Residential real estate has been seeing record price gains for a while now, making it ever trickier for investors to find good deals for rental properties or flipping. Perhaps they should look farther afield, or at a field nearby.
Agricultural land also is in demand, seeing value increases not experienced for at least a decade, but still slower than its city-land cousins. In its Land Values 2021 Summary released in August, the U.S. Department of Agriculture says the farm real estate value now average $3,380 per acre, up 7.0%, or $220 per acre from 2020.
That’s a measure of the value of all the land and buildings on a property, and it’s been steadily climbing from $2,010 per acre in 2007, but now is accelerating at a rate not seen since 2012 as the Great Recession was ending, according to the American Farm Bureau Federation.
Nebraska, Kansas, and Massachusetts see the biggest one-year value gains
Nebraska and Kansas were number 2 and 3 in year-over-year gain in average value per acre this year from last, at 11.1% and 10.5%, respectively, while the biggest jump, by far, was in demand for acreage in the wide-open plains of … Massachusetts.
Bay State farm real estate average per acre rose in value by 21.2% in a single year to $13,700. That pales in comparison to the $16,400 per acre that agricultural land is worth in Rhode Island. Connecticut and New Jersey also average above $10,000 per acre, at $14,400 and $12,500, respectively.
The only other state where that’s the case is California, at $10,900 an acre and up 9.0% this year, according to the USDA’s National Agricultural Statistics Service (NASS).
The cheapest land remains in sparsely populated New Mexico ($600 per acre), Wyoming ($790 per acre), and Montana ($930 per acre).
"These levels vary significantly throughout the country, with the highest real estate values concentrated in areas of the country with larger volumes of high-value crops (think wine grapes and tree nuts in California), as well as areas experiencing upward pressure due to proximity to urban areas," the Farm Bureau says in its review of the NASS report.
Lots of ways to invest, including these two REITs
There are a lot of ways and reasons to invest in farmland. Besides buying directly as an individual or in partnerships, there are two real estate investment trusts (REITs) that specialize in that.
The largest is Farmland Partners (NYSE: FPI), which has about 157,000 acres in 16 states with more than 100 tenants specializing in both major row crops and specialties like almonds, avocados, and wine grapes. Another is Gladstone Land Corporation (NASDAQ: LAND), with a focus on growing fruits, vegetables, and nuts and a portfolio of 158 farms covering 107,000 acres in 14 states.
The Millionacres bottom line
The report is split into various land-use types. They vary widely in value: Cropland nationally is worth an average $4,420 per acre, the NASS figures show, while the average pasture value is only $1,480 per acre.
That’s reflected in the rent rates, too. They’re up but pale in comparison to residential jumps. The Farm Bureau says average U.S. cropland rent rose 1.4% in 2021 to $141 per acre, while irrigated cropland rents increased 0.5% to $217 per acre, and non-irrigated cropland rents increased 1.6% to $128 acre. For pastureland, rents held steady for the year, still at $13 per acre.
The statisticians also split the U.S. mainland into 10 geographical areas -- compared to, for example, four sales regions used by the National Association of Realtors (NAR) -- and is geared toward helping farmers and other agricultural stakeholders determine prices for leasing, buying, or selling crop and pastureland.
But anyone can buy or sell this specialized kind of commercial real estate and do well if they know what they’re doing. This kind of highline information can help guide investors to areas where, for instance, suburbs are rapidly expanding into the countryside.
Farmland is considered largely vacant land as a real estate type, with its own set of tax laws and deductions, financing options, and land-use restrictions and incentives that can vary greatly from place to place.
That’s because while some folks not necessarily in the know might see miles and miles of Texas -- where average farmland values rose 9.7% to $2,380 per acre in 2021 -- savvier sellers and brokers might just see them coming. Local knowledge is king here.