Land vs Stock Market

[Hunter]

The profitability thread and the statement "Bottom line, at retirement a farmer should be in a better financial position" got me thinking. If one was to buy acreage and farms it and then sells at retirement would they be better off?
Example: one buys 250 acres for 2K per acre at a total cost of $500,000 w/ 50K as down payment. For a 30 year 2.5% loan that payment is $1,778 (no insurance or taxes). Total cost of $640,080.

If I put $50K initial investment and $1,778 every month in S&P 500 fund with an average return of 7% (historical avg adjusted for inflation) I would have over $2.5 million in cash.

It is not as simple as this example as there are lots of variables that go into it. But, I am not sold on a farmer being in a better position unless the city person saved nothing.

I am all ears on what I may be missing as this could be a good discussion.

 

[sassafras manor]

Using the 7% inflation number wouldn't the $500,000 property be worth over $3.5 million after those same 30 years the stock market investment was accruing at 7% plus not to mention the money that property would have made in crops or livestock?

 

[Hunter]

Neither land nor stock market appreciate at the same rate as inflation. It could be more or could be less.
Just found this article that states that the average farm real estate valueincrease by 20% from 1997 to 2002 and then from 2002 to 2007 it was 44%.
https://www.ers.usda.gov/amber-waves/20 ... fferently/

So, if the land was purchased for 2K an acre in 1997 it would be worth $2,400 an acre in 2002 and by 2007 it would have been worth $3,456 or $864,400 total or more than 72% total increase. Still owing $334,469.

For reference, all things being equal, the money in the stock market would be about $410K after 10 years if you are still investing that monthly farm payment of 1,778.

 

[willow bottom]

I know alot of folks that lost alot of money due to the stock market in 09. It's a much better decision to be diversified with stocks and land in my opinion

 

[Caustic Burno]

The profitability thread and the statement "Bottom line, at retirement a farmer should be in a better financial position" got me thinking. If one was to buy acreage and farms it and then sells at retirement would they be better off?
Example: one buys 250 acres for 2K per acre at a total cost of $500,000 w/ 50K as down payment. For a 30 year 2.5% loan that payment is $1,778 (no insurance or taxes). Total cost of $640,080.

If I put $50K initial investment and $1,778 every month in S&P 500 fund with an average return of 7% (historical avg adjusted for inflation) I would have over $2.5 million in cash.

It is not as simple as this example as there are lots of variables that go into it. But, I am not sold on a farmer being in a better position unless the city person saved nothing.

I am all ears on what I may be missing as this could be a good discussion.

You rent land you don't own it.
You have to add the tax burden cost to land investment. Never known taxes to go down seen land and stock market both collapse.
Now that being said I have made a lot more money on stock from Wall Street than I ever made out of pasture.

 

[Brute 23]

The stock market will out do farming or ranching all day long. Compound interest is an amazing thing. As a young person you are crazy to invest in agriculture before maximizing a healthy investment in the stock market.

You can have nothing to your name and start investing money in the stock market little by little... even if its $50 or $100 a month... and 30 years from now have some thing to be proud of with literally no risk and very little time invested. There is not another money making endever like it.

 

[bird dog]

Land should be part of a balanced investment portfolio. It is not risk free but equivalent to a AAA bond fund more or less and usually appreciates at about the same amount. The only risk is that the area will deteriorate because of trashy mobile homes
or something like a trash dump moving into the area.

I have found through the years that land does not seem to go up in price for years and then will have a short burst where it increases rapidly. It seems we are in that rapidly increasing period now in my area.

Another thing that I have noticed, is in an area of large tracts that don't turnover often, one sale will bring up the whole area.
This make since, since real estate people use comparables to appraise a piece of property. This is one reason I never trust appraisers. They base the reasoning on sales history in the area, little else.

 

[shaz]

I actually got started in the cattle business with profits made from the stock market.

FYI: I use 5%/yr appreciation in land values when I calculate the logic in continuing to farm. Another thing you have to remember is that farmers truly deal with international competition unlike the defense and medical industries which charge whatever they want.

 

[sim.-ang.king]

" Land is the only thing in the world that amounts to anything, for 'Tis the only thing in this world that lasts, 'Tis the only thing worth working for, worth fighting for - worth dying for."

 

[Brute 23]

What is killing land is the upkeep like fences, herbicides, taxes, labor, etc. Plus, we are still in a high market by all accounts.

There was a shift 20-25 years ago where land stopped being valued based off how much revenue it could generate. If you bought land 30 years ago and sold now it looks like a great deal. That ship has sailed though.

