You are thinking about buying some land in Montana and you want to know whether it is going to be a good investment. In today’s world, anyone that says you will definitely make money in buying land, a farm or a ranch in MT is full of something you don’t want to smell or touch! Montana land values are a compelling investment and Montana land for sale has a history of rapid appreciations if bought at the right time. Average annual appreciation ranges from 2-8% depending on the type of land, locale, cattle, and mineral prices, etc…but can be lower or much higher depending on many factors. That is why we created this post: to outline some of the factors that are going to influence values of Montana land and ranches for sale and their prices.
Real Estate appreciation is a great deal about timing. Buy low and sell high. The longer the hold period, the greater possibility to smooth that out. It is like dollar cost averaging if you are intending to hold for 10 years or more. You don’t want to overpay and you want to sell at the top of a cycle. This isn’t a new theme for investing but most mortals have a hard time following buy when there is blood in the streets and sell when everyone and their dog is trying to get in. Here are factors that you should consider if you are looking at Montana land or MT ranches. Many will be factors that can crossover but I put them in the one category that best fit. You will also find that geography and recreational vs agricultural value will have strong influences. Western Montana land is historically going to be valued with some level of recreational and development potential, so prices are going to be higher per acre than Eastern Montana land that has more of an agricultural influence in valuation. Eastern Montana land and ranches are starting to see some recreational influence in valuation and that may represent an opportunity for higher appreciation for savvy buyers of Eastern Montana land with recreational pursuits.
One other thing to consider when investing in land in Montana is the building of a home on the property. I encourage buyers to take their time and to consider the home they are going to build on the property. If land is valued at agriculture valuation the 10,000 square foot custom log home may not bring what you have put into it. Many times we see owners taking a severe loss in a market that just won’t carry the price that they have put into a dream home. It depends on the buyer but if the market is struggling and being valued more from an agricultural standpoint severe losses on large homes can happen.
Here are the factors that are going to impact valuation on Montana land for sale:
Generational Factors to Montana Land Values
Montana ranchers and farmers are thinking about retirement. Well, not all of them but there is certainly a high percentage that are reaching the age of planning succession or trying to decide when is the right time to monetize their asset. The average age of Montana farmers and ranchers is 60 years old. Will there be a flood of properties that will drive market prices down or is their an abundance of buyers coming that see potential appreciation? At some point, it boils down to supply and demand and that is the $64,000 question. Will there be enough financing available for this generational shift? If there is limited lending that would limit the buyers.
Another generational factor would be the Baby Boomers. Born from 1946-1964 many of them are retiring, wanting to escape the city and looking to attain farms, ranches, and land to enjoy. There are somewhere around 78 million baby boomers. The generation dwarfs all other generations when it comes to wealth. Many are the above farmers and ranchers considering retiring but they are outweighed by the ones that grew up in the city that might have a desire and wealth to purchase Montana land to enjoy.
The Millennials also need to be considered as a factor considering that the ownership transition will be in the next 10-15 years. The millennials are saddled with enormous student loan debt of over $1.4 trillion and will likely be the first generation to not have a better economic life than their parents. Will they be a factor in purchasing Montana land for sale or could their lack of wealth drive Montana farm and ranch prices lower?
Financial Factors Contributing to Montana Land for Sale Values
Financial factors will play a huge role in MT land values in both the short and long term and will play a factor in long-term values. The Stock Market and Economy have always played a factor in land prices. With globalization and the world is tied together this potentially impacts the state of Montana in a big way, even though we are one of the least populated states in the US. One of the major factors in the increase in Montana land values has been the recreational use of Montana land. Montana land for sale is rich in recreational use with hunting, fishing, agriculture and potential development. These are all influenced by where the stock market is at the moment. For that matter, the general economy will definitely affect land prices and what people are willing to offer to purchase land in general, and especially, recreational land. When the markets and economy are suffering, we see Montana land prices revert back to agricultural valuations which means lower prices. People don’t have the extra dollars at this point to support recreational pursuits and the squeeze can bring Montana land and ranches onto the market to help cover other financial areas of owners lives. Conversely, when the markets and economy are doing well, people are willing to bid land up for recreational pursuits such as hunting and fishing.
