This information is provided by James M. Worl, Forester and Land Developer and is intended to be a simple discussion of considerations that should be considered when contemplating buying acreage---large or small—with our without improvements. Feel free to email or call Mr. Worl to discuss purchasing property or selling your property.
Why People buy Land:
People want to buy acreage for any number of reasons:
1) For their home place to have "more elbow room"---freedom!
2) To create or develop a hobby—raise horses, raise cows, chickens, garden products
3) To create or develop a financial enterprise—raise alpacas or llamas, raise sheep, raise cattle, grow produce, dryland products, Christmas trees or a myriad of products..
4) To develop the land for a future intended use such as single family, multi-family, retail, commercial or industrial . Developers take larger parcels and break them down to smaller parcels for a future intended use by society.
Investment Criteria and checklist: Your focus on the particular type of property will depend totally on your intended use. This list is a simple reminder list to consider when either buying a property or packaging your property to sell:
a) Size- The size of the acreage desired will be determined by your intended or desired use for which you will use the property. How many acres do you really need for your enterprise?
A new Christmas tree grower might be perfectly happy with 10 acres on the edge of town where he intends to install a U-cut venture. A pumpkin patch grower might want 20 acres in the same area as his venture might draw in school buses of kids to roam around. A timberland owner might want 80 acres or as this will give the owner a larger crop in the future plus the chance to develop the land into smaller parcels. Some animals require larger areas in which to live. Each parcel of land has a particular "carrying capacity" to it. A square acre is 208.71 feet on a side or 43,560 square feet. The area of a regulation football field is 360 feet long and 160 feet wide or 57,600 square feet. Therefore a football field is approximately 1.32 acres in size. Many people think it is much larger than that. That means that 5 acres is about 3.78 football fields and 20 acres is approximately 15 football fields. This should give you a feel as to size of a particular area of land when you decide to buy your property.
b) Soil type-Is it good rich loam or is it shallow, rocky or full of clay? The type of soil will determine whether it will meet your intended use. It is important to meet with the local Soil Conservation Service or extension agent to learn about the soil type needed for your enterprise. Soil type will also have a big impact on the type of septic system that will need to be installed to service a single family home or complete development. Standard septic systems might cost as little as $4,000 but could be as high as $15-$20,000 for a single home depending on the composition of the soil.
c) Aspect—Is it facing north, south, east or west? This will determine how much sun you get on the site and therefore its growing conditions. Growing conditions vary on each aspect of a particular property. Wine grape growers like stressed land that might be facing due south or east. Forestland growers like the north facing slopes where growing conditions contain more moisture and therefore the trees have less stress during the hot summer months. Christmas trees don't want too good of soil or aspect because if the trees grow too fast, they would have to trim the trees more and there would be a larger distance between whirls. Each aspect provides different temperature gradients for their particular microclimate.
d) Slope—Is it too steep for your intended use? Farm or garden equipment is effective up to a certain slope, then it becomes dangerous to operate. Safety is an issue. On forestlands, it is more difficult to do commercial thinning on steeper slopes as sometimes the residual stand might get damaged. Logging using crawler tractors is typically less expensive than if a tower system is used. A tower system such as a high-lead or skyline system is slower and therefore the costs are typically higher for the logging contractor. There might also be some erosion issues to consider on steeper slopes.
e) % of usable ground- We analyzed a 40 parcel whereby 25% of it was going to be set-aside because there were a couple of small creeks running through it at different places. In that particular case, only 30 acres of the 40 was usable for timber production. Creeks, wetlands, soil type, and unstable geologic soils are the primary issues which might effect the usability of a particular parcel of land.
