The problem is that most people will never make good on the dream. Most people will just continue to dream, occasionally getting serious about buying a place, but usually just as quickly as they get motivated, they get frustrated and give up or postpone the dream until they figure out how to find it, or how to pay for it, or how to know they are getting a good deal, or whatever it is they don’t know that is holding them back. It is frustrating. I know, because about seven years ago that was me.

And just like the high dive, once you actually do it, you realize that it wasn’t as bad as you thought. In my case, it turned out to be easier than I thought. And most people, me included, can’t believe that they let fear or uncertainty keep them from doing something so enjoyable. I know. I kicked myself for years, because I allowed fear and uncertainty to keep me waiting so long to buy my little place in the country. In fact, I’m convinced that fear and lack of knowledge are without a doubt the two biggest obstacles to land ownership. At least they were for me.

In my part of the country, we have a chain of country style restaurants that are quite popular. To help pass the time while you wait for your food to come, they have these small “mind teaser” puzzles for on every table. The puzzles are pretty simple looking – a small triangle shaped piece of wood with holes drilled in them and golf tees in the holes. The objective is to jump the golf tees, .removing the jumped tees, until you have only ONE left. I am often amused watching people struggle to solve the puzzle. People who pick the puzzle up generally fall into two categories, 1) those who want to know how solve the puzzle and 2) those who are determined to figure out, completely on their own, HOW to solve the puzzle. While I know there is some personal satisfaction to the mental aspect of “solving” the puzzle, for most people they never get there. Their food comes and they lose attention. BUT, for those who simply want to know how to solve the puzzle, there is an easier way. In fact, the quickest way to know how to solve the puzzle is to ask someone who already knows how. I am amazed at how many people who dream of land ownership are very much like the puzzle people who are determined to figure it out on their own, especially since there are so many people who know how to solve the puzzle and are eager to share the secret.

Which one are you? Do you want to figure it out on your own, or do you just want to solve the puzzle? If you want to figure it out on your own, I’d suggest you put on a helmet. You’re going to be bumping your head. For those who just want the answer, it’s easy. Ask someone who’s done it before. Talk to your buddies, local farmers, investors, or anyone who owns land. Pick their brains. Ask about the process of buying land. Find out what went right and what went wrong. Get their opinion on the challenges they faced, the successes they enjoyed, and what they would do differently next time. You’ll find landowners are easy to find, easy to talk to, and easy to understand. They speak your language. They remember what it was like when they had their toes hanging off the high dive and they know how good it feels to finally summon the courage to jump in.

I’m amazed at how many people will go and look at land, having no idea what they are looking at, and buy it, having no idea what they bought, hoping they got lucky. Well I don’t want you to take that kind of speculative approach, where you hope you are doing the right thing or getting a good deal.

But, what is the process for evaluating land, once you find it? How do you know if it is worth your time to look further? What is the qualification process? How do you compare two similar or dissimilar tracts? How do you determine which tracts warrant further inquiry or elimination? What adds value to the tract? What ARE the things you need to evaluate?

We all put some value on “intangibles” when we evaluate land, even if we can’t put our finger on exactly what that means. It’s important. You have to like the way the land looks. You will be drawn to a tract for reasons you won’t completely understand. But, beyond the emotional or subjective criteria that all of us deal with, there are objective criteria that need to be both understood and analyzed, without emotion. I can’t help you put your emotions in check, but I can tell you that an objective look at characteristics will give you some grounding (pardon the pun) and keep you from talking yourself into a tract with warts on it.

Think about it this way, if you look at an acorn or a tadpole or a caterpillar what do you see? Do you see the potential for an oak tree or a frog or a butterfly? Being able to look at property and understand the characteristics helps you to understand what land IS, but more importantly it helps you better determine the potential in a property. From a purely financial perspective, remember this - Characteristics affect utility, and utility ultimately affects value.

In "A Practical Guide to Buying Land", I go into detail about characteristics, how to evaluate them, and what it all means to you as a land buyer and a land owner.  Read more about the series here.

Make sure you have clear objectives for your property.

