farmable land is a tough sell right now and he cannot wait. I am sure his asking price was derived from what listing would be minus realtor fees. In other words, I don't feel that he is really offering a huge family discount.

Would you buy it? I'm really hoping someone with experience owning CRP lands will stumble across this topic.

[Fishfanatic]

Hey Waitforit,

Being a Realtor in North-central MN, I deal with alot of different types of property, including bare land (no bldgs)

Based on what you said, why would you spend more than the appraised value? Is there something there that makes it more valuable? As far as investments go, in Real Estate you make money when you buy low and sell high. Based on what you have described, and knowing the market, the price seems a little on the high side

It all comes down to the sellers Motivation... If he wants to sell bad enough, he will drop the price. If he wants top dollar, he will be waiting a while in todays market.

If you have any questions, drop me a PM

[email protected]

Fishfanatic

[WaitForIt]

I'm really not willing to overpay - we are just starting the discussion. The problem is that I don't put a lot of faith in the county tax value in either direction up or down. There are so few sales in the area that it seems valuation may be a guess at this point.

That being said, given $2500/yr in CRP income what would be a price at which this becomes a no-brainer?

I suppose the best step I can take is to shop for other properties with CRP income and compare. I don't expect that appreciation on this land would do much other than track inflation over the long haul.

[mrklean]

i would test him a bit see how willing he is to sell, if he wants it gone like they said before he will sell

[Code-Man]

Land is very wise investment in my book but if they are asking for more then what the appraisal is that just means he wants to get min of what it's worth. No one gives acutal price as an offer. High ball low ball and settles around what it's worth in my book.

CRP if it's 2500 a year for 28 acres which comes to 89.29 an acre. Friends of mine have it in for over 100 which seems a bit low to me for the income off of the land. Sure it's still nice to get almost 90 but just stating a fact what others are getting.

Is there a potential for putting a house out there to over look the lake? Big thing up in my neck of the woods are the little "Swamps/Sloughs" are getting bought up because it looks roustic (sp?).

[BoxMN]

As a duck hunter, if the pond/slough is capable of sustaining water year round, and you can duck hunt it, and it is fully yours, that would make that piece of property more valuable than other similar but not the same pieces.

Good luck whichever way you go. Interest is relatively low right now, which helps you out.

edit - I just reread and see it is not a lake/pond that is fully surrounded by the land for sale. Still could be good for duck hunting, if you do that sort of thing, but not as valuable as a land locked lake.

[BLACKJACK]

Location: near Windom, MN (Cottonwood county)

~38 ac

Lakeshore on shallow (6ft avg. depth) 'green' lake - not a great deal of recreational value

The land consists of 28 acres rolling CRP and about 8-9ac of forest along the lake.

Asking price: $50k (appraised tax 2009 value is $40k)

CRP payments: $2500/yr, just renewed for 10 years in 2008

taxes: ~$250/yr

The CRP portion of the land is planted in native grasses and holds pheasant and some deer. I am primarily interested in this as a buy and hold investment, I would probably get out there to hunt pheasant 2-3 times and maybe a weekend deer hunt with bow and arrow but thats it. It is not my ideal property from a strictly hunting viewpoint.

I am having a hard time pricing land out that way - I see anything from $3k/ac for prime farmland down to $1200/ac for marginal lands. I am assuming this land is the latter, though I'd have to see the soil maps for sure. It was farmed at some point in the past but has been in CRP as long as I can remember.

The land is owned by my uncle who due to financial circumstances has to sell quickly. I am assuming that he has consulted a realtor and was advised that non-farmable land is a tough sell right now and he cannot wait. I am sure his asking price was derived from what listing would be minus realtor fees. In other words, I don't feel that he is really offering a huge family discount.

Would you buy it? I'm really hoping someone with experience owning CRP lands will stumble across this topic.

Wait for it - I live in a rural area - Kandiyohi county - and am always looking for some hunting land, I like to keep my pulse on the price of land in case I see a bargain. Two years ago I ended up buying 40 acres next to me, it had 21 acres of cropland and the rest swamp and marginal land. I probably overpaid at $2200 an acre but its not every day you get the opportunity to buy the farm next door. Plus it would have killed me to watch a big farmer come in with a dozer and big backhoe and take out all the trees and wetland. My thoughts:

1) Theres a big, big difference between asking price and selling price!!! Asking price is determined by the realtor - the best way for them to get the listing is to promise a high price. Make the listing agent show you some comparable sales in that area that justify the price. Better yet, goto the assesors office and do your own research, they have a book of sales within the last 6 months by township, and they can even help you look back farther. Find other comparable properties with a mix of farmland and marginal land, to me thats the market value and should determine what you're willing to pay.