f) Road access: Some properties have public road access and some have private road access or easements to them. Research the "quality" of the access to the subject property. Some easements are too narrow to meet county requirements for ingress and egress. In some counties, the percentage slope of the road will determine whether you can develop a property at all. Even a 1% variation beyond the standard might disallow a development. One big constraint on any parcel of land which will be developed for homesite purposes is the "view distance" from the point at where a private road connects to the public road. This will vary by county but it is not uncommon that an egressor must be able to see clearly for at least 400 feet in each direction before a development is approved on the subject property. Other issues to take into account are road fees that might be imposed by roads that you use. If you have to go over US Forest Service Land to get to your property there will more than likely be a road fee imposed on the removal of forest products. There also might be road replacement provisions in your easement agreement. Finally---it is important to check the limitations on public bridges going to and from your potential property purchase. Several public bridges were designed to hold only 15 tons of weight yet a fully loaded truck can weigh up to 80,000 1bs.! This would mean that you would need an alternative haul route or and exception waving that requirement thus provided by the County Road master.
g) Water availability: Is there public water available? An existing well? A water share on an existing system? Well logs can give you the information in each state regarding how deep wells are in the neighboring area. Some wells need treatment facilities for iron, arsenic or salt. Existing wells should haves samples taken and tested. Developing a water well can be a very risky venture. In the past, we oversaw the drilling of several successful wells and the development of shared water systems. However there have been some lessons learned along the way. One well was calculated to be approximately 200 feet down and would more than likely hit 5 gallons per minute or more. Water was hit at about 180 feet and was about 7 gallons per minute but it was so salty it tasted like it was right out of the Pacific Ocean! And there was no indication of salt water in any of the well logs even though the well was located right along a major freshwater river. We capped the well and combined the technicalities of the well logs and geological features and added to it the mystical power of water-well witching and found a nice freshwater well that had a satisfactory yield. We were able to establish a shared well system on 3 lots with one holding tank and it was adequate for the homeowners. On another well we had to go down almost 800 feet to get to good water. It really is nerve wracking when it costs $25-$35 per lineal foot to drill a well and the well is that deep. People take water for granted but it can be a very significant cost in any land project.
h) Power availability: Is it available on the property, in the public right away or even at all? If power is not on the site is there an easement from the closest source to the subject property? Public utility districts prefer to go underground if they can as there is typically less maintenance on these installations than on overhead systems. If you have to go over a neighbors' property to get power to yours it will require an easement and sometimes neighbors will simply deny your request or they may want some remuneration of some type. It is important to research the utilities that are going to be needed to get the site prepared.
i) Zoning: Check at the county and city offices to determine what the zoning allows. Just because the zoning allows multiple single family houses or multi-family housing does not mean that the property will still pass all of the other fundamental tests like water availability, soil quality, road slope and view distance.
j) CC&R's: Some developments have very regulated "Conditions, Covenants and Restrictions (CC&R's) that might limit building size, color, animal types or other allowances. These are in place to protect the owners' investment from shoddy housing practices, accumulation of cars or overuse of the land by horses or other animals. I have combined CC&R's on several projects to come up with the best and most reasonable set of regulations to both protect the owners' investment but also give them the freedom that they desire.
k) Environmental constraints: The existence of creeks, lakes, rivers and wetlands pose significant regulations that can result in set-backs, buffers and other limitations of activities on the subject property. Some projects require storm-water ponds that may seem totally unreasonable—and may not rationally make sense---but are required by governing entities nonetheless. Check with not only the county agencies but also all of the state agencies involved before you buy a particular parcel of property. The Endangered Species Act protects various species of animals in the northwest such as the Spotted Owl or the Marbeled Murrelet. Regulations imposed by the existence of these limiting factors can affect your usability of your investment.
l) Permits: There are permits required for almost any activity which is going to be conducted on a parcel of property. Timber harvesting, road building, pond building, excavation, dumping, development of a homesite are all under the watchful eye of the regulating agencies. Most of them will work with you but it is good to be up front on your proposed work.
m)Property Boundaries- It is important to find the location of your property corners and from there you can find your property boundaries. The local county surveyors office will get you the latest survey records in the area and might give you the description of when your corners were installed, what was used to mark the corners and the bearing trees that were established so that you can locate the corners if they have been destroyed. Property corners and lines can be very expensive to install. Once installed it is a good idea to put a prominent marker on the corners to mark them. On occasion, we have used 8 feet of 1 ½ inch white PVC pipe to mark the corners on 5 acre lots. It makes them very easy to locate and of course, when you go to sell the property, the corners can be easily identified.
