How much can you pay

[TexasBred]

So people just indefinitely overpay for an asset relative to its earning power, because there is a greater fool 10 years in the future who will pay more for the asset?

Maybe that is one of the problems with this country?

Sounds speculative to me.

Sure it is speculative but so are stocks, bonds and other investment. It's not overpaying and the people doing it are not fools. If anything they're the smart ones. Land will just about always pay for itself, just depends on how long you give it to do so. Maybe you need to look into land in Mexico. Cheap and it's yours as long as "they" want you to have it. Same for the cattle.

 

[WichitaLineMan]

>>just about always pay for itself<<

Just because that is the way it has worked in your lifetime doesn't mean that is true going forward. I think the same applies to stocks. Relying on someone to pay more than you at some point in the future because they can or they want to is a risky proposition.

The biggest positive land has going for it is Uncle Ben Bernanke who has said he has a printing press and is not afraid to use it.

If for some reason the printing press fails (which by the way the bond market is hinting at) then inflation will not bail land owners out.

 

[dun]

An old friend of mine got chewed out by his daddy for paying 25 cents an acre for 10k acres. He died in 1965 at the age of 90 plus. I guess people have alwasy paid more then the land was worth.

 

[TexasBred]

>>just about always pay for itself<<

Just because that is the way it has worked in your lifetime doesn't mean that is true going forward. I think the same applies to stocks. Relying on someone to pay more than you at some point in the future because they can or they want to is a risky proposition.

The biggest positive land has going for it is Uncle Ben Bernanke who has said he has a printing press and is not afraid to use it.

If for some reason the printing press fails (which by the way the bond market is hinting at) then inflation will not bail land owners out.

Relying on someone to pay more for something than I did is the name of the game. Been going on for thousands of years. Land, houses, used cars, cattle, vegetables... Value is what someone will pay for something. Not what someone thinks it's worth that probably can't afford it anyway. Wichita I think what you're looking for is a "sure thing". In that case buy life insurance. Someone will always collect.

 

[upfrombottom]

Owning a piece of land is part of the American dream. It doesn't matter if your a cattle baron or the newspaper delivery guy. Since they aren't making anymore, the competition for what is left, is what has drove the price up, not speculators. If I had $5000, it wouldn't be a hard choice for me to decide between an acre of ground or a shiny piece of gold that I would have to carry a magnifying glass to see.

 

[Brandonm22]

The question to ask is not what is land worth, the question to ask is what the @#$&#@!^(@*! is the dollar worth???? The currency is backed by nothing but faith and brute force. It is not guaranteed exchangable for gold, land, or groceries. If I were loaded down with lots of cash right now re-allocating up to 50% of that into land (whether you run cows on it or not) makes sense to me

 

[JHH]

The question to ask is not what is land worth, the question to ask is what the @#$&#@!^(@*! is the dollar worth???? The currency is backed by nothing but faith and brute force. It is not guaranteed exchangable for gold, land, or groceries. If I were loaded down with lots of cash right now re-allocating up to 50% of that into land (whether you run cows on it or not) makes sense to me

I dont know much but my banker says the same thing. Interest is to low to get return on any cash deposit so he says invest in ground. I dont have enough money to do that but I am seeing alot of OLD MONEY being spent around here. 40 acres next to us , all tillable and good ground $4700.00 an acre. I cant make that work unless I could just pay for it and own it free and clear. Seen some pasture only ground sell last month for $3600.00 so I think SOME people are thinking the same as you.

I think we are headed for trouble personally. I think interest rates have to raise and then all the people with teatering on the edge will fall off that edge. I can remember the eightys when I was at home. It wasnt good.

 

[Brandonm22]

I am not saying you should borrow to buy land; but if you have no debt and a hypothetical $million to invest, I would be looking hard at what property I could buy for $500,000 right now. Double ditto for that if we are talking about $10 million. IF this economy turns around we are going to see moderate growth and growing demand for real estate. IF on the other hand we have a currency crisis and we see 20-50% inflation the purchasing power of the dollar will crumble and land will be worth much more than it is now. Either way land is a sensible investment if you are looking more than five to ten years out.