2) While you're at the assesors office, talk to the assessor about that property, whats happening with land values, etc. Assesed (tax) value usually lags behind sales, if land is going up, a year later your assessed value will go up, if land values go down, your assessed value will go down. To me, assessed value is not a true indicator of actual value, it just a ball park figure. Also, you used the term 'appraised' value - appraised value is not the same as assesed value!!! An appraisel is when a paid appraiser determines the value of a piece of property by doing what I described in number one, going to the assessors office. I once hired an appraiser to appraise my property that I was selling myself, but I wouldn't do it again - because I know that I can goto the assessors office and do it myself.

3) How close are you to a large city? If you're within 25-30 miles of a large city, your investment value goes up for someone to buy and build a house on. Thats what is driving up land values in this area.

4) Any farmland/CRP follows the price of corn. When oil jumped, and then corn jumped to $7 a bushel, the price of land jumped. Now when corn is back down to less than $3 a bushel, farmers won't be out there buying up more land at high prices, so overall farm prices should go down from two years ago.

5) Remember that CRP payments come once a year, you'd have to make the monthly payments - but then you get a nice check in October.

$50,000/38=$1315 an acre, you wouldn't find much land around here for that!!! I'd say its a good buy, unless the CRP land is really steep. Get up to the assessors office in Cottonwood county!!

Good luck!! As you can see I'm passionate about this subject!! I just wish I had more money to invest!! Let me know if you have any more questions!

[dirtking]

BlackJ - I was thinking that price sounded pretty reasonable too. Two farms just sold next to our and were darn close to 4 g's an acre!

[Jarrod32]

Yeah...it depends on how badly you want some hunting land. If it is good for pheasant and waterfowl, might not be a bad little hunting parcel.

Just gets down to how much you are willing to pay for it and what you expect to get. You didn't indicate if you had the cash for it, or would have to finance it (and you certainly don't need to reveal that...but it does make a difference).

You said $2500 CRP payments, with a $250 tax pmt each year. Leaving out other expenses, that gives you net revenue of $2250 each year. If you put in the cash yourself, and don't need to finance anything, that is a 4.5% cash-on-cash return on your $50k. Not a bad deal for a hunting parcel.

If you need to finance it, you will probably end up needing to make payments above the CRP revenue. $2000 per year for payments on a 15-year loan will support somewhere in the neighborhood of $20,000 in present-value debt. So, if you have to finance more than about $20k, you will end up needing to come up with extra money to make the payments (a couple hundred dollars per month, give or take).

Financing $50k in its entirety (and you will be hard pressed to find a lender to finance more than about 80%) would result in monthly payments of around $400-$450, depending on interest rate. $2250 per year CRP revenue comes out to about $190 per month, so you end up needing to come up with around another $250 per month...

[LOTWSvirgin]

Can I ask what lake this is on? Iam not going to try to steal it out from you just from that area.

[Double D]

Has he mentioned this to other people that you may have to bid against?

DD

[BLACKJACK]

Yeah...it depends on how badly you want some hunting land. If it is good for pheasant and waterfowl, might not be a bad little hunting parcel.

Just gets down to how much you are willing to pay for it and what you expect to get. You didn't indicate if you had the cash for it, or would have to finance it (and you certainly don't need to reveal that...but it does make a difference).

You said $2500 CRP payments, with a $250 tax pmt each year. Leaving out other expenses, that gives you net revenue of $2250 each year. If you put in the cash yourself, and don't need to finance anything, that is a 4.5% cash-on-cash return on your $50k. Not a bad deal for a hunting parcel.

If you need to finance it, you will probably end up needing to make payments above the CRP revenue. $2000 per year for payments on a 15-year loan will support somewhere in the neighborhood of $20,000 in present-value debt. So, if you have to finance more than about $20k, you will end up needing to come up with extra money to make the payments (a couple hundred dollars per month, give or take).

Financing $50k in its entirety (and you will be hard pressed to find a lender to finance more than about 80%) would result in monthly payments of around $400-$450, depending on interest rate. $2250 per year CRP revenue comes out to about $190 per month, so you end up needing to come up with around another $250 per month...

Good evaluation Jarrod!!! You have to figure out what your monthly payments will be, which is dependent upon your down payment and interest rates, subtract the income, and then decide if that monthly payment is worth it. I will say that its easier to justify if you're going to build a house on that parcel, might as well get some recreational land to go with your building lot.

[southwest]

i would purchase before the DNR does, they are buying about 120 acres by Sanborn, even thought they are broke. They drive up the price of land.

[jlm]

I think this is a decent purchase in my opinion. Whatever the case, if you use it, enjoy it, and find it something that helps with your stressful life, its a GREAT deal. Life is too short to sit around and think about the "what if's". If you can afford it jump on it! Good luck!

[bhuntr]

I would agree, good deal. How much are you throwing into your 401k a month,the real question is can you use your 401k now, and is it making money or at least staying even?