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A 10-Step
Checklist for Buying Rural Property
Buyers are flocking
to rural recreational and investment property more than ever. What's
behind the feverish land-buying activity?
 Low
interest rates, for one. In addition, says Texas A&M University's
Dr. Charles Gilliland, "a general lack of lucrative investment
alternatives makes the decision to acquire land less costly than
when stocks are booming." It seems even high oil prices and
the threat of interest-rate hikes have done little in recent months
to slow the enthusiasm for land across the South.
That enthusiasm
is translating into higher prices. The price of an acre of rural
Texas soared 16 percent last year, rising from $1,097 in 2003 to
$1,274 per acre in 2004, according to the Texas A&M Real Estate
Center. That price surge is the largest single-year percentage increase
since 1974.
Recreation
Drives Up Land Values
"The farming is pretty much status quo in this area, and we're
seeing buyers of recreational land becoming the main drivers of
land values," says Jeff Lott, senior vice president of credit
operations for the FLBA of South Alabama. "We have buyers from
surrounding states, particularly Florida, who are looking to relocate
to an area where they can have a larger acreage base."
In this hot
market, the key to making smart property purchase decisions is to
buy based on facts and information, not emotion.
1. Research
the market.
Because prices
are rising, some sellers purposely overprice their property hoping
to catch the upward trend. "Remember that the listing prices
are simply what people are asking for the properties. These prices
don't always reflect what properties are selling for," advises
Tim Knesek, senior vice president of Capital Farm Credit in La
Grange, Texas.
Find an experienced local Realtor who knows the marketplace. Ask
your Realtor for recent comparable sales in the area before making
an offer. Check with the county appraisal district for their valuation
on properties being considered. And review the local multiple
listing service.
2. Check
into infrastructure.
Rural properties
don't have city water and sewer service and may have limited or
no access to electric, phone, cable television and high-speed
Internet services. Ask about road maintenance, trash pickup and
school bus routes.
3. Look
for improvements.
Don't underestimate
the value of existing barns, camp houses and other improvements
already on the property, which can be very expensive to build
new. Most counties require permits for installing septic systems
and wells. Before buying a tract without water and sewer in place,
get estimates from local contractors and talk to neighbors to
find out typical well depth and septic systems required for the
local soil conditions.
4. Know
codes and restrictions.
If you purchase
rural property with the intent to subdivide, check county subdivision
laws and possible extended territorial jurisdictions of surrounding
municipalities that may govern the area. Check for any restrictions
on the property you are considering. Take the time to consider
how the restrictions could affect you and how they could be viewed
by future buyers.
5. Take
advantage of property tax advantages.
Every state
offers some type of agricultural property tax relief. All are
geared at lowering the taxable value of agricultural production
land, and reducing the property taxes on that land. Check with
your local tax assessor to determine if your potential purchase
may qualify for a tax credit, special appraisal or direct exemption.
If it has existing ag-use tax exemptions, learn the steps for
maintaining those exemptions. Beware that some commercial lenders
require the buyer to rescind the exemption before making a rural
home loan: not so at Farm Credit.
6. Shop
insurance rates.
Many insurance
carriers will not write homeowner's coverage outside the city
limits. Farm Credit lenders and local Realtors can recommend insurers
who offer rural property insurance.
7. Know
your surroundings.
Pay attention
to the land use and restrictions, or the lack thereof, on neighboring
tracts. Is there an intensive livestock operation next door? Does
the property front a noisy highway, or proposed highway? Is commercial
development allowed on neighboring tracts?
"If you buy a piece of property and discover later that there
is a nuisance next door, it can give you real problems when you
try to sell it later," says Lott, in South Alabama.
8. Investigate
environmental factors.
Two primary
potential environmental concerns are the presence of endangered
species, and environmental contamination from actions of previous
landowners. "Areas designated for endangered species can
be very restrictive in the use of your property," notes Knesek,
potentially impacting your ability to clear brush, add buildings
and fully enjoy your property.
Lott agrees. "You might think there is a lot of timber value
on the property, but if an endangered species has been identified
there, such as the Red Hill Salamander that resides in some areas
of South Alabama, you may not be able to harvest the timber."
In addition,
federal law holds landowners accountable for cleaning up environmental
contamination, even when it occurred before they owned the property.
Buyers can get some protection from liability for environmental
clean-up costs by taking steps to determine any environmental
hazards before the purchase.
9. Set a
realistic budget.
In addition
to the initial purchase price, plan on ongoing costs for maintenance
and improvements like fencing, ponds, outbuildings, new appliances,
landscaping, furnishings and general repairs. "Be prepared
for the cash needs for the property after your purchase,"
says Knesek. "Owning rural property is usually not a spectator
sport."
It's best
to plan ahead if improvements are needed. "If the property
you buy is not as improved as you'd like it, consider what it's
going to cost you to make the improvements you envision. Also,
consider real estate taxes, upkeep of roads and planting game
plots. All of those things can be costly," Lott says.
10. Use
local experts.
When it comes
to buying and financing rural property, go local whenever possible.
Local Realtors know the market, comparable sales and history of
area properties. Local lenders like Farm Credit understand the
nuances of rural lending and structure loan programs specifically
for rural property owners. "We can review all the considerations
with them and help them protect themselves," says Ed Nelson,
vice president and branch manager of the FLBA of South Alabama
office in Montgomery. "From referring them to lawyers or
putting them in contact with someone who can help them manage
their timber, we've got a lot of beneficial relationships that
they won't get if they go elsewhere."
In addition,
"many Farm Credit lenders grew up in, or have lived in, the
areas in which they have worked for years, and that level of local
knowledge can be invaluable to a buyer," says Knesek. "Our
goal is to not only save our customers money with competitive
interest rates, but to offer advice and input that allows them
to make decisions that will help them avoid potentially costly
mistakes in their land investments."
Article by Sue Durio
Photo by Alex Labry
Published in Landscapes, a Farm Credit Bank of Texas publication
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