Agricultural land as an investment

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DeeKie

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I have about 120,000 available to me and was thinking that instead of paying off the balance of the mortgage which we comfortably meet each month that I’d buy agricultural land in the south east. I have some one knowledgeable who I trust to help me find a suitable property. My thought is I’d buy it and let it, as an additional income source.

Has anyone done similar? Any tips out there?
 
dub_nerd said:
What's the rate of return?
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Between 2% and 3% if you're very lucky.

DeeKie said:
Has anyone done similar? Any tips out there?
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Unless you've an interest in the land long-term, it's a crazy idea.
Decent land will cost you 7k+ per acre. More like 9k in some areas. So your budget isn't going to buy a huge amount.
You'd be lucky to rent it for 200 a year. Farmers can be quiet principled, so if you buy it and there was someone local who really wanted it, you might end up not being able to rent it to anyone.
If you ever want to get out, land is very illiquid, depending on immediate local demand.
You'll pay higher stamp duty rates, so there's a lot of upfront costs.
If you invest, it's not really for income, but a high risk gamble on value increasing. Unless you've a way to apply for agricultural relief for inheritance tax planning, I'd stay well away.
 
RedOnion said:
Between 2% and 3% if you're very lucky.


Unless you've an interest in the land long-term, it's a crazy idea.
Decent land will cost you 7k+ per acre. More like 9k in some areas. So your budget isn't going to buy a huge amount.
You'd be lucky to rent it for 200 a year. Farmers can be quiet principled, so if you buy it and there was someone local who really wanted it, you might end up not being able to rent it to anyone.
If you ever want to get out, land is very illiquid, depending on immediate local demand.
You'll pay higher stamp duty rates, so there's a lot of upfront costs.
If you invest, it's not really for income, but a high risk gamble on value increasing. Unless you've a way to apply for agricultural relief for inheritance tax planning, I'd stay well away.
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That’s food for thought
 
"Farmers can be quite principled", there are other things you could say, irrational, the madness of land that many farmers have. Agriculture land is still half the value it was in 2007 whereas the Irish stock market has largely recovered and other stock markets have done better again. There is a shortage of houses in Ireland not really a shortage of land especially out in middle of country
 
For me it is intended to generate a long term annuity with low maintenance and a capital value. It’s too little an investment sum to buy residential property. 3% is still more than its earning in my bank account.
 
Hi,

Apologies if my post was overly negative - meant it as a reality check. I'm from a farming family and have seen first hand the irrationality mentioned above.

As an example of what you could buy, I'm aware of a 7 acre field for sale in south Wexford. It's been for sale for a while - the usual story, neighbouring farmer wants it, but has no finance. So no other farmer that knows him will buy it.
Bit of negotiation and you might buy it for 45 - 50k plus stamp duty and legal fees. Let's say 52k.
Now your options to rent are the disgruntled farmer next door, or another neighbour who has 2 horses but no land. You'd be lucky to get 1500 a year from either of them. (And unlikely to get it on time from either of them). If you want to sell in 5 years, you could be stuck with it, or accept a loss.

You're correct to say land is low maintenance, but it's like any rental property. People won't treat it as their own. If there's going to be livestock, boundary fences need to be maintainted. Unless land is very good, and naturally drained, again drainage can need attention every few years.

It's a different situation if you had a huge amount of land, as you could enter into a long term lease where the renter will maintain (10 years is very common in agriculture, but that makes it difficult to sell).

Personally, I'd be interested in buying a small piece of land, but only because I'd make use of it long term. I wouldn't dream of it as an investment, and especially not if it was trying up a significant portion of my net assets.

If you're interested in property investment, I'd be having a look at investing in one of the property REITs before agricultural land. Or maybe even forestery at a push.
 
DeeKie said:
That’s food for thought
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Normally an investment portfolio with more than about 7% allocated to property is considered a high risk portfolio! It is a high risk asset class offering a low rate of return. Oh and the 7% is usually in a well diversified REIT. You on the other hand want to invest in a single property meaning that you are increasing that risk to a whole new level.
 