It is easy to get caught up in generating revenue and lose sight of your overall objectives. While harvesting timber or selling any of the natural resources on your property has the potential to be financially lucrative, improperly done it can be aesthetically and environmentally devastating. Mistakes can be costly and take years to overcome. Focus on natural resources as part of your overall strategy. Let the overall strategy drive decisions about the resources and not the inverse.

Make sure you understand what you are selling.

Ignorance is expensive. And while the notion that landowners would sell their timber or mineral rights without knowing exactly what they own seems unwise, it happens every day. Less than knowledgeable landowners serve as easy pickings for less than scrupulous timber buyers. Here’s an area where you need to consider the help of a professional. It is not enough to know that you have timber or kaolin or coal. You need to know what it is worth. Different varieties of timber have different values, as do different types of coal or other minerals. Difficulties in harvesting or mining, distance to market, and restrictions that you as a landowner impose will all affect value. You can’t possibly know what you need to know. Hire a professional to properly and professionally assess the quantity and value of your natural resources.

Make sure you properly market your natural resources.

If you’ve never been involved in selling timber or coal or natural gas, your first attempt shouldn’t be a fly by the seat of your pants, “I’ll figure it out as I go along” experiment on your dream property or family farm. If you want to do this for a living, go get whatever certifications you need, get adequate education and training, and knock yourself out. If you want to do it ONCE on your property and be satisfied with the results, go find a certified professional forester, or consultant who DOES do this for a living and hire them to do it for you. They will be able to assess the market, find the buyers, conduct an auction or sealed bid or negotiated deal, manage the whole process, and do it (usually) for a percentage of the sale price.

Make sure you protect yourself and your land.

The only way to protect your property and your interests in any sale is to have a written contract. Here’s a good rule of thumb. If it isn’t written, it won’t happen. That goes for everything from pricing and access to how your property will look when the work is finished. Many timber (and other) buyers have standard contracts for you to sign, but if they don’t address your interests or concerns properly, then you should have your own contract drafted by an attorney familiar with this type of transaction. If the buyer won’t agree to your terms or sign your contract, find one that will. I don’t like surprises or misunderstandings. Simple clear and specific contracts avoid both.

Make sure you practice Good Stewardship.

Whatever you do with or on your property, make sure you do it with sound conservation and best management practices in mind. Be a good steward of the land. Take care of the land, and the land will take care of you.

Most of us think of real estate agents as the people who list and show property for sale. However, some agents specialize in representing buyers as they go through this daunting process, and they offer some valuable services that can make the process a lot smoother and must less frustrating that going it alone. A good agent can provide experience from having been involved in numerous land deals. They can be a voice of reason, when you get emotional. They can provide a buffer between you and the seller (or seller’s agent) during negotiations. They know the process and the key players, but most importantly, they bring the calm assurance that only knowledge and experience can provide. I never go into any real estate deal without a buyer’s agent representing me. You shouldn’t either.

But, how do you find a good one? Having a real estate license and being an experienced land buyer’s agent are far from the same. Not all real estate agents understand land and very few specialize in it. It’s important when acquiring land, that you are represented by an individual who understands the “product” you are looking to purchase. And, while many agents will claim to have land expertise, you want to find one who actually is an expert. Here are a few interview questions to help you know the difference.

How long have you been in the business and how long have you been licensed? They don’t necessarily need to have a real estate license for years. Experience with land is what is important. A great agent may be someone who has been a forester for 20 years and only recently obtained their real estate license.

Is this your full time job or is it a part time job? Many agents (more than you realize) work in real estate part time. Full timers are better than part timers because their ability to earn a living depends on being good at what they do. They only get paid when they successfully help someone like you buy some land.

Do you know the people I need on my team? In other words, do they know the local resources to help you evaluate and acquire your land? Do you know a forester, an appraiser, a surveyor? If they can’t name at least two professionals within each category, they probably aren’t active in the land business, and it might be best for you work with someone else.

How much land did you sell last year and how many transactions? I once had a guy tell me he did 9M in sales one year, and that he did 600 transactions. That turns out to be $15K per transaction. He wasn’t a land specialist. He sold builder close-out lots for a living. How could this guy possibly help you buy rural property? You want to work with someone who specializes in tracts that are the size you want to buy.

