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Land or mutual funds?

2,122 Views | 12 Replies | Last: 6 yr ago by aggiebq03+
oscar9
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AG
Would you invest in ranch type land, mutual funds or other?

What would you expect to have the better return after 30 years?
Cyp0111
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Will you have income producing operations on the ranch? Where would it be located? Would you be doing the work?

What does the rest of your portfolio look like?
oscar9
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AG
It would produce marginal income from cattle. The land would be purchased in the Central Texas area.

Current portfolio consists of ranch land, ira, stocks and mutual funds. At a crossroad on where to focus the majority of the investments moving forward. Land requires a considerable amount of funds.
Nagler
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AG
They're not making any more land.
Football&Finance
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AG
If it's about pure investment returns, you gotta go with a broadly diversified mutual fund. If the land will provide generational stability for family residence(s) and business, that's a different matter.

How much of the property taxes on the land will you be able to defer? If it's not significant, the cost to carry the land will be significant. 2-4% over 30years is quite the headwind when the only source of return is capital gain (you stated operating income would be trivial). The only way it potentially makes sense is if it's a leveraged purchase, but even then, you're sacrificing market returns on the cash flow you're redirecting into paying down the debt with.
Cyp0111
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Leveraging raw land with cattle being the source of income doesnt seem like the best idea. I would venture to say outside of some form of a 1031 exchange large land purchases would prove to have headwinds (as mentioned above).

I assume any cattle operation would be for the ag exemption.
Football&Finance
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AG
I agree that cattle income wouldn't pay the note, they would have to redirect other business or personal income. Again, as a pure investment, not the greatest option.

Re: Ag exemption, I was under the impression that these are % exemption based on formula. Is it all all or nothing? For example, if I have 500 acres, 200 of which supports cattle, do I get to claim 100% exemption?
Cyp0111
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It is. I'm making the assumption the land in full would be used to get the exemption bc w/o the taxes would be rough.

With raw land prices in Texas right now any investment is going to require quite the time horizon and deep pockets. Rather large delta between revenue generated per acre and the cost per acre.
dallasiteinsa02
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Land can be lucrative, but the liquidity on large tracts is very limited.
Cyp0111
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What do you consider a large tract?
Latigo
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How many people get a chance to enjoy owning a mutual fund? You can take the kids hunting and spend quality time working cattle with them on a ranch. Priceless memories. If it's in ag, taxes should be more like .02% not 2-4%. Basically insignificant.
aggiebq03+
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Nagler said:

They're not making any more land.

They aren't?

62strat
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AG
Nagler said:

They're not making any more land.
Thats a silly way to think.

I didn't know the only way to acquire land is to find land that was recently 'made'.
aggiebq03+
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My serious answer for this thread is, invest in what you know and are comfortable with. It will net you the better return long term.

When I worked in South Texas lots of my colleagues invested in land and cattle. It's what they knew and they were pretty good at it. What I knew about and was comfortable with was mutual funds, and I've made what I consider a decent return on investment the past 15 years that way. Had I tried land it likely would have been a disaster, and same for them selecting mutual funds. Not to say you can't diversify, but put the bulk of savings in a vehicle you know. Branch out to something else with a small amount until you have time to get past the learning curve if you feel the need to try something new. I want to try rentals one day, but just don't have the time between work and family, so it has to wait.

As for my guess on returns, the land itself I'd expect to be an overall low return unless there is something special about it. Most returns would come from other income sources on the land. That's not experience, just my guess. Then again who knows if the next 10 years will be the 1990s or the 2000s for return in the market.
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