 

[upfrombottom]

So people just indefinitely overpay for an asset relative to its earning power, because there is a greater fool 10 years in the future who will pay more for the asset?

Maybe that is one of the problems with this country?

Sounds speculative to me.

That sir is pure speculation and that is what gets people in trouble. It is what caused the recent stock market crash, and is definitely the reason for the great land crash in the eighties as JHH pointed out. Before you invest in anything do a research on what your investing in and see how the price got to where it is. Land has a floor price and that price is the median between the price common everyday blue collar worker can afford or be willing to give and the price the white collar working buyer is willing to give. The only exceptions would be real estate that has an annual monetary return that will surpass the returns offered by banks as in commercial real estate. Any price above that median is speculation and anything at or below it is a solid investment.

I know many people that got caught up in the eighties land grab and the market did the same thing as the recent housing market. The bottom fell out of the price because speculation drove the market not the working public. The prices fell back to or at a median and stayed there. Allot of people that had invested in land at the speculated prices have never recovered. Allot of farmers lost their family farms because they put them up as collateral for loans to buy more land, using the farms inflated land prices as their collateral value. When the overvalued land prices could no longer be sustained they started falling. Banks were calling in notes, because more money was owed on the property than it was worth. History has away of repeating itself. And I would say that anyone that is purchasing pasture at a price that will never pay for itself with use, had better like the place, and plan on keeping it because anything else would be very risky speculation.

 

[WichitaLineMan]

I don't know about the collective wisdom around here.

Home Real Estate in many parts of this country have fallen 30+% over the last 2 and 1/2 years. And Commercial real estate has fallen more than that, but you guys are pretty sure Agricultural land will never fall in value?

Very interesting.

 

[EAT BEEF]

I don't know about the collective wisdom around here.

Home Real Estate in many parts of this country have fallen 30+% over the last 2 and 1/2 years. And Commercial real estate has fallen more than that, but you guys are pretty sure Agricultural land will never fall in value?

Very interesting.[/quote/]

Houseing market comes back up,ag products drop and intrest goes up.Then I guess it will go down or at least level off.Funny how fast things turn when they do.

 

[Angus Cowman]

I don't know about the collective wisdom around here.

Home Real Estate in many parts of this country have fallen 30+% over the last 2 and 1/2 years. And Commercial real estate has fallen more than that, but you guys are pretty sure Agricultural land will never fall in value?

Very interesting.

but one of the reasons Housing and commercial real estate has fallen is supply and demand
I am not saying ag land might not come down but I don't beleive you will see the fall like you did in the housing for one they aren't making anymore land
alot of builders built more houses than was needed and the gov't allowed the banks to lower the requirements for loan approval on houses so that people who could not afford them could buy a house and then these banks had to turn around and foreclose on these houses they financed to people that couldn't afford one to begin with
around here ag loans stilled required either equity or capitol before you could get the loan

 

[Brandonm22]

Prices will go up and down, up and down but the base line over time is going to trend up because the base line follows the inflation rate. This country is going to continue to import immigrants, thus there will be more people to feed and house no matter what the brith rate is and the dollar is going to continue to lose value as the govt that prints the dollar can't afford to pay it's own growing debts. It certainly can not allow the dollars it pays back to it's creditors to be worth more than the dollars it originally borrowed. I have never advocated investing in anything (land, stocks, bonds, etc) on credit, but predicting that a 1000 rural acres will be worth more in paper dollars in 2020 or 2030 or 2040 than it is today I think is just about as safe a bet as anybody could ever hope to make. Certainly the risk is lower than if you left that in bank deposits and let low interest rates, inflation, and income taxes deplete your purchasing power over time.

 

[WichitaLineMan]

Brandon thanks for the thoughts.

They pretty much follow mine on two key points.

