Where the buffalo roam: property investment in the American West
Data shows that farmland investments had averaged annualised returns of 12.7pc from 1995 to 2014, higher than those for gold during the same period
For some property buyers, waking up to the silence of the open plains of the American West is the best way to beat big city living. There are cattle grazing in the fields and wild horses running behind them, while streams cut through landscapes backed by snow-capped mountains. This is life on a ranch in the American West, the land where tales of cowboys and cattle rustlers are held close to heart. Owning a farm or a ranch taps into deeply held desires for freedom, independence and having open space to yourself.
“Most of the large Montana land owners love and enjoy the land,” said Todd Phillips, owner of Phillips Realty, specialising in farm and ranchland in central Montana. “Buyers like privacy, freedom and recreation.”
The American West includes the mountainous states of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming. These states have the least populated areas in the continental United States, and much of the territory has undeveloped wilderness and protected conservation areas. Climates and ecosystems vary greatly across the region, from grasslands to deserts to mountain forests.
Ranch and farm properties in the American West can range from seven-acre parcels of undeveloped grassland selling for less than US$60,000, to huge mountain estates complete with luxurious houses, staff quarters, stables, irrigation systems, rivers and scenic views that sell for more than US$100 million.
In the mountain state region, the average price of farm and ranch property was US$1,616 per acre in 2015 – the latest year for which figures are available – according to data from the United States Department of Agriculture (USDA). Kristina Nowak, a real estate agent who owns an 80-acre farm and ranch in Colorado, said that five years ago you could buy farm and ranchland in eastern Colorado for US$300 to US$500 an acre. The same land today will cost US$1,200 an acre or more if it is irrigated.
Stable agricultural markets, rising real estate prices in nearby cities, and low overall inventory are behind the rise.
“Ranchland just doesn’t come up for sale very often in many places,” said Nowak. And investing in ranches and farms in the American West has become a hot trend in recent years, with buyers now viewing such properties as a stable and low-risk place to park their money, much like government bonds.
“The rate of return on a Western ranch isn’t great, but appreciation can make all the difference. I’ve seen ranches double in value in just a few years,” said Christy Belton, a ranch broker with Ranch Marketing Associates. “The land here has the opportunity for wild appreciation if you time it right.”
From 1995 to 2014, farmland investments actually averaged annualised returns of 12.7 per cent, compared to averaged annualised returns of 5.8 per cent for gold during the same period, according to data from the National Council of Real Estate Investment Fiduciaries and Bloomberg.
But price-per-acre only tells part of the story, especially for developing empty land into farms or ranches. Investors will need to dig wells, add electricity and build the housing, as well as buy farm equipment, which can add hundreds and thousands of dollars onto the bill. Developing a ranch from scratch also means finding suitable builders, which can be tough with hot property markets in nearby cities such as Denver.
Finding a good investment property will take time and research. Belton said a good place to start was by calling local lawyers who handle land issues, and asking for top brokers in the area. “If you’re going into the process blind, that’s the best place to start.”
And most ranchers and farmers agree there’s no point in investing in land in the American West if you don’t plan to get out and enjoy what you’ve purchased from time to time. “There’s something very rewarding about working the land,” said Belton.
Know the lingo
Just as the American West has a unique way of life, it has its own distinct vocabulary to master. Here’s a quick guide to get you started:
An acre is a unit of land measurement that’s equal to 43,560 square feet. Farm and ranchland is traditionally sold by the acre in the US.
Bureau of Land Management (BLM)
The BLM is a government agency that owns and administers more than 245 million acres of public land in the US, equalling one-eighth of the overall land mass in the country. Many larger properties contain some land owned by the BLM, which cannot be developed or used in a way that disrupts the natural ecosystem.
Irrigated vs non-irrigated land
Irrigated land means acreage that is watered by artificial means. Non-irrigated land receives water only through rainfall. Irrigation vastly increases the value of land.
A conservation easement is a restriction placed on a piece of property that prohibits new development, though easements provide tax benefits.
These are excerpts of an article published in the October issue of The Peak magazine, available by invitation and at selected bookshops