Source: blog by Randy Dickhut, AFM, Sr VP – Real Estate Operations
Agricultural land in the U.S. totals over 900 million acres and is worth nearly $2.7 trillion dollars. Land is real property that is normally viewed as a long-term asset and is held by individuals, families, and businesses. Over a period of 40 years, farmland will have an annualized return to the landowner from cash income and appreciation of 10%.
Many individuals and businesses are interested in buying and investing in agricultural land to hold as a real asset. Two main reasons for owning land as an investment are for current income and longer-term appreciation. Farmland has a history of stable annual income to the owner as well as appreciation in value over a period of years.
Net cash income or Return on Investment (ROI) received by a landowner through rents historically is 3-5% of the value of the land each year. Due to the stability of farmland rents, many landowners consider their ROI on land similar to interest earned from a bank certificate of deposit.
The other main reason for owning farmland is its track record of long-term appreciation averaging 4-6% annually during a longer time frame. Of course, there are shorter periods of ups and downs in land prices, but over the long-term, ag land has been considered a steady investment and inflation hedge.
When investing in farmland, it is important to perform a thorough due diligence on the property to ensure that the farm is a good investment. It is also of critical importance for the landowner to manage the land wisely for profit and longer-term appreciation.
Many land buyers seek professional help to ensure that their land is a good investment from making the right purchasing decision to managing the asset for maximum growth.