RedOnion said:
You're correct to say land is low maintenance, but it's like any rental property. People won't treat it as their own. If there's going to be livestock, boundary fences need to be maintainted. Unless land is very good, and naturally drained, again drainage can need attention every few years.
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++ this comment, if you look into fields in winter in ireland you see how bad things can get, if a farmer is renting your field he might use it for out wintering cattle or horses, (by the way the animals are ok because they in natural environment once they are well fed), however it is terrible for the land as it gets all mucked up and is more likely to grow weeds and dirt and look really bad, horses are the worst on land. Its the same as having the tennant from hell in the residential market. Its probably better to go for arable land as the farmers are usually better and need the land to stay productive so wont abuse it.
 
I wouldn't write it off as an investment. Get some in a good location that could be leased to perhaps a dairy farmer for a number of years. But be prepared to pay more per acre than €9000. I don't think €15000 an acre would be too expensive in the right area.
 
OP
Is the idea that the land would eventually, say 20 years, get zoned for residential development?

By comparison what is cost today of zoned land?

If buying agricultural land today on outskirts of large town what is the likelihood of it becoming zoned for development in 10/15/20 years time?
 
moneymakeover said:
OP
Is the idea that the land would eventually, say 20 years, get zoned for residential development?

By comparison what is cost today of zoned land?

If buying agricultural land today on outskirts of large town what is the likelihood of it becoming zoned for development in 10/15/20 years time?
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Not really. Although no harm if it happened to occur. If it were bought with that in mind it’d be a real gamble. No the idea is I have this sum of 120k. I’d like to buy an annuity with it. Agricultural land is a finite resource. The world population is growing and I come from a rural (but not farming) background. If I could buy low maintenance land in Kilkenny, say, rent it for tillage and hold it for 20 years or more would it be a good idea? It feels like it would be on basic principles but who knows.
 
The other alternative is use the 120k. Buy a property in Dublin for 350 to 400k ish.
 
DeeKie said:
The other alternative is use the 120k. Buy a property in Dublin for 350 to 400k ish.
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So break every rule of thumb for investing:
- Invest in high risk asset class
- Borrow to invest
- Fail to diversify among asset classes
- Fail to diversify within the asset class
- Invest in an illiquid asset
- Obtain a lower return that would be required given the associated risks.

As a result of the last recession Irish investors saw more of their wealth wiped out than in any other EU country. And the reason is very simple, they did exactly what you are considering - ignore the rules.

DeeKie said:
3% is still more than its earning in my bank account.
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A solid European REIT will yield about 5%-6% and a well balanced portfolio probably in the regions of 7%-9% and you are willing to accept 3% for taking on a greater risk!!!!

DeeKie said:
It feels like it would be on basic principles but who knows.
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Well the research suggests that a well balanced portfolio is likely to yield the best results over a 20 to 30 year period, so I don't know what basic principles you are working from.
 
Sorry Jim but you are just rehashing old nostrums without considering if they are relevant to the case. For example

Jim2007 said:
- Invest in an illiquid asset
.
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The OP has a 20 year timeline so an illiquid asset might be very suitable. Illiquid assets are generally priced down because they do not suit most investors, thus offering an opportunity to those who can cope with this aspect.

Jim2007 said:
- Borrow to invest
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The OP has €120k available and is talking about investing €120k. I do not see any reference to borrowing.

Jim2007 said:
- Fail to diversify
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For an investor with no knowledge or expertise in the underlying investment diversifying is a free lunch. However an investor who has experience in and understands the underlying investment, concentration may bring benefits. After all why diversify if you can identify the best opportunity.

Jim2007 said:
I don't know what basic principles you are working from.
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He told you right here


DeeKie said:
Agricultural land is a finite resource. The world population is growing .
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Now I do not agree with the OP, in my opinion agricultural land in Ireland is over priced. The yield before costs is modest. It seems to me that the scope for capital value increases is limited as agricultural land in other countries is cheaper than here. However I do admire his approach, and to dismiss it based on generalities shows little respect.
 
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