And finally, do you have references that I may contact? Keep in mind that they will only give you good ones but you’re not going to ask simple questions like…..Did you like him/her? Was he/she nice? You want to ask some specific questions that will let you know if the agent is good at what they do. Questions like…. did the agent get you connected with the professionals you needed? Did they walk the land with you? Would you use him/her again?

It is widely known that land is not depreciable and therefore only generates a capital gain tax obligation when it is sold. Capital gain rates will apply, which are generally lower, if the land has been owned for the minimum period of time — more than one year. However, if the land at the time of purchase has improvements on it such as fences, corrals, barns, grain bins or orchards (pecan trees), a portion of the purchase price can be allocated to these assets and a deduction on Schedule F can be taken each year during the time period allowed. Assets have different time periods for recovering their costs through depreciation. Allocating a portion of the purchase price to the attached improvements and deducting depreciation each year allows a farmer to delay the recognition of income by delaying the payment of taxes until a later year. When the depreciable asset is sold, the amount of gain due to depreciation has to be recaptured as ordinary income. If a depreciation deduction was not actually taken, the IRS still requires the amount of depreciation allowed to be recaptured as ordinary income. Income tax is due on ordinary income at the normal tax rate for the farmer's adjusted gross income level. The postponement of tax is generally a good farm management decision. One must keep in mind that the goal of not paying income tax should not be achieved at the expense of good farm management decisions.

When a farm is purchased with a house on it that the buyer plans to make their personal residence, the amount allocated to the "personal residence" is very important. The tax revisions passed in 1997 allow taxpayers to exclude up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale or exchange of a principal residence occurring after May 6, 1997. To be eligible, the residence must have been owned and used as the taxpayer's principal residence for a combined period of at least two years out of the five years prior to the sale or exchange. This exclusion of gain on the personal residence can have a huge impact on the cost of selling a farm.

An option that is available to both buyers and sellers of land is an installment sale - a sale of property where you receive at least one payment after the tax year of the sale. This option is attractive to the seller because only a portion of the gain is reported each year. When a payment is received, the amount reported as gain is the same percent of the payment as the total gain is of the total sale price. For example, if a farm sold for $200,000 and the basis at the time of sale was $160,000 (in this example, it is assumed there are no assets included in the sale price that have been depreciated, because any gain due to depreciation has to be recaptured as ordinary income in the year of sale regardless of it being an installment sale), the gain would be $40,000 or 20 percent of the sale price. If the buyer and seller agreed to an installment sale then the buyer would need to report 20 percent of each installment as gain. This provides a farmer an income flow over a number of years and may allow him to be in a lower tax bracket. The interest rate received on the amount included in the installment sale may be more than would be commercially available, plus it allows the tax on the gain to be paid over a number of years. The seller must be careful to separate principal from interest on each installment. The interest portion must be reported as ordinary income.

An installment sale is attractive to a buyer because it allows the opportunity to secure financing and make payments over a period of time at possibly lower interest rates than what would be commercially available. Young beginning farmers find installment sales especially attractive because they have a limited amount of cash to put down and, thus, face more challenges in obtaining financing. Related persons must be careful in using installment sales since this method cannot be used for depreciable property in most cases between related parties. The installment method can be used between related parties for land, since it is not depreciable.

Another item that can have costly implications is acquiring assets by gift versus by bequeath. A donee (person who receives a gift) usually receives the same basis in an asset as the donor (person making the gift) had in the asset at the time the gift is made. Therefore, when a farmer decides to make a gift ($11,000 tax free) to someone, that person will receive the farmer's basis in the asset. In the case of land that was purchased at a much lower value than the current market price, when the donee decides to sell the land, a sizeable tax obligation could be incurred because of the difference in the low basis and high sale price yielding a taxable capital gain. To the contrary, if the person inherited the asset, the new owner would receive a "stepped-up" basis, which would reflect current market value. When the asset was sold, it would have a higher basis and may generate little or no taxable gain.

