Buying farmland as investment a good idea? No idea what I would use it for - not for farming
Hey all, I'm looking at some farmland that's not too far off a main road near my town.  It's 20 acres with a $400/yr tax bill and listed for about $450k.  It's currently zoned 'Farm'.  I seem to like the price in comparison to what I'm seeing on sale just 100-150 yards away by the main road.

I honestly don't know the right questions to ask about this.  My plan was to hold onto it for 5-7 years or so...wait for the surrounding area to build up and hope that I can sell it for a profit or maybe get approached by a developer who wants to build residential.

I know this post is very vague, but thought if there was a place that I could come to for some answers (or the right questions to ask), it would be this.
[{"id": "hvhi0gz", "text": "Depends on the location. But don\u2019t count on that tax bill being near that unless you have an ag exemption. I\u2019ve seen land at intersections held for 30 years that won\u2019t appraise for what someone has into them.  If the supply of land is low in your area it might make sense. \n\nGoing to county planning meetings and checking DOT maps is a good start to knowing where to buy for speculators but stuff can change easily if the costs don\u2019t make sense.", "replies": [], "depth": 1}, {"id": "hvhjebe", "text": "Try me via DM, 20 acres is the right size to do multifamily if the market is big enough", "replies": [], "depth": 1}, {"id": "hvhm6t0", "text": "Land speculation is a big boys game, and a very uncertain one at that. There\u2019s probably a reason for the price variance.\n\nYour state\u2019s zoning, environmental and land use laws are very important to understand, along with required or planned infrastructure and utility improvements, growth rates and development trends.\n\nThen there\u2019s the disposition of the land itself, is it in a flood plain? Was it stripped for road base when they built the highway and refilled with loose fill?\n\nProceed with extreme caution and engage a land use attorney and engineer before doing anything. Otherwise you might end up being a farmer.", "replies": [], "depth": 1}, {"id": "hvhueqq", "text": "Lease it out to a farmer to get some income in the meantime?", "replies": [{"id": "hvhzrmz", "text": "Yep. Return is usually very low but it tends to at least break even. Buying farm land is a very long game.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hvhx89n", "text": "Is a solar lease possible? If not leasing to a nearby farmer or rancher is a good option in terms of holding it, as someone else stated", "replies": [], "depth": 1}, {"id": "hvi4xru", "text": "Look at population migration and school zones. If you live in a rust belt region that has population decline or bad school district you may not see enough housing demand to justify converting the land to housing developments.", "replies": [], "depth": 1}, {"id": "hvi6mip", "text": "Water risk", "replies": [], "depth": 1}, {"id": "hvi753k", "text": "The way you increase the value is to get the property rezoned. That may be a city or county process.\n\nIf the parcel is in the existing path of progress, the only question is how long will it take to reach you.\n\nZoning authorities don\u2019t typically live the idea of a random parcel being zoned commercial when it\u2019s 100% surrounded by farmland, so you want to start the process when the parcel next door gets rezoned.\n\nIf you do the work, you might be able to make 4x on just the land. If you just want to sit on the parcel and resell it later without changing the zoning, you could make money or lose it\u2026at that point, it\u2019s pure speculation.", "replies": [], "depth": 1}, {"id": "hvibrl0", "text": "That\u2019s a HUGE price for farmland. Top quality farmland in Illinois goes for 12-16k/acre. Not sure where you are at but $22,500/acre is not a good price unless you are planting tree crops or planning to use it for development. Even then, like someone said that gets into pure speculation and it is a big boys game. Try to find out what you can rent it for per acre BEFORE you buy it and that should tell you if the price is too high or not. Farmland right now is renting at about a 3-4% cap rate nation wide so if the numbers don\u2019t come out to that you are overpaying.", "replies": [{"id": "hviiejf", "text": "Yes, this. Worked in ag banking for 5 years. Where we lived, top quality, dry land went for 1-2k (depending on location, annual precipitation, etc etc etc), irrigated land was 3x dryland (rule of thumb). This is a really high level explanation.\n\nCap rate seems a bit high. It is usually 10 year treasury + 90-110 basis points. There's a study I read a few years back that went in-depth on it. Not that farmers really look at treasuries when they buy land...