Hunting for Recreational Properties
Investors spot new opportunities in the great outdoors.
by Sara Drummond
Land is America's new stock
market. In some parts of the country, people burned by Wall
Street are putting their money into what Scarlett O'Hara called
“the only thing that lasts.”
For example, Curt Eilers, CCIM,
a broker/investor who owns PrimoTerra Realty in Naperville,
Ill., purchased 160 acres of undeveloped land in California
early last year and bought another 200 acres in the fall. He
bought the land mostly for investment reasons, but he hasn't
ruled out other uses.
“Recreational land investments
provide an opportunity to gain appreciation equal to or superior
to the returns of the stock market,” he says. “It starts with
finding appropriate parcels.”
Eilers' property is zoned both
residential and recreational. It is about 30 miles outside of
Redding, one of the fastest growing areas in the state. However,
it is off the local power grid because “you can get nicer land
for less money if it is not on the grid,” he says. Other owners
in the area rely on solar and wind power. “Cell phones work in
many remote areas, and the Internet and media programming are
available by satellite dish,” he says. “These newly available
services make living in a wild-urban interface area much more
feasible than in the past.”
Demand for both improved and
unimproved recreational property is one of the strongest factors
boosting rural land prices nationwide. An increased interest in
outdoor recreational hobbies as diverse as hunting and
bird-watching, a graying baby-boom generation that is more
conscious of the investment potential in vacation and retirement
properties, and low interest rates have come together in the
past five years to create a niche market for recreational land.
Soaring Land Prices
Recreational property is a broad term that covers a variety of
land uses, some native to particular geographic regions.
Gentleman and hobby farms, hunting and wildlife plantations,
ranches, ranchettes, timberland, and tillable and nontillable
crop land all fall under this rubric.
Farmland is increasingly being
converted to recreational use in some areas of the country. Last
year's Iowa State Land Valuation conference estimated that out
of $14 billion spent on U.S. farmland in 2003, $2.5 billion was
spent on nonfarming recreational use.
Recreational land use follows
investment as the second most popular reason for farmland
purchases by nonfarmers, according to the Federal Reserve Bank
of Kansas' 2003 Survey of Agricultural Credit Conditions, a 10
percent increase from the previous year, the survey reports.
The average price of an acre of
U.S. farmland is $1,360, up 7 percent from a year ago, according
to the U.S. Department of Agriculture's Land Values and Cash
Rents 2004 Summary. The report credits strong demand for
nonagricultural land uses as a main factor in boosting prices.
Nationally, farmland in the path of immediate development was
valued at $5,700 per acre and farmland with development
potential was $4,000 per acre.
Changing Land Values
Wildlife-related recreation, such as hunting, fishing, and
observing, is a $108 billion industry that is contributing to
strong land value gains, according to the Federal Reserve Bank
of Kansas' Center for the Study of Rural America. In 2001,
wildlife recreation accounted for more than $12 billion in land
leasing and ownership, according to the April 2004 Main Street
Economist, the center's quarterly rural commentary newsletter.
Nonagricultural uses such as
recreation are changing the market dynamic for all rural land,
according to University of Nebraska's Nebraska Farm Real Estate
Developments, 2003–2004. Last year the state recorded a 9.2
percent jump in farmland prices, the highest in 14 years.
Typically crop productivity and commodity prices create the base
line for valuing farmland. But recreational interest in
poorer-quality farmland — land with trees and streams, not
conducive to farming but good for encouraging deer and other
game — can raise the value of all rural land.
It's a change from the old
mind-set that “if it can't be cleared and farmed, it isn't worth
much,” says Eric L. Sarff, a recreational land specialist with
the Loranda Group in Springfield, Ill. In the past five years,
his company has seen a pronounced uptick in demand for
recreational property, although little of it is converted
farmland. “Most of the recreational land we sell is woodlands,”
Sarff says. “Very little of it has been used to raise crops.”
Land parcels in the 40-acre to
100-acre range are the easiest to sell, Sarff says. In Illinois,
40 acres is the minimum required acreage to obtain a
deer-hunting shotgun permit. and many buyers have “an imaginary
threshold: They view anything under 100 acres for entertainment
value and not investment potential,” he says. Currently, lenders
in Sarff's area are offering 20-year property loans at 65 to 70
percent of appraised value, with interest rates between 5
percent and 7 percent.
Most of his buyers are
businessmen who like to “hunt, fish, and enjoy Mother Nature,”
Sarff says. He estimates that about 25 percent of the people he
speaks to each week are interested in recreational properties.
“We spend a lot of time trying to educate callers about the
realities of the recreational market — what the land will cost,
what the taxes will be,” he says. But he predicts the market
will remain strong, although “the rate of increase will probably
be in the range of 4 percent instead of [last year's] 8
While buyers who purchase
recreational properties for personal use don't qualify for 1031
exchanges, “We get calls from 1031 buyers interested in an
[income-producing] combination of tillable and recreational
land,” Sarff says. Cash-flow opportunities include leasing
hunting rights, leasing tillable land for farming, or enrolling
in the Conservation Reserve Program, a federal program that pays
owners to plant cover crops to preserve farmland subject to
flooding and erosion.
