Market – Reasons to Keep or Sell – Process Advice

MARKET

By Robert Pahmiyer – September 2021

The Texas Hill Country is home to many satisfied landowners. Many live on the land, while others hold the land for long term appreciation and utilize it for income and recreation.  Even though most landowners are happy with what they have, every year around 2% to 4% elect to sell their land and improvements.

Most times the decision to sell is not an easy one.  It is common for landowners to have a strong emotional connection to the property.  Landowners may be emotionally connected, especially if the property has been held for an extended period of time, has been in the family for more than one generation or the owner lives on the property.

If the owner is getting enjoyment from the land and the family utilizes it, I will be the first to encourage that owner to hold on to their land and pass it on to their heirs.  Hill Country land is a good investment.  It is difficult to make raw land produce a significant annual yield, however, with a 1-D-1 agriculture appraisal, the taxes and holding costs are low and often times can be covered with a grass lease, raising your own animals or providing a hunting lease.  Historically land values have appreciated at a reasonable rate (4% to 7% per annum depending on location) and allow your investment to beat inflation.

If heirs are not interested in the land and the land is not being utilized, the owner is having trouble maintaining it or it has simply become a hassle to care for, then it may be time to consider converting the land asset into something that is more beneficial.

The Hill Country is a very strong sellers’ market at the moment.  The inventory of available land properties for sale has declined significantly over the last 12 months and the number of potential buyers has increased dramatically.  This out of balance state has led to fairly significant price increases over the last 12 months.  Inventory of available property continues to be low and there are significantly more buyers than sellers.

What is Driving the Current Market?

There have been a number of factors that are driving large numbers of land buyers and the resulting sellers’ market.

1.   Location – The Texas Hill Country has always been an attractive area to land buyers.  It is known for the fantastic long-range views, pretty countryside, live water and the chain of Highland Lakes on the Colorado River.  The area attracts people from inside and outside the state of Texas because it is a great place to live.

2.   Covid-19 Pandemic – many people that have historically been comfortable living in a large metroplex are now looking for a second home in the country to stay at when something like the pandemic occurs, or in some cases are relocating to a rural country home with some land to get away from the pandemic issues.

3.   Work from Home – for many office workers, the pandemic has accelerated the ability to work effectively from a remote location.  This is allowing a fairly large percentage of the workforce to relocate and many are choosing more rural areas with some land.  Most areas have adequate internet connections to allow reasonable connectivity and there are several initiatives in the works that should improve connectivity in rural areas soon.

4.   Austin Area Job Growth – the Austin metroplex has seen phenomenal job growth and consistently ranks as one of the fastest growing metro areas in the US.  Many of the jobs are office related. Workers can take advantage of working remotely, at least part of the time, but may need to go into an office on a weekly or monthly basis.  These types of workers can be farther away from the central office and still maintain a lucrative salary and be an effective worker.

5.   Stock Market and Interest Rates – the stock market has continued to grow and create wealth over the last 10 years.  Some land buyers are looking for a more stable investment and one that they can enjoy.  Land is attractive to them as an asset.  At the same time interest rates continue to be at historical lows.

All of these factors have played a role in driving up the number of land buyers, driving down the available inventory of land on the market and driving up the price of land.

If you are in the small group of landowners that have been considering selling and are waiting for the right market, I would advise you that now is a good time.

Some Things to Think About

If you decide to sell, make sure that you have a small team around you that you can trust.  Depending upon the complexity of the transaction and what you plan to do with the proceeds you may need some of the following professionals to help and advise you through the process.

1.    Realtor – find a realtor that you can trust with a proven track record and has the following skills:

a. Understands the local market.

b. Able to help you put together the right team of  professionals.

c. Can identify, recommend and help you implement  low-cost improvements that can be accomplished to improve the showing appeal of the property.

d. Can define, articulate and execute a professional marketing plan.

e. Have fundamental contracting and negotiation skills.

2. Real Estate Attorney and Title Co.– if you do not already have a real estate attorney, work with your realtor to identify a reputable title company and attorney to make sure that the sale is closed in a professional manner.

3. Certified Public Accountant (CPA) – work with your CPA or tax advisor to make sure that you understand the tax implications of the sale.

4. Qualified Intermediary – If the sale of the property is going to expose the owner to a large capital gain, he/she may decide to do an IRC 1031 exchange and defer the capital gain tax.  If this is the case, a qualified intermediary will be required to execute the proper paperwork and hold the funds until they can be re-invested.

5. Financial Advisor – if an IRC 1031 exchange is going to occur, at least some of the funds from the land asset sale will need to be re-invested in “like kind” property. A financial advisor can help you evaluate re-investment options, especially if you choose a passive re-investment such as a Delaware Statutory Trust.

If you decide to sell, I encourage you to do your research and pick a professional realtor that has a proven track record, can connect you with the right resources, and can advise and guide you through the entire process.