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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
Published in Landscapes, a Farm Credit Bank of Texas publication
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