1. The purchasing power of the dollar will decrease as the fed tries to print its way out of its debt problem. And Bernanke has specifically said he had a printing press and would use it to prevent deflation.

2. Continued immigration (especially Hispanics to SW USA).

Tex Ag brought up the point about buying cheaper land in Mexico but no guarantees of "rule of law". We don't have that here any longer either. Ask the GM Bondholder's legal rights went in the GM takeover.

 

[dun]

Brandon thanks for the thoughts.

They pretty much follow mine on two key points.

1. The purchasing power of the dollar will decrease as the fed tries to print its way out of its debt problem. And Bernanke has specifically said he had a printing press and would use it to prevent deflation.

2. Continued immigration (especially Hispanics to SW USA).

Tex Ag brought up the point about buying cheaper land in Mexico but no guarantees of "rule of law". We don't have that here any longer either. Ask the GM Bondholder's legal rights went in the GM takeover.

Local realtor has 2 full price offers on sight unseen land. One is from China the other from Canada. The asking price is higher then what is considered reasonable around here

 

[plumber_greg]

No reason to live your life scared. No one knows what stocks, bonds, real estate, or any other investment is gonna' be worth in 5, 12, 25 or 50 years. If you have been around long enough to seen much, ask yourself how many times you have said or thought, " I wish I would have bought that, or done that years ago, I'd be worth a fortune now."
All investments are risky. If you can buy some real estate, run a few cows, have a job in town, work hard to improve it and pay for it, why wouldn't you take the chance? Then if you want to sell it for your retirement and move to town, you can. If the market goes south on you, what have you lost? Some time and hard work? Your retirement plan from work will still take care of you. It's been said many times that if someone gave you the land, you'd still go broke farming it. Doin' nothin' gets you nothin'.

 

[WichitaLineMan]

>>Your retirement plan from work will still take care of you. <<

Don't count on it.

I am self employed. I have no pension plan. Just a little IRA money.

I'm plenty sure of my own analysis to decided what to do and when to do it. I was just wanting to see what some other people's thoughts were. There are a few thought out opinions here, but most seem to rely on the adage "land always goes up", "they ain't making no more land", 'Grand Pappy bought his land for 50 cents an acre'

Just curious as to the thoughts of those in and around ag.

The U.S. is in a state of flux right now and although I believe that inflation (and therefor land will be a decent investment) will prevail, nothing is set in stone and there is the very real chance we hit a patch of disinflation if not down right deflation. (See what land values (of all stripes) has done in Japan over the last 20+ years).

 

[plumber_greg]

WLM, I'm self employed also, no pension plan, small IRA. Same boat you're in.
However, I've seen pics of your cattle on what I assume is your land. Don't know your age. Don't you believe that with our jobs and the small, notice I said small, income from our land and herds, that wether we can pay for $10,000 an acre ground in our wage earning years, or $500 an acre ground,really doesn't matter? It's an investment in our future. Once the mortgage is off, it's ours to retire on or sell. Personally, I'm gonna' retire on mine, the price it's worth only matters to the kids when they sell Dad's farm.
We could have put the same money that is paying for the farm in a pension plan and had the same amount, just in a different place. Folks from the city don't own cows or land. I agree with you on the people that talk what grandpa did, and think it will always be the same. I guess that what I'm trying to say is that what land is worth to raise cows on depends on what you're gonna' do with the land and cows later. gs

 

[plumber_greg]

After I think about it, I guess it's people that think like me that make land unaffordable for the true family farmers. gs

 

[WichitaLineMan]

Plumber,

You make a good point and I do keep that in mind when thinking about land. It will in a small way serve as a retirement annuity because the cows will have calves each year and therefor supply a stream of income. But to be totally honest one would have to weigh that against what an annuity paying X dollars a year would cost from Travelers or some other insurance company (while also adding something to their cost as a "risk factor" for the possibility that they go "tits up" like AIG).

Lots of variables.

Also got to figure in that it is a "lifestyle" choice as well. Me and many others (like yourself, I assume) really enjoy raising cattle and being out on the land.