These are only a few of the many issues that buyers and sellers of farm business property face. Much has been written on the alternatives and options available to buyers, sellers and those who may want to exchange assets. There are costs and benefits associated with each strategy. The best way to determine which may be the right choice is to sharpen your number two pencils and get out the Big Chief tablet and work through the necessary calculations. It will pay more than most things we do as farmers working on the farm.

This article was contributed by Dan Childs of the Samuel Roberts Noble Foundation.

Buying More Than You Can Afford

I have seen folks buy 200 acres they couldn’t afford, because they could borrow the money, when they should have paid cash for 20 acres they could afford. If you are buying property for recreational uses, it’s pretty hard to enjoy something that is a financial burden. Remember that while land is a great investment, it is not as easy to sell as a mutual fund. Selling land can take some time, so don’t overextend and get in a bind. You’ll enjoy your little place in the country a lot more, if you’re not worrying about how you are going to pay for it.

Buying Property without Considering an Exit Strategy

I know it is the tract of your dreams, and I know you are going to keep it forever, but the fact of the matter is, none of us knows what tomorrow will bring. So, if you are buying land, you better have a plan to sell it, even if you are not planning to sell it. Let your exit strategy influence your purchase. That way you can focus not only on why a particular tract is valuable to you, but also why it might be valuable to someone else, just in case you ever need to sell it. Be smart. Have an exit strategy. Plan to sell it, even if you never plan to sell it.

Failure to Check out the Neighborhood

Make sure you know the neighbors and the neighborhood before you buy your dream tract. Noisy neighbors (like a rock quarry, or a saw mill, or a railroad tracks), or smelly neighbors (like poultry or hog farms), or ugly neighbors (like landfills or industrial parks) can spoil your quiet enjoyment of your country getaway. Look around the area and ask questions, because bad neighbors and bad neighborhoods may be with you for a long time, and my experience has been that relocating your tract to a better neighborhood is not a practical solution.

Buying the Cheapest Tract

I love a deal. I love spending as little as I can on a tract of land. I also know that if you are determined to get the most acreage for your budget, you are likely to make a mistake. The cheapest tract is not always the best deal. Cheap land is cheap for a reason.....It is ugly, land locked, cut-over, swampy, or has some other warts on it. For the most part, tracts are priced at what they are worth, so don’t get consumed with the lowest price per acre, or you might wind up getting a tract that you don’t want...or missing a tract that you do.

Accepting as Fact ANYTHING, without Verifying it Yourself

We have all heard it before. “There is $1000 per acre of timber out there.” “Sewer is coming.” “You can’t smell those chicken farms from here.” “The roads on this tract are always accessible.” Be aware that sellers, agents, heirs, and neighbors all have a dog in the fight, do not ultimately have your best interest at heart, and may provide you with bad information. I’m not saying that everyone is intentionally deceptive, but many people simply pass along information that they have been told by someone else. Especially when buying land, you need to make sure that you make decisions that YOU know are based on truth rather than what someone has told you. You can’t possibly know everything you need to know, but you can find out, and you should. Get an expert opinion of timber value. Get a written verification of county infrastructure, or utilities, or zoning. Stand downwind of the chicken houses (on a day when they clean them out) and “sniff” for yourself. If you have concerns about some environmental issue, get it checked out. Do your homework.

You can get my complete list of Land Buying Mistakes PLUS the Top Ten Myths/Truths of Land Ownership by joining our facebook page at www.facebook.com/greenwoodproject

You may know what a survey is and what a boundary line looks like, but I’m willing to bet that most of you are not qualified to verify a boundary line encroachment. You know what trees look like and you may even be knowledgeable enough to tell valuable timber from timber that is not valuable, but cruising timber on your own or determining timber value on your own is another story. You are probably not qualified. I know I’m not. The list goes on and on: Appraisals, wildlife, wildlife potential, lake construction and permitting, just to name a few There are plenty of times that all of us need professional help to completely understand the components, characteristics, value, and even the potential of a property.