The Deficit of our Governments will also play a large part in determining land values. I have never seen a debt problem solved by more debt and that is, unfortunately, the world we live in now. The US debt may be $20 trillion by the time you read this post. The US governments revenue was $3.3 trillion in 2016. With no end in sight of balancing the budget that means we are quickly headed towards a day of reckoning. The published deficit doesn’t even include the total Federal government obligations(See Total Federal Obligation Chart above) or state and local deficits and obligations. The US is not alone, with most of the West deeply in debt and not willing to face changing excessive government spending. How will this affect Montana land values? It depends on how our governments deal with the issue but history tells us politicians will take the most short-term painless way out. We would likely deal with a decline in all asset prices in the short term but then the easiest way out is to devalue the currency to make the deficit more meaningless. This would lead to inflation where land values historically would do very well. Especially, productive land such as Montana land for sale.
Look, Interest rates set by the FED are a factor in Montana land for sale values and would be accentuated by the above issues. Bottomline is that the higher payments and interest that a buyer is facing, the less potential buyers you are going to have and that will likely impact the amount someone is willing to pay for land, farms or ranches. The effect that going from our present just over 1% Fed Funds Rate to the historical high of 20% with a target rate of 2-5% could dramatically affect funds available to loan for Montana farms and ranches.
Public and private debt also play a factor. At some point of debt, lenders become worried about getting paid back. We may be near that point considering…at the very least they expect more of a return for the perceived increase in risk. This means both public and private debt is very concerning. We have unfunded liabilities coming at us from all over the place. Federal, State and Local governments have all have made promises that they can’t keep. The private debt is not in much better shape.
Inflation(see above chart) is being reported at still historical lows but the government keeps changing the formula. If you look at the above chart courtesy of shadowstats.com our inflation rate today as calculated in 1980 would be over 10% but what is being reported by the federal government is under 3%. This stealth inflation, at some point, if realized would have a dramatic effect on Montana land prices. This could be FED driven or driven by investors that quit buying US Debt until a more realistic Risk/Reward ratio emerges.
Government and Montana Land for Sale Values
Surprise, surprise but Government entities can impact Montana land for sale values. Through either taxation or regulation, land values can be dramatically affected. A change in taxes can be positive or negative. For instance, if Capital gains taxes are increased/reduced it would help some buyers and even sellers in making decisions to list or purchase land. The seller would possibly get more money in their pocket and if a buyer did not have to pay as much capital gains on another asset there would be more liquid assets looking for a place to invest.
Estate taxes also affect the seller that has to make decisions on their taxable estate, planning and whether they will be able to pass the Montana land on to the next generation and whether the generation has an interest in the land. If they do pass the land on to the next generation that can be an advantage(tax wise) since the new cost basis would be established at the time of death versus having the cost basis of the original purchaser. However, if estate taxes are low and look to rise over time this can encourage the seller to consider the tax savings by selling. This is especially true if the next generation has no interest in continuing on the property.
Income taxes(whether State or Federal), if high enough or increased can depress the value of MT land for sale. If potential buyers do not see a good enough return on their investment the price they will pay for the property will be reduced. However, if buyers view Montana ranching or farming as a good tax reduction tool, buyers might be willing to pay more for a property in a high tax/high write-off environment.
The government also can enact or get rid of regulations that can increase or decrease land values in Montana. As an example, if the federal government passed restrictive regulations against cows and methane gas it would likely negatively affect Montana ranching land value prices. It is just a fact that in this big government environment decisions are made by bureaucrats whether elected or not, can make a difference to land values.
There are a number of societal trends that could very well make a difference one way or another in prices of land values in Montana. Societal changes can be very powerful forces in investing and asset prices.
There appears to be a startling trend in people wanting to move out of cities. Crime rate increases in the big cities and the ability to telecommute to jobs is certainly a part of this trend. I think also more and more people are looking for a simpler life and a place to raise their kids in a safer environment.
