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Buying Land During High Inflation

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  • #16
    Re: Buying Land During High Inflation

    Originally posted by doom&gloom View Post
    I feel as if you are taking a rather simplistic view of farming and land in general.
    I don't want to lose sight of Badjuju's question -- which was something like, "When is the best, i.e., least expensive, time to buy land." I attempted to look at forces the would act to raise the price of land, or lower it.

    So regardless of whether farming is a good investment for those farmers who grow soy and wheat is less important than the question of the financial fate of farmers in general, and how that will affect farmland land prices.

    Also, the point is not whether the farmers that survive the crunch and no longer face competition will prosper, because this doesn't affect land prices in the same way than "loser" farmers going under and selling their land.

    You do raise a good point about pastureland in general being less suited for crops, but this is really a matter of degree. I would guess that even if 10% of pastureland would come on the market as cropland that the price of farmland would go down a lot. Where I live in Tennessee, I see a lot of land that now grazes cattle and yields hay that could be just as easily used as cropland. Now, to what extent that holds true for the rest of the US, I don't know.

    I agree that most people are very attached to their eating habits.
    However, when times get hard, people will adapt. Many people will not only get rid of their IPads, they'll eat burgers instead of steak, or macaroni and cheese instead of fish. In general, restaurants will not be a good investment.

    As far as taxation, again the issue is not whether saavy farmers like yourself will succeed, but what happens to farmland prices when the crunch hits.

    Regards land confiscation -- politicians will do what gets them elected, and people will do what feels good to them . . . regardless what History teaches or what is rational.
    Uraguay seems like a good place for farmers . . . but from what I gather, that may be beyond Badjuju's reach at this time.
    raja
    Boycott Big Banks Vote Out Incumbents

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    • #17
      Re: Buying Land During High Inflation

      I want to go back to this land quality issue v. pastureland.

      Here in the US, most 'good' land is rated by CSR -- Corn Suitability Rating. Some also has a soy rating, but in the land of King Corn, CSR is the be-all end-all of land.

      I suggest as the basis of a land education, you go here: http://realestate.hfmgt.com/AuctionbrResults.aspx

      spend some time in the sold lands and you will notice a few things trend the same direction.

      1) the higher the CSR (better yields), the higher the price
      2) the better the land (good drainage, 100% can be planted) the higher the price.

      Sometimes prices get extremely skewed, like when land sells in an area where no land has sold in a long time, or a bidding war starts between a fe farmers over some adjacent land. But that is not the norm in pricing.

      Moving on to the idea of a 'crunch'. I can foresee only two types of crunch, energy or financial. I have already noted my belief that farmland will be one of your better investments in an energy crunch. In a financial crunch, everything goes down. But you do not get into farming as a 'flipper'.

      Lastly,I would like to remind you that, prior to the industrial age, and then the FIRE economy, the two most recognized forms of wealth were land and gold. If over time we should head back that way, especially in PCO, I would much sooner want to own productive land, even if all I can do is graze cows on it, than office buildings or fast food franchises, or similar. The only investment I truly believe would be better to own than farmland would be a major railroad, and that is why I believe Buffet bought BN a few years back.

      Moving on to BadJuju's land investment, I am not sure one can buy any land with the idea that it will always go up. trees do not grow to the sky, Apple will not be $10k/shr (barring massive inflation) and no one can guarantee land will go up. Bought appropriately, the utility of a land investment can pay you back many ways however. In the right climate a couple acres could feed you indefinitely provided you are willing to work it and can your product for the off season. Purchased near an appropriate sized town and you can become and organic market farmer selling your goods in town on the weekend at Farmer's Markets. Purchased near a railroad or waterway stop, and you have a potential export market in the future should you buy large enough to begin with, or have the means to expand later. Purchased with running water over or abutting it and you have the means to generate your own power. And purchased with a woodlot on it as well in a colder climate and you have the means to have a perpetual heat supply if you keep replanting what you cut down.

      As I originally inferred, it is not the price that BadJuju should concentrate upon, it is the utility and location of the land that is most important. the right land will always hold it's value in more ways than price.

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      • #18
        Re: Buying Land During High Inflation

        Originally posted by doom&gloom View Post
        I want to go back to this land quality issue v. pastureland.
        I don't disagree with anything you're saying about that.
        The question is . . . if humans revert to a more vegetarian diet due to economic stress, how much pastureland will be converted to cropland, and how will that affect farmland prices?
        I don't have an educated answer . . . just a hunch . . . and that is that farmland would go down in price, because there will be enough pastureland of adquate quality to convert successfully to farmland.
        If you have data that indicates otherwise, I would accept that my hunch is wrong.