Most land buyers are not willing to pay for it. It can be an expensive proposition. But when I began investing in land, I quickly recognized that land investing is a team sport, so I assembled a team of people who had knowledge and experience in a specific area that was outside my general knowledge base. I partnered with a forester and I hired an appraiser. Now I have a wildlife biologist, a lake builder, financial people, a forester, and a land services guy on staff. The reason I have those people on my staff today is because they are incredibly important to my land investment business. I need professional help and I’ve been doing this a long time. I don’t know what makes a novice land buyer think they can go out and ride around with a real estate agent and make a decision that I as a professional land investor cannot make without a team of people. Buying land is a team sport, and I found out early that I needed to assemble a team of people to be successful as a land investor.

To be successful on purpose (rather than by accident) you need professional help, and you need to be willing to pay for it. Otherwise you are not “investing” in land, you’re speculating. There is just too much on the line to roll the dice in this manner, particularly when it is so easy to use experts to take the guesswork out of the process. But, be aware that there is also a BIG difference between experts who are merely book smart and those who are woods wise and can effectively apply what they know.

One of my biggest disappointments in life is that bonafide experts and complete idiots sound exactly the same the first time you meet them. So before you go and bet the farm (literally) on the expertise of someone you hardly know, let me offer a little advice. Ask a lot of questions. If you don’t know the right questions to ask, get a referral from someone who does know what to ask, or better yet, has experience (both good and bad) with these subject matter experts. They are easy to find. If you are looking for a forester, go to a local Forestry Association or Forest Landowner meeting and ask existing landowners who they trust and use themselves. If you need a reliable surveyor or appraiser, go to a local land lender and ask who they trust and use regularly. If you need the services of a real estate agent, don’t pick the one with the most listings in the local paper. Ask a closing attorney or a banker or a land investor who they think does the best job for their clients. Ask bankers and agents for their recommendations on real estate attorneys. Get to know the folks in your state’s Forestry Commission or Fish & Wildlife Service. Beyond knowing who the experts are, these state agencies often provide these consulting services, and sometimes it’s FREE.

This is just a starting point. This isn’t everyone you will ever need, and in fact, you may not need all of these folks on every land transaction, but you better know someone you can pick up the phone and call and ask questions. Someone you can trust.

If you are a land buyer, whether you are a timber man, hunter, outdoor enthusiast, or stock market refugee, you are INVESTING. You perceive the land to be more valuable than the money you give for it. You purchase land with some expectation that the land ownership experience will benefit you in some way.  You are looking for some sort of return on investment, whether that return is measured in dollars, in trophy deer, memories with their family, or some combination of all of these.

That being the case, I think your approach to land ownership should be like that of an investor, and based on knowledge and objective evaluation criteria. By thinking like an investor you can better manage the process, better understand the approach, better understand the land, and better understand yourself. It’s a much better blueprint for success for land ownership.

You need to know how professional land investors evaluate and analyze property before they buy it. You must be wise about how you invest both your time and money, avoiding people and circumstances that get in your pocket or waste your time.

Investors (at least the good ones) go through a process of learning everything they can before they invest. They study the physical characteristics and components of the asset, they understand the market, they understand who their competition is, and what professional advice they need. It’s very analytical and unemotional. You need to think like that……like an investor.

Investors know they have to be able to do two things:

• Act quickly when an opportunity presents itself
• Recognize an opportunity when they see it.

Being able to act quickly is a function of getting your finances in order. We talked about that in a previous article, and it is pretty straightforward - Don’t buy more than you can afford. But, recognizing an opportunity when you see one is not so cut and dried. In fact, it is downright difficult, and determining price or value is the part of the process that most folks (even the professionals) struggle with the most.

And here is the problem. No two pieces of land are exactly the same. You simply can’t boil land value down to a black or white decision. What is land worth? Well….it depends. Factors like location, access, water sources, timber, zoning, wildlife, topography and market trends all impact land value and desirability, and ALL of these can vary in importance depending on what part of the country you are in. These physical characteristics are what determine the potential usage of land, and since a property’s value is ultimately based on how it can be used, here is where the value is determined.