\n\nWith ag land you're betting on America. It's like a step more risky than treasuries. But unless you know how to farm it... probably best to not buy it, otherwise you've got a $450k field full of tumbleweeds.", "replies": [{"id": "hvikicq", "text": "All good points. Yeah you\u2019re right it is definitely closer to high 2s maybe low 3s. Plus even if you plan on renting the land, if you don\u2019t know what you\u2019re doing lot more can go wrong.", "replies": [], "depth": 3}, {"id": "hvk9z9z", "text": "Where did you get cap rate w/o income?", "replies": [{"id": "hvkawvy", "text": "Market rents. Usually it's pretty uniform depending on AUMs (cattle) or average yields (farm) for the property.", "replies": [{"id": "hvksg7a", "text": "Thanks, I\u2019ve been exposed to most commercial assets. But my grandpa has a small cattle ranch and have always been curious.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hvq11jt", "text": "Ha ha ha. TumbleWEEDs", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hvik3ts", "text": "Solar farm?", "replies": [{"id": "hvkdd70", "text": "Would require existing grid connection -- otherwise you're looking at more costs to connect to the grid. And how far is the nearest transformer?", "replies": [], "depth": 2}, {"id": "hvkqeh6", "text": "The government essentially gives away solar land many places so this isn't really an investment strategy.  Unless you luck into a perfect storm with infrastructure, sunshine and tax incentives", "replies": [], "depth": 2}], "depth": 1}, {"id": "hviw2u8", "text": "I honestly wouldn\u2019t do this unless I had a legit plan and ability to develop it myself. And in the meantime I\u2019d consider contracting to a farmer to farm it (but you\u2019ll want to like that up ahead of time). Just buying it and hoping for development to come your way is put speculation. It could work - but personally I\u2019d want more assurance.", "replies": [], "depth": 1}, {"id": "hviz209", "text": "I would say that you should only invest in what you understand. If you have $450k to invest, there are many managed funds or other ways to invest the money that are more diversified and have less risk. \n\nIf you're really interested in real estate, perhaps look into a REIT, which diversifies your investment over many income producing properties, rather than buying one piece of land that you HOPE will significantly appreciate in value during your lifetime. There's also a good chance (I don't know what state you're in or your regional tax laws) that once you buy the property that tax bill will lose whatever exemption it had from being held by the previous owner for so long.\n\nYou can do whatever you want, its a free country, but if you don't even know what questions to ask, I don't think you could really even tell if this is a good investment without having an expert look directly at the property with you.", "replies": [], "depth": 1}, {"id": "hvk460d", "text": "That is $22,500.00 per acre.\n\nThe property is not large enough to attract a farmer unless a farmer happens to be farming the adjoining tract.\n\nBut, the $22,500 per acre is more than 2x the cost the land needs to for tenant farming to support the land cost. Probably 3x when you consider your property does not have an irrigation system (too small).\n\nThis tract either has residential or commercial potential or it is priced way to high.\n\nAlso, the $400 tax bill is probably low because the land is held in an Ag conservation program. If you transition usages, you will definitely get a higher tax bill &amp; maybe a penalty for transitioning out of the existing Ag covanant.", "replies": [], "depth": 1}, {"id": "hvlerec", "text": "Here in Hawaii permitted uses for agricultural land, and permitted uses for other higher land classifications are very different and it's a long costly process to change from ag to urban at the state level and then ag to commercial at the county level. \n\nBefore you do anything you'd do well to check what would be required to allow other uses, and how long it takes and how much it costs to make the change in designation. \n\nHere it's a two level thing, needs first to be approved by the state land use commission, and if a change to urban is approved, then goes to the county for a change in zoning. Not uncommon for it to take years, in some cases decades. Probably easier in your area, but know before you buy.", "replies": [], "depth": 1}, {"id": "hvlhh6t", "text": "How close is the nearest development?", "replies": [], "depth": 1}, {"id": "hvq0sut", "text": "Sounds like it could be. Hemp would be easy to mostly automate on a large scale minus some expert hands here and there", "replies": [], "depth": 1}]