Land is good for a solid place to put money like a saving account but its not much for a revenue generator.

 

[True Grit Farms]

Fact is that no pencil pusher is ever going to steal our property. I'm a stock market loser, and a financial wizard when it comes to investing in property. But the truth is, I'd rather be lucky than good. Farm land is a terrible investment, commercial property is where it's at.

 

[Brute 23]

What is killing land is the upkeep like fences, herbicides, taxes, labor, etc. Plus, we are still in a high market by all accounts.

There was a shift 20-25 years ago where land stopped being valued based off how much revenue it could generate. If you bought land 30 years ago and sold now it looks like a great deal. That ship has sailed though.

Land is good for a solid place to put money like a saving account but its not much for a revenue generator.

ill disagree. Mainly because of markets, and housing vs agriculture.

Can you expand on that?

 

[Brute 23]

ill disagree. Mainly because of markets, and housing vs agriculture.

Can you expand on that?

Land bought soley for ag purposes is harder to produce an income from than land bought with a house on it where you can rent it out.
"Land" is a very subjective term. To some 2 acres is land, where to others 200 is land

Got ya. Figured there was more to what you were saying.

My responses are based on agriculture/ raw land which is what I assumed the OP was asking about. Commercial, rental or other type properties would be different.

Even on those though you have to be hitting some home runs to beat the stock market and justify it. There is a whole lot more upfront capital and risk involved. Tripling your money or 5% growth is not good enough for commercial guys especially because you have to average out your wins and losses.

I bought 2ac in town a couple years back. I have turned down 4x what I paid on it. A lot of people would be bragging about that but the reality is its about in line with the stock market when you figure expenses in. The plus side is it added diversity and had potential... nothing ventured nothing gained. If wal-mart buys the block then I might have some thing to brag about. :lol:

 

[ddd75]

i just wish I would of bought that apple stock with my 2,500 when I was 17 when it was @ 7 bucks a share instead of that solar panel company that went under..

 

[TexasBred]

What is killing land is the upkeep like fences, herbicides, taxes, labor, etc. Plus, we are still in a high market by all accounts.

There was a shift 20-25 years ago where land stopped being valued based off how much revenue it could generate. If you bought land 30 years ago and sold now it looks like a great deal. That ship has sailed though.

Land is good for a solid place to put money like a saving account but its not much for a revenue generator.

Location, location, location...... I can show you a sleepy little community right now that had nothing but dairy farms for many many years and $100 an acre land. The school use to graduate 12-14 every year. Last year graduated 147. The farms are all gone.....the land is $20K an acre and the developers are turning it into subdivisions and putting huge numbers on .25 acre lots and they are selling and beautiful houses being put on them. Most days you can look across the fields and see the tall buildings of Ft. Worth and people are wanting out of the city even though that's where there work is.

 

[shaz]

Where I grew up all the land went for 500/acre in 1972 and sold in 2006 for 12K/acre

 

[Brute 23]

Where I grew up all the land went for 500/acre in 1972 and sold in 2006 for 12K/acre

As great as that sounds... it did not beat the stock market. In fact the stock market would have done double that in that time period.

Im not saying not to invest in land but a person should max out there Roths, SEPs, 401Ks, etc first. There is nothing that can compete with the compound interest, tax breaks, matches, etc that come along with those. Every thins else is adding diversity or some other aspect to your portfolio.

 

[Hunter]

Strictly money purposes I agree with Brute but there is also something to say about owning land. Especially if it is big enough to enjoy other things. Those might be hunting, camping, farming or just getting away. One does get to right off the interest and farm expenses on taxes.

 

[backhoeboogie]

Where I grew up all the land went for 500/acre in 1972 and sold in 2006 for 12K/acre

As great as that sounds... it did not beat the stock market. In fact the stock market would have done double that in that time period.

Im not saying not to invest in land but a person should max out there Roths, SEPs, 401Ks, etc first. There is nothing that can compete with the compound interest, tax breaks, matches, etc that come along with those. Every thins else is adding diversity or some other aspect to your portfolio.

Brute I wish they would have put my social security in stocks for the last 45 years My employers have matched my contributions I could have retired a few years back

Stocks have been good Land has been really good too Gold was at $1800 a few years back but its at $1200 now and I'm still ahead, but not by much.

I think a good portfolio is blended. Real estate cannot be mass produced.

 

[shaz]

Anybody want to start a stock pickers thread? I think we're all open to good investment ideas.