What Is the ROI on Farm and Ranch Investments?

ranch investmentsIf you are new to farm and ranch investments, you might be wondering how this business works.

Will you be able to reap a worthy return on your investment? There’s no reason to second guess your investment in a farm or ranch. There are plenty of seasoned investors who thrive in this industry.

Read on to learn about the valuable return on investment that you stand to earn!

Changing Your Perspective

If you don’t have much experience with farming and ranch investments, you may have to adjust your perspective to grasp the big picture. There are a few considerations for these types of properties that may not be the same as other types of real estate.

When considering your return on investment, the property itself is only part of the equation. 

For example, the annual return on investment of a cattle ranch could depend largely on the value of the cattle stock. When you add up the annual return on investment from the cattle, you could be looking at anywhere from a 30 to 130% return. While this article is from 2014 and cattle prices have dropped considerably it still shows this cyclical business can outperform many investments these days. This type of rate of return is higher than the average return rate for many business investments. 

Ranch Investments Reap What they Sow:

Ranch investments offer something that other land and property investments don’t. Their ROI tends to lie in what the buyer makes of the land, not just in how the land value rises and falls.

If a rancher is willing to work for a return on their investment, the possibilities of a lucrative investment increases.

ROI, or return on investment, is defined as the ratio of money gained or lost on an investment, relative to the cost of the investment.

Sometimes, the bottom line on the high added costs of equipment, seed, fertilizer and stock is too high for farmers to consider a purchase as being financially responsible.

However, if a rancher takes into account total return over a period of years, rather than annually, they are likely to consider the property as a wise investment.

Why You Should Invest in Ranch and Farm Land: 

In today’s world of instant gratification, FED and government influenced stock market, flipping houses and high dollar neighborhoods are what many real estate investors depend upon.

But, ease of cattle and meal-related products has led even the National Association of Realtors to advocate for the investment of land over typical property.

Another bonus to ranch investments is consideration of the possible leasing customer. For investors, this can prove to be a major decision making factor by taking the operations headaches off the table.

Lessors who are picked carefully and using the property to raise crops or cattle are likely to care for the property. After all, they are depending on the land for their livelihood. They are using the land as an investment of their own.

A buyer who purchased strictly ranch investments could yield a reasonable return by leasing their property to neighboring cattle and farming operators.

The Greatest Selling Point for Farm and Ranch Land:

Ted Turner, who is now one of the most profitable land owners in North America, made a chunk of his fortune in ranch investments.

Another famous rancher by the name of Warren Burke bought his first piece of ranch land with $1500 down. He sold his investments, one of which was bought by Tom Brokaw for over a million dollars. A more recent sale by Burke included an 8000 acre, 7 million dollar deal. These have been profitable operationally and the appreciation over the time was significant as well.

While it’s true that investing in ranches has made a way into the Great American Dream, that may not be the most convincing point in the buying and selling of farmland.

As Warren Burke has claimed, it was not the profit that held the most appeal in buying and selling ranches. It was the work, and the lifestyle. Memories are created better in this investment than in any other. The statement “your portfolio has never looked better” holds very true.

It should be noted that owning a ranch can translate into tax treatments that the internal revenue service classifies as like-kind exchanges, deferring capital gains. This can definitely help an investor’s outcome. Warren Burke, for example, did not have to pay taxes until he down-sized. Farming and ranching is also an investment that can have significant tax write offs that other businesses don’t possess.

It’s not the tax benefits that are the greatest selling point in ranch property today. Nor is it the earning potential.

Although both of these are factors for most investors, it is the overall picture that seems to captivate most buyers.

There is still something about owning your very own corner of the American Pie that resonates with land owners. Taking land and improving it and the genetics of animals and crops can be a very addicting pursuit.

Conclusion on ROI on Farm & Ranch Investments

The return on investment of a ranch is hard to calculate, and sometimes, impossible to know in the short term. 

Even comparable values of property that are in close proximity cannot always give you a fair idea of what the ROI is on ranch property. Much of it depends on the productivity of the land and operation managements.

If you are an investor, ranch property is worth consideration. But finding the right buyer, and the best use for the property matters in the grand scheme of things.

If you are an investor who appreciates ranch life, then farmland and ranch investments may be a good option. Not only are you selling the value of the land, but you are also selling the potential of the land and the future potential appreciation.

Because you sell barren land, does not mean that in a year or two it could not be yielding timber, or supporting cattle or some other type of revenue stream.

Ranch investments require more than just the money. They require a vision. A vision for the buyer, as well as a vision for the seller.

If you can envision additional revenue streams on a piece of property, you are more likely to show the potential to another party. And if they can envision it, they are more likely to bring the idea to fruition.

As every good real estate investor knows, the best sale occurs when you help someone live out their dream and be successful.

Owning a farm or ranch is a life long dream for many of Americans.

Interested in becoming a ranch owner or investor? Click here to become the owner of some of the most beautiful, reasonably priced ranch property available! Comb through our property listings, or tell us what your needs are and we will help you start what likely will be the most enjoyable investment you make! If you want further and more in depth information try reading Montana Land for Sale Values(Factors Affecting MT Land Values) or 7 Reasons to Start Investing in Land Now

About Buzz

Buzz Tatom is a Partner at Venture West Ranches. He moved to Montana 6 years ago looking to retire. That lasted 6 months. Buzz still owns the 5T ranch in Texas and has extensive experience adding value to ranches. He has a BBA from Texas Tech and an MBA from SMU. When not mentoring students or being a part-time professor at MSU, Buzz and his wife, Kathy are involved in a number of business ventures. 

 

 

 

 

 

 

Posted in Blog.