When you purchase 150 acres of farm land, you are, as in this case, actually purchasing many components that need cost allocated to. In this case, the buyer is purchasing:

• 135 acres of productive farm land
• 15 acres of CRP
• Tile lines
• A gravel road
• Probably some fencing

To allocate this properly, you need to determine the reasonable fair market values of all of these items and then allocate the purchase price accordingly. Fair market value for roads, tile line, fences should be based on what a reasonable third party would pay for the improvements, not the original cost. For example, if it costs $700 per acre to put in the tile system and it is about 5 years old, you may want to assume a reasonable buyer would pay about $300-$500 per acre, not the $700 per acre of cost.

After determining all of these fair market values, you need to then allocate the purchase price based upon the percentage of fair market value for each item to the total fair market value times the actual purchase price.

Lets assume the following fair market values for each item:

• 135 acres of productive land at $4,500 per acre or $607,500
• 15 acres of CRP at $2,000 per acre or $30,000
• Tile lines at $500 per acre or $67,500
• Gravel road of $20,000
• Fencing of $15,000

If you add all of these values together, you obtain a total fair market value of $740,000. If we take each component and allocate purchase price based upon their related % to the total fair market value, we would get allocated purchase price as follows:

• 135 acres of productive land – $578,768
• 15 acres of CRP – $28,581
• Tile lines – $64,307
• Gravel road – $19,054
• Fencing – $14,290

If you add all of these values up, you get the purchase price of $705,000. Since the tile, roads and fencing can be depreciated over 15 years, you have taken about $100,000 of the total purchase price and created a tax deduction versus treating all of the purchase as land. In this case, that percentage would be about 15%, but every farm/land purchase will have their own unique situation.

This article was contributed by Paul Neiffer, editor of  Farm CPA Today

I don't think it comes as a surprise to anyone that land is a great investment, but for most people all they hear about land investment is what they hear from some Real Estate GURU with a pitch about how to get rich quick with residential real estate.  All the gurus make it sound so easy.

But do you really want that?

The headaches of buying houses, dealing with contractors in some never ending rehab operation, then trying to find tenants……then dealing with all the problems……broken water pipes…..busted water heaters……clogged toilets.  Do you really want all of this while you work your regular job?  Who’s got the time and patience for that?

Be honest.  Do you get up every morning thinking how great it would be to be a landlord?

Me either.

Well, I’ve got news for you…..The Rockefellers didn’t build their wealth buying dumpy houses in run down neighborhoods.  They built their wealth by buying Jekyll Island.  They bought land…….raw land…….unimproved property…..timberland......land was an investment!

Land Investment . . . yeah, Investment!

Timberland (as an asset class) outperformed the S&P 500 during the big stock market run up from 1987 – 2007?  During that time the only investments that beat timberland were venture capital and private equity.  And because timberland is generally counter-cyclical to the stock market, timberland has held steady while banks, car companies, retail, and the insurance industries have all taken it on the chin.

When you hear about real estate bubble bursting….

Do you ever hear anyone mention land investment, like timberland or hobbyfarms?  Ever wonder why?  I’ll tell you why.  There was never a land bubble and there was never a burst......Only average annual compounded returns of nearly 13%!

Here's something to think about.

In my home state of Georgia, Talbot County is one of the larger counties as measured by area or size.  The population is about 7500 people.  It is very rural with almost no industry.  But 15 years ago you could have invested in land for $400 per acre.  Today, land is going for $3000 per acre.

$20,000 in land investment then….would be worth $150,000 today.  That’s a 650% gain in only 15 years!  In fact, you could have financed it at 9% and made payments of $200 per month.....And STILL recognized a 317% gain.

What’s so special about Talbot County, Georgia?  What's different now?

NOTHING!

And I’ll bet there is a Talbot County in your state, with similar stories from people who took advantage of the land investment opportunity.

So….What’s holding you back?

Here are some additional articles that talk about land as an investment:

• How to Make Money With Rural Properties An Interview with Allen . - The two hottest trends being seen right now are recreational buyers purchasing and developers purchasing. The recreational buyers are purchasing both to hold long term instead of putting money into the stock market, and to reinvest a previous property's proceeds that they've sold. The developers are purchasing because of the demand for country living that has risen and because of cities expanding into rural areas.
• Consider a Land Investment if You're After High Returns | Business ... - The value of land has been soaring over the years thus making it a highly profitable investment alternative. Because land is a finite commodity,
• Field Guide to Land Investment - While land investment may not provide the instant gratification of a home purchase, this sort of venture can be quite lucrative. Land investors have different needs and concerns than those of typical real estate investors - zoning, ...
• » Georgia Species: Wildlife Photography Georgia Country Blog: All ... - Here at at Georgia Country we are a blog devoted to land and land ownership. Any good outdoorsman must be familiar with the species indigenous to their area. In that regard we here at Georgia Country work hard to try to catalog the various species in our region.
• Should Timber Investments Be Part of Your Portfolio by Grant Glessing - Timber and timberland have traditionally been investment vehicles for institutional investors because of the amount of capital required. There are however, excellent opportunities in today's timber and timberland investment marketplace ...
• Invest to beat inflation | Alternative Haven - How to beat inflation in the long run? Historically, there are 2 main ways to beat inflation: precious metals like Gold and Silver and for those who can afford.

Land owners who are willing to sell or lease conservation acres to new farmers could receive federal money because of a new program offered by the Department of Agriculture.

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