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​​Ways to Invest in Real Estate—With (or Without) Buying the Farm

The ever-increasing value of land, coupled with the benefits of ownership, might entice you to change your lifestyle, or at least diversify your portfolio.

Written by Elaine King CFP® / September 22, 2022

Quick Bites

  • There are ways to invest in real estate directly or indirectly, and without emptying your savings.
  • A land loan could help you acquire acreage, but perhaps you’re better off investing without owning.
  • You might have a romantic idea about starting a farm, but renting land or investing in existing farms could be a good way to get started.
  • Also, consider the advantages of buying developed land for less, then upgrading fixer-upper structures to your specifications.

Did you know that Native Americans sold off the island of New York City to the Dutch for 60 guilders (their currency) back in 1626? That equates to a little more than $1,000 in today’s U.S. dollars. The point is land and real estate as an investment category has only continued to ascend in the past hundreds of years.

That’s why it should be a “must” in your investment strategy.

So how much or in what form should you own real estate? It will depend on your overall assets and earning power. For example, you can choose between buying a modest apartment and paying it down quickly; buying a medium-sized house and having a substantial mortgage; or adding some income-producing (farm?) land to your real estate portfolio. These and other options come with important lifestyle options, tax and loan considerations.

So, if you are wondering how to evaluate the risks and rewards of these land grabs, don’t worry, that’s why I’m here. And I can tell you right off: Investing in real estate doesn’t require you to empty all of your bank accounts. Here are three ideas to consider, plus some helpful context.

1. Buying land outright or investing from afar

Let’s use a real example: You watched the “Avengers” movie or “Breaking Bad” TV show and can see yourself in a house watching the mountains and desert sunset. You could be the proud owner of a piece of land in New Mexico. Recently, I saw a listing for a ranch spanning over two acres that has homeowners association and watering well fees. The advantage of acquiring such a property would be its vast potential. The disadvantage: How soon can you put it to work?

You see, when you put your money into land, you must evaluate the opportunity cost of acquiring bare land versus other opportunities, such as real estate investment trusts that have averaged double-digit growth annually. Would you rather invest from afar or fulfill a dream of developing a property into what you want it to be?

What Is a Land Loan?

What Is a Land Loan?

This type of financing allows you to purchase land for a primary or secondary residence.

Find out more

2. Investing in farmland, directly or indirectly

Maybe you saw the movie “The Biggest Little Farm” and want to build not only a house but grow your own crops and possibly make a living off of the land. For this, I recommend you first look at specific farmland states depending on the crops that you want to grow.

Next, look for land of at least five acres (the recommended amount for farmland). For example, if you choose Kentucky, cropland value averages $4,400 per acre according to a 2020 report from the U.S. Department of Agriculture (USDA). Of course, there are far more costs to get a farm up and going, including staff and equipment, but the USDA figures give you a starting point.

The advantage of owning farmland is that you can generate revenue over time and also live on the property. The disadvantage is that you will need more capital to get started, and it will require you to move.

A less hands-on approach is to invest in farmland that you don’t run yourself, using a company like Acre Trader. Alternatively, you can also rent land instead of buying it: The average land rental in 2019 was $132 per acre, and with a land lease exchange, you can find properties in Florida to rent for as little as $500 per acre.

Of course, always do your research with a professional and expert in the industry before investing your money.

3. Buying land and renovating existing structures

Let’s say you’re determined to quit your 9-to-5 office job and want to move to the mountains or prairies and either start a farm or raise animals. One potential hangup: Maybe you don’t have the budget to fully fund such a move.

Unless, that is, you don’t mind buying a run-down house with a large lot that you can slowly upgrade. That scenario also exists, and even though it’s not the least expensive solution, it gives you the opportunity to gain ownership quicker while having room to grow in the direction you desire.

Recently, I saw a listing of an old farm that had grown crops for many years, was barn-ready for animals and sported the equipment to raise chickens. It was selling for a fraction of the market value (though that could be for a reason, which a real estate agent or lawyer can help you uncover).

What Is a Construction Loan?

What Is a Construction Loan?

Whether you're working with a contractor or building on your own, a construction loan can help you finance the process.

Find out more

The advantage of this real estate investing option is that you can acquire land and the equipment needed to make it profitable—a particularly attractive benefit due to international supply chain problems and inflation. Buying a large property with existing structures could also mean having enough space for multiple generations of your family. You might even consider a business partner to divide the cost.

As you can see, there are many ways you can include land and real estate to your portfolio without emptying your bank accounts. Each of these options have its advantages and disadvantages—which one piques your interest enough to begin the research process?

About the Authors

Elaine King

Elaine King CFP®

Elaine has served as the Family’s Financial Planner for over 1,200 families and 100 multigenerational family enterprises crafting actionable family financial plans.

Full bio

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