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<blockquote data-quote="fargus" data-source="post: 779747" data-attributes="member: 13480"><p>Idaman,</p><p>You raise a good point regarding development land on the edges of urban centers. I had never heard that viewpoint before, but it does make sense.</p><p></p><p>As to the original topic, my answer would be it depends. Land values around here are too high to pencil out with borrowing 100% of value of the land. The way most operations purchase land (cattle or cash crop outfits) is to have a good enough year to put a downpayment on the ground big enough to make the mortgage payments cash-flow friendly. Obviously this requires a certain size to get to a point of "critical mass." Most of these operations are either expanding an existing cow-herd, or run stockers. So they aren't borrowing money to purchase cattle. (Unless they borrow money every year to purchase stockers/backgrounders/grass cattle.)</p><p></p><p>This is still purchasing on spec, and assuming that the value of farmland will continue to rise. To put things in perspective though, 15 years ago a brand new combine with headers was worth about $250,000. So was 100 acres of prime land in this area. Now that same 100 acres is worth about $500,000, and so is the new combine. Difference is you get the crap kicked out of you on the depreciation of the old combine, had to trade in and buy another new one. The land appreciated, and you didn't have to trade in and buy new.</p><p></p><p>Bumps in the road are more common than we like to think, but I think brandon hit the nail on the head when he stated that land values will trend up in the long term even if it is just a reflection of inflation. Cash-flow is king, but history would show that land as a pure investment has been a good one.</p></blockquote><p></p>
[QUOTE="fargus, post: 779747, member: 13480"] Idaman, You raise a good point regarding development land on the edges of urban centers. I had never heard that viewpoint before, but it does make sense. As to the original topic, my answer would be it depends. Land values around here are too high to pencil out with borrowing 100% of value of the land. The way most operations purchase land (cattle or cash crop outfits) is to have a good enough year to put a downpayment on the ground big enough to make the mortgage payments cash-flow friendly. Obviously this requires a certain size to get to a point of "critical mass." Most of these operations are either expanding an existing cow-herd, or run stockers. So they aren't borrowing money to purchase cattle. (Unless they borrow money every year to purchase stockers/backgrounders/grass cattle.) This is still purchasing on spec, and assuming that the value of farmland will continue to rise. To put things in perspective though, 15 years ago a brand new combine with headers was worth about $250,000. So was 100 acres of prime land in this area. Now that same 100 acres is worth about $500,000, and so is the new combine. Difference is you get the crap kicked out of you on the depreciation of the old combine, had to trade in and buy another new one. The land appreciated, and you didn't have to trade in and buy new. Bumps in the road are more common than we like to think, but I think brandon hit the nail on the head when he stated that land values will trend up in the long term even if it is just a reflection of inflation. Cash-flow is king, but history would show that land as a pure investment has been a good one. [/QUOTE]
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