Automation and technology are going to be factors that will impact land values. Farm equipment is not very far from being totally automated to plow, seed and harvest. With GPS and automation technology advancing the general farm market will not need a person driving before too long. Set what you want the equipment to do, prepare it with seed and let it go. This will enable each farmer to be able to farm bigger parcels. The trend will be towards consolidation of owners owning larger parcels of land. The other wave is automation of jobs in general. This trend could turn the economy upside down and definitely impact land values.
The world population will also be another societal factor that squeezes the need for land to either produce more per acre or more land will need to be converted into productive land. The population is presently over 7 billion people and is growing at a bit over 1% a year which adds 80 million mouths to feed every year. This chart above, courtesy of outworldindata.org shows the exponential growth that our society is facing.
The real estate development of productive land into developments also has a potential to continue to put pressure on land prices. Developers will usually pay a higher price per acre than agricultural use. As more and more people want to live in the country and have a few acres to enjoy life this could have an impact on Montana land values.
Montana Land for Sale Values Investment Thesis
Another factor that is and could affect land values in Montana is the investment themes we see presently in the Montana real estate market. If you are like me and have become increasingly nervous about investing in the stock market and how the FED, our Government, and Wall Street seems to be making it tougher for the little guy to get a fair shake, then land investments might be something you would consider and Montana because of its beauty and still potentially being early in the game of being discovered is a real potential candidate.
Water, mineral, sun and wind rights are something that attracts investors to owning Montana land and see the value in it. These factors can take an average farmer and rancher and turn them into a very successful one with these added revenue streams. There are issues in making money out of these rights but if protected and in partnership with the right partner it enhances returns on the land.
International buyers also can drive Montana land prices up rapidly and if they exit in mass they can drive prices down. Whether they are trying to find a prized property or trying to diversify assets out of the country they live in, if it becomes a trend it can become a feeding frenzy. We have seen this with the Japanese in the 1980s and are seeing the Chinese investing right now in the US and Canada. It can also be driven by how strong or weak their currency is to the US dollar. If there is a favorable exchange rate many times that can make for a favorable investment playing the exchange rate and vice versa. These trends are usually over a period of years or a decade and usually don’t become a long-term trend.
Recreational use of Montana land also can drive values beyond what a farmer or rancher can make a living off the land. Investors can bid land above the agricultural use the farmer and rancher can make a living from. Recreational use sets a whole different level of value on Montana land. From an investment standpoint, it is fabulous to have an investment that you can enjoy and build memories on with family and friends.
Montana Land for Sale Values Summary
There are so many new things coming at us with deficits, globalization, Government control, population growth, etc…that investing is becoming very challenging. We have never had this many incredible forces affecting the world all at one time. There have been times where we have had tremendous forces such as World Wars coming at us but never the number of transformational forces all at the same time we have today. Likely, it will not be just one factor but will be a combination of several of these forces that will have an impact on our investment world.
These factors can affect land for sale in both price directions and they might not be small moves. For instance, if the FED increases the funds rate, the Government could have a large chunk of their budget going to cover interest payments on the debt and hurt bank financing for buyers of Montana Land. On the other hand, if the FED keeps increasing the money supply and quantitative easing then inflation at some point becomes a driver for higher land prices. With this many black swans, there might be real opportunities around the corner in either direction.
I do believe in diversification and while I am not a Financial Planner and would always suggest going to professionals for advice I do believe land can be a part of a portfolio that can be a compelling investment that you can also enjoy. I am certainly partial to Montana because of its beauty and belief that we are still closer to the beginning of the game than the end and believe it offers a number of unique factors. If you are of the same mind as this post and would like to discuss investing in Montana Land please give me a shout.
If you are at the beginning of looking to sell or buy Montana land or ranches you might want to read this 2018 Montana Ranches for Sale Real Estate Report or Montana Land for Sale-Things to Consider When Selling. If you are social, give our Facebook page a like. We bring good quality information on everything Montana Farm, Ranch, and Land!
About the Author
Partner at Venture West Ranches
Buzz Tatom is a ranch owner that has built, run, and sold numerous businesses in his career. This gives him a unique background in helping Montana farmers and ranchers navigate the life decisions that we all have to face. Whether it is passing a ranch on to the next generation or planning for eventual sale, his talents and contacts help save clients money and navigate complicated transactions.