Fence lines are not a good property boundary! We have seen fences be off by 100 feet or more from the actual survey! At that point, there can be issues of adverse possession, easements and the rest that can put a cloud on the title.
If there is not a survey on the property, find the surveyor who did the most recent survey in the area and get a quote to complete your project. This will more than likely save time and money for you when your property is surveyed as the surveyor would already be familiar with the controls.
n) Property Valuation--Each property should be valued taking into consideration its mosaic of possible uses of the property. Land can be valued in different ways. The Comparable Market Analysis (CMA), The Income approach and it's derivative Land Residual value and the Sum of the Parts approach. The CMA compares an "un-valued" subject property to other properties that have sold. Adjustments are made to the comparable properties...either up or down —to determine "a range of value" in which a property might sell in a given period of time under normal buyer-seller circumstances. Appraisers have all sorts of technical jargon to address this but I am presenting a very simplified approach. You basically compare one property to another and make adjustments in value off of the comparable to arrive at a value for the subject. All of the elements I have talked about above need to be taken into consideration when making the adjustments. This is typically the most common form of appraising.
A typical seller mistake is to compare the sales price of say a flat 5 acre lot with power, water and septic approval to it which sold for $100,000 in a given area and then extrapolate that value onto an undeveloped remote 5 acre parcel. Adjustments need to be made in the valuation of the properties to come up with an accurate value of the subject. Worse than this though, is that some sellers will extrapolate the value of the sold 5 acre parcel to a larger undeveloped 20 acre lot without making the appropriate adjustments. This results in a highly inflated value of the larger parcel and is not an accurate usage of this approach unless adjustments are made.
The Income approach to land is fairly technical especially when dealing with forestlands and long crop rotation periods. The use of a Discounted Cash Flow analysis based on various management scenarios, growth conditions and markets over the life of a forest is what several long term forest managers use to analyze these investments. The Internal Rate of Return and the Present Net Value of a particular site is calculated to come up with a value that the timber company or land investor will pay for the land and the standing tree cover. After an analysis is performed using certain assumptions a value is left over and that is basically what you can pay for the land (Land Residual). The crop is considered the income source with its' associated values and costs over a long period of time and the land is considered the "factory". The higher the quality of the soil, the closer to markets and the more operable that a tract of land is will give the land a greater value in the market place.
As an extremely simple example....The income approach can easily be applied to an annual rotation of farm crops.
An 80 parcel of land produces annual net income of $20,000.
The investor wants a 10% annual return.
What is the land worth?
Annual Income (I) = Annual Return(A) in %
Value of the Property(V)
To determine the value of the property—convert the equation:
Annual Income(I) =(V) Value of the property
Annual Return(A in %)
$20,000 = $200,000/80 acres=$2500/ acre
.10 (10%)
This is of course very simplified as with land there are multiple inputs into the production of the crop and if it is managed over time then the discounted cash flow analysis comes into play.
A Sum of the Parts approach to value is basically taking the components of value of a parcel of land and adding them together to come up with a value. Merchantable timber value can be calculated as a separate value, buildings can be valued by determining there replacement cost when new and then depreciating them, Christmas trees and other crops can be valued based on specific cost and income factors and then adjusted for time. Land can be valued based on its' comparable approach to value. The Sum of the Parts approach is useful from the understanding of knowing what you have on the property but it is my experience that not all buyers recognize those values when they go to purchase the property. Sellers need to understand that if this approach determines the asking price of the property then the final value would need to be discounted or it more than likely won't sell. How much is the discount? The percentage will vary by property and it