It is intriguing to see the interest in land investments in rural areas as the COVID-19 pandemic spreads across the U.S. One question pertaining to land investments came from a senior level Dairy Science Management course at Virginia Tech, which utilized virtual lectures during the lockdown. “Is now a good time to invest in land at current appraised values? The next-door neighbor’s land is for sale. It is a good location for expansion, and we are financially able to service the debt at a 5 to 6 percent interest rate. However, we are concerned with where interest rates may be going!”
Some individuals who were cooped up in urban areas that were hard-hit by the virus are seeking more rural property with lower living costs. An article in a recent Wall Street Journal indicated urban flight from Los Angeles and San Francisco to rural areas of Nevada is now hotter than a pepper sprout. Interestingly enough, many of these transactions were cash purchases. If political leaders could prioritize broadband internet access to rural areas, there would be a significant increase in demand for rural properties.
Interest rates will likely remain low for a period of time. However, if you have the opportunity to fix your interest rates for a longer-term it may be advantageous. Regardless of the interest rate, the ability to generate income and cash flow to pay the debt is a high priority. Cheap interest rates can become expensive if there are insufficient means of repayment.
Where are land values in the cycle? In some areas and regions, land values have declined 20-30 percent. In areas with high-quality land, property values are holding steady and, in some cases, increasing in value.
Another consideration for this family is whether the land acquisition meets the goals of the business. In this case, the next generation is considering returning to the farm business and this property aligned with the expansion goals.
For many individuals, land purchases are a long-term investment. High-quality land with fertility, water access and a good layout being sold at a reasonable price should be a good investment moving forward, despite the pandemic and its implications to the economy. The key is to maintain one year of very liquid assets in escrow or short-term savings in case Murphy's Law or other unintended consequences should occur.