So what do you do? How will you be able to know an opportunity when you see one? Well, a little research and a lot of common sense go a long way. In order to assess value, licensed land appraisers go through a process of developing a list of comparable properties and then adjusting these “comps” based on their unique or valuable characteristics. Most of the information an appraiser uses is available to the public, so you can find it as well. Spend a little time in the Tax Assessor’s office looking up recent sales. Make a list of desirable characteristics like water, timber, frontage, and topography. Get a feel for raw land value…or the value of the “dirt” alone. Talk to a forester, a land appraiser, or a land lender about values of improvements and natural resources. Meet with the County Tax Appraiser. Ask a lot of questions. Determine market trends. Are land values going up, down, or remaining stable? Evaluate your own comps. In time, you’ll get better and better at estimating value.

But remember, the goal here is not to become an appraiser. The goal is to spot an opportunity…..before someone else can. That’s what investors do.

Get a Buyer’s Agent working for you. They can do several things for you in the land search process that can compliment your efforts. They have access to listed property, either through multi-lists or their relationship with other real estate agents. They also can locate land that is for sale but not listed by any agent. Agents call these properties “pocket” listings. These pocket listings will never be on the internet and are rarely advertised in print ads. You’ll never know about it unless you contact an agent who knows about it, or your agent contacts another agent who knows about it. You might wonder why these pocket listings exist. If the owner wants to sell, so why not tell everybody? Often the owners of rural property don’t want their neighbors to know their property is for sale, until after it is sold. Maybe they just don’t want to hear, ”Why are you selling your land?” Who knows? What matters is that they are selling, and if someone is selling, you want to know about it. Plus, if your agent is out finding listed and pocket listed property, that frees you up to look in other places.

Spend some time riding around.. Actually getting in your car and driving around in an area, while expensive and time consuming, is without a doubt the most enjoyable way to prospect for land. More than once, I have bought land that I found while out driving. And believe it or not, the only method some landowners use to market their land is a sign on a tree.

Shop for Land at the Corner Store. This may sound as an odd place to locate land, but in small towns across America the corner store is still a place where a lot of information passes hands. You never know who knows who in rural America, but you can bet your last dollar that the folks at the local store know every landowner in the area and they know what’s going on in their county. The next time you stop in the country store for a drink or a snack, make a point of talking to people. You never know what could happen.

Spend time in the Courthouse. In most counties, you can purchase an electronic copy of the tax digest from the Tax Assessor. The tax digest contains information about EVERY tract of land in the county, including acreage and landowner name and address. Once you have that information, you can contact landowners by mail and let them know you are interested in purchasing land just like theirs. A lot of counties have this information available online now, so you can get landowner addresses and property information (including maps) without leaving your home.

Networking is the single most important thing you can do. Locating land, more than any other part of the land buying process is a networking endeavor. The goal is to know as many people you can who have some connection to land somewhere. With social networking and email, it has never been easier. So, call your relatives. Twitter your friends. Post it on your Facebook page. Tell everyone you meet. To be successful in locating land, you must build a network, and the more people you tell that you are looking, .the better your chances of having the land find you.

One of the core principles of the Greenwood Project is that land is an investment that is to be enjoyed.  When you choose to lock your liquid assets in land, you are getting more than a piece of property,  you are getting a place to experience the outdoors or create lasting memories.  Land is the only investment vehicle that will bring you more than just revenue; think of the time spent riding the ATV, Cooking out with family, or just camping on the farm.  The enjoyment of the land ownership experience is an important component to investing your hard earned money into land.

The problem that most of us have when it comes to buying land is we feel lost and the task seems overwhelming.  The fear of failure has stopped many investment deals, some of which may have been highly profitable.  The reality is we are not born with the knowledge or competency to make these investment decisions and so we back away from the opportunity.  There is a tremendous gap that exist in the minds of many "would be" land investors when it comes to the HOW of land investing.

It is the purpose of Greenwood Project to bridge the gap and make the connection between "I want to. . ." and "I did it . . . ."  The Greenwood Project has an entire educational series on how to buy land.  Land investment is only difficult if you do not have the right resources and knowledge and "Maximizing the Land Ownership Experience" is the resource you need to acquire the knowledge necessary to make that investment in land you have always wanted.