Exchange investors also are
active recreational property buyers in central Alabama, says
Carter Burwell, CCIM, an associate broker with Aronov Realty
Brokerage in Montgomery, Ala. “More than half the [recreational]
deals I've done recently have been 1031 buyers,” he says. “Most
buyers are local or from the Florida Panhandle and are looking
for half-fun, half-investment.” Central Alabama is known for its
turkey, deer, and quail hunting, he says. “Some of the
properties are old family farms, and the new owners lease the
farm to farmers and then use it for hunting and fishing
Interest in Alabama
recreational land has been steady over the past 10 years. “Land
prices pretty much follow the stock market,” Burwell says. “From
1995 to 2000, prices doubled and tripled. Since 2000 it's
remained steady, and in the past three years, it's probably
increased 5 to 10 percent.”
From Farms to Recreation
In the West, aggressive conversion of agricultural land to
nonagricultural uses such as recreation and residential
development literally is changing the lay of the land in some
states. and because western lifestyles and livelihoods are much
more closely tied to the land than in other areas of the
country, the effects are far-reaching.
For example, the highest and
best use of Texas ranchland is no longer cattle ranching; it's
recreation, says Charles E. Gilliland, a research economist at
Texas AandM University's Real Estate Center.
“Deer hunting is the primary
impetus behind this switch,” he says. “In many cases, a hunting
lease brings in more than five times the revenue from [cattle]
grazing.” Although the major switch to recreational use began in
the 1980s, “in the past decade the situation has spread and
reaches into all corners of the state. Add to that demand,
birdwatchers and other nature lovers have entered the contest
for space to pursue their hobbies. That has led to a marked
change in ownership patterns.”
Per acre prices range from $250
in the Texas Panhandle to more than $3,000 in southern Texas and
the Hill Country, where buyers are looking to hunt primarily
whitetail deer and quail. A common due diligence factor is often
a biologist's game report, Gilliland says.
But he notes that the change in
land use has not sparked development in the usual sense of the
word. “Some owners are restoring improved pastureland to its
native state. From that perspective, land use is reverting to
earlier uses now.” In fact, today's buyers prefer unimproved
native rangeland with brush and undergrowth that provides
wildlife habitat. Water features, high fences, and wildlife
management plans also increase the land's value in recreational
and ranches aren't the only
land changing use in Texas. In east Texas, the timber industry
has sold nearly 1.8 million acres of timberland, much of it in
rural second-tier counties that may become the state's new
big-growth areas, Gilliland reports. Twenty-acre to 100-acre
parcels have increased the most in value.
While the average price of a
Texas acre is $1,100, the average size of property transfer has
declined from 107 acres in 2002 to 100 acres in 2003. Texas land
transactions for 2003 totaled almost $800 million. and prices
should hold, says Gilliland. He predicts that 2004's increase in
value “will likely surpass 8 percent.”
But ranchers seeking additional
grazing space for cattle are thwarted not only by high land
prices and competition from recreational buyers, but also by
what may be a permanent change to their way of life. “Many of
the current [recreational] buyers are flush with cash and plan
to retire on their rural retreats,” Gilliland says. “Taken to
its ultimate conclusion, rural communities could see a
transformation from agriculturally oriented business to
specialized horticultural establishments. Livestock and
agriculture will not vanish, but the real money in those
communities may move in different directions. One aspect of this
movement is a vanishing middle class in many rural communities.”
Losing Open Spaces
In the Rocky Mountain states, more than 15 million acres of
rangeland have been converted to nongrazing uses in just the
past five years, much of it to meet the needs of buyers looking
for vacation and retirement properties.
Population in western states
jumped 47 percent in the last 20 years, much of it near Aspen
and Telluride, Colo., and in Wyoming and Montana surrounding
Yellowstone National Park and other federal lands.
Mountain property is second in
popularity only to waterfront among vacation property buyers,
according to a 2002 National Association of Realtors survey. A
2003 update showed a marked shift in the number of buyers who
purchase vacation properties for investment reasons.
For buyers of large western
recreational tracts, demand for elk hunting has been the
strongest, says Jim L. Whitney, CCIM, owner of Whitney Land Co.
in Pendleton, Ore. Whitney primarily sells hunting and fishing
recreational ranches from a few hundred acres to 44,000 acres.
“While the ranches contain significant recreational
opportunities, they also remain leased out to the agricultural
users that they historically have been utilized for,” he says.
Many buyers in the $3 million
to $8 million range don't want a return on the investment, but
they do want to generate enough money to cover expenses, Whitney
says. They do that by leasing land to cattle ranchers, enrolling
in conservation and wildlife enhancement programs, and placing
conservation easements on parts of the property. “There are a
variety of conservation easements available that offer
significant tax benefits,” Whitney says. “and they don't reduce
the value of the property.”
Conservation easements are
being used more frequently to preserve both open space and
ranching as a livelihood. Ranchers can sell easements that
restrict future development and still work the land; at the same
time they also can lease fishing and hunting rights to
recreational users. Nearly 1 million acres of western ranchland
now is protected by conservation easements, according to the
American Farmland Trust.
Of course, ranch is a relative
term. Buyers seeking a couple hundred acres and a small house
might find something under $500,000. But trophy ranches in the
1,000-acre to 10,000-acre range with fly-fishing and hunting
opportunities start around $1.5 million.
“The real value is in Oregon,”
Whitney says. “Land prices are half what they are in the Rocky
Mountain states, and you can use your property for more days per
year,” due to a milder climate and less snow at the lower
elevations. Deer and bird hunting are big in Oregon, he says.
But, “the Rocky Mountains have the sizzle,” not to mention the
higher elevations that attract elk.
If the general economy continues to strengthen, recreational
property buyers should benefit, although it is hard to predict
how long the market will sustain record-high prices. “If
recreational land gets too expensive, people will just quit
buying it,” Sarff says. “Remember, it's typically used for a