        Moving on to the idea of a 'crunch'. I can foresee only two types of crunch, energy or financial. I have already noted my belief that farmland will be one of your better investments in an energy crunch. In a financial crunch, everything goes down. But you do not get into farming as a 'flipper'.
        I agree with the first part. However, being a relative "better" investment doesn't mean that farmland won't go down.
        As to the "flipper" part, I think farmland is being purchased now precisely to be "flipped", but perhaps over the long rather than short term, which may preclude using the word "flip". Let's just say I think there are people buying farmland who are not farmers, and will just rent the land, or even keep it unused except for hay.

        Lastly,I would like to remind you that, prior to the industrial age, and then the FIRE economy, the two most recognized forms of wealth were land and gold. If over time we should head back that way, especially in PCO, I would much sooner want to own productive land, even if all I can do is graze cows on it, than office buildings or fast food franchises, or similar. The only investment I truly believe would be better to own than farmland would be a major railroad, and that is why I believe Buffet bought BN a few years back.
        Perhaps it is due to our different personal/financial circumstances and needs. But aside from my own personal farm, I am favoring rental properties over farmland . . . .

        Moving on to BadJuju's land investment, I am not sure one can buy any land with the idea that it will always go up. trees do not grow to the sky, Apple will not be $10k/shr (barring massive inflation) and no one can guarantee land will go up. Bought appropriately, the utility of a land investment can pay you back many ways however. In the right climate a couple acres could feed you indefinitely provided you are willing to work it and can your product for the off season. Purchased near an appropriate sized town and you can become and organic market farmer selling your goods in town on the weekend at Farmer's Markets. Purchased near a railroad or waterway stop, and you have a potential export market in the future should you buy large enough to begin with, or have the means to expand later. Purchased with running water over or abutting it and you have the means to generate your own power. And purchased with a woodlot on it as well in a colder climate and you have the means to have a perpetual heat supply if you keep replanting what you cut down.
        All things considered, there is no more safe investment under a variety of distressed future scenarios than a homestead farm . . . that is if one is willing to be a farmer.
        [/QUOTE]
        raja
        Boycott Big Banks Vote Out Incumbents

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        • #19
          Re: Buying Land During High Inflation

          Lots of farmland is nnow purchased for rental, yes.

          However you should revisit your belief that pastureland will amend farmland by asking yourself will building more houses. Hangs rental rates of return...

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          • #20
            Re: Buying Land During High Inflation

            Originally posted by doom&gloom View Post
            Lots of farmland is nnow purchased for rental, yes.

            However you should revisit your belief that pastureland will amend farmland by asking yourself will building more houses. Hangs rental rates of return...
            I can't understand what you wrote . . . .
            Could you elaborate?
            raja
            Boycott Big Banks Vote Out Incumbents

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            • #21
              Re: Buying Land During High Inflation

              Originally posted by raja View Post
              I can't understand what you wrote . . . .
              Could you elaborate?
              Damn iPhone autocorrect! You know what the 'i' stands for, right? Idiot because Apple treats its users like idiots.

              I meant to say the same belief you have that pasture will amend cropland extends to rental housing. More can easily be built bringing down rental return rates, or taxes can rise, or both.

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              • #22
                Re: Buying Land During High Inflation

                When I think of what BadJuju wants, I think of someything like this...

                http://www.nylandquest.com/properties.asp?id=77472

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                • #23
                  Re: Buying Land During High Inflation

                  Originally posted by doom&gloom View Post
                  I meant to say the same belief you have that pasture will amend cropland extends to rental housing. More can easily be built bringing down rental return rates, or taxes can rise, or both.
                  There are many downsides to rental property.
                  Here are forces that affect rental property prices in the downward direction:
                  1) As the global economy tanks, more and more people will start living with relatives, friends, or in shared spaces. Less demand. Landlords will have to lower rents, thereby making RRE less profitable, and rental property less desireable, which equals lower prices.

                  2) Those who've purchased property on leverage and are expecting to pay back their loans in cheap dollars will be shocked when the gov't stipulates that all mortgages be paid back in "new dollars". After all, gov't wants to protect the bankers. When Landlords can't pay their mortgages, lots of property will go on the market, which equals lower prices.

                  4) As people will become poorer, their ability to pay rent declines. Landlords will be able to charge less rent, and rent collection will become less reliable. Prices downl.

                  5) Rent control may be instituted.

                  6) Property taxes will go up, as gov'ts become desperate for money.

                  7) A pandemic reduces population . . . so less housing demand.

                  8) In the most extreme case, there could be a political backlash against the rentiers. For example, individuals may be allowed to own only 1 additional property beyond their own home. The "excess" properties are conficated by the government and given to the People at very reduced rents . . . paid to the gov't, of course.



                  As I have said many times, there a no failsafe investments.
                  However, why I prefer rental real estate to farmland . . . .

                  If you have farmland as an investment, you have to farm it, or hold it to sell later.
                  Personally, I like to keep things under my control, and not have the complications that come with employees or business partners. Of course, with REE you still have to deal with renters, which is "entertaining" at times, but when you learn how to do it well, you seldom lose money. In the farming business, there are many risks, such as drought, pestilence, etc. My impression is that you really have to go large-scale to make money.

                  As far as holding farmland for later sale, if there's big inflation, you end up paying inflation tax on your profits. Plus, you have to pay property tax while you own the property, and care for the fields with liming, weed control, etc.
                  With rentals, I don't ever plan to sell the properties, so I'll avoid inflation tax and just collect the income.

                  I've talked to several farmers around where I live, and they all say the same thing: there isn't any money in it. The local farm Co-Op said there are only two "real" farmers in the county; the rest are all hobby farmers with other jobs. Perhaps things are different in other parts of the world.
                  I'm not saying you won't be successful GEC, but it's too risky for me.
                  raja
                  Boycott Big Banks Vote Out Incumbents

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                  • #24
                    Re: Buying Land During High Inflation

                    what about interest rates? If inflation is up, will not interest rates follow? How does that figure into land prices, if prospective buyers cannot get credit?

                    I do agree with what you are saying about land value parameters.

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                    • #25
                      Re: Buying Land During High Inflation

                      Originally posted by raja View Post
                      There are many downsides to rental property.
                      Here are forces that affect rental property prices in the downward direction:
                      1) As the global economy tanks, more and more people will start living with relatives, friends, or in shared spaces. Less demand. Landlords will have to lower rents, thereby making RRE less profitable, and rental property less desireable, which equals lower prices.

                      2) Those who've purchased property on leverage and are expecting to pay back their loans in cheap dollars will be shocked when the gov't stipulates that all mortgages be paid back in "new dollars". After all, gov't wants to protect the bankers. When Landlords can't pay their mortgages, lots of property will go on the market, which equals lower prices.

                      4) As people will become poorer, their ability to pay rent declines. Landlords will be able to charge less rent, and rent collection will become less reliable. Prices downl.

                      5) Rent control may be instituted.

                      6) Property taxes will go up, as gov'ts become desperate for money.

                      7) A pandemic reduces population . . . so less housing demand.

                      8) In the most extreme case, there could be a political backlash against the rentiers. For example, individuals may be allowed to own only 1 additional property beyond their own home. The "excess" properties are conficated by the government and given to the People at very reduced rents . . . paid to the gov't, of course.



                      As I have said many times, there a no failsafe investments.
                      However, why I prefer rental real estate ....
                      Very nice list of risks, raja.

                      Numbers 1, 2, 4 and 5 can be mitigated by paying cash and buying modest properties with rent near the bottom of the price range.
                      Numbers 7 and 8 seem like low probability events, nearly doomsday scenarios.

                      Number 6, rising property taxes, seems like the risk to consider most.

                      When I spoke with a friend about my plan to buy rental properties, he told me that you can't actually own real estate -one must rent it from the government, and they call the rent "property taxes".

                      I'm still moving ahead to buy rentals, but his comment resonates with me.
                      "You can't actually own own real estate, you rent it from the government..."

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                      • #26
                        Re: Buying Land During High Inflation

                        Originally posted by thriftyandboringinohio View Post
                        "You can't actually own own real estate, you rent it from the government..."
                        Along those lines, you do not actually "own" your life, you just "rent" it from the government -- taxes, driver's license, other requirements.

                        If you view property taxes as paying for desireable services -- schools, roads, etc. -- then it's a resonable arrangement, as long as there is no or little corruption. However, I think they should only tax income and/or sales, not property. Take an old widower who owns a house but no longer works and has only retirement income . . . seems like she should be exempt from property taxes.
                        raja
                        Boycott Big Banks Vote Out Incumbents

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                        • #27
                          Re: Buying Land During High Inflation

                          Originally posted by raja View Post
                          Along those lines, you do not actually "own" your life, you just "rent" it from the government -- taxes, driver's license, other requirements.

                          If you view property taxes as paying for desireable services -- schools, roads, etc. -- then it's a resonable arrangement, as long as there is no or little corruption. However, I think they should only tax income and/or sales, not property. Take an old widower who owns a house but no longer works and has only retirement income . . . seems like she should be exempt from property taxes.
                          The key word there is corruption. Go to Northern Illinois and look how much the Forest Preserve takes in property taxes for a bunch of trees that pretty much maintain themselves. The money is not for trees, it is for administration and high pension and retirement costs for mostly needless workers given patronage jobs.

                          Go look at the taxes on farmland. They are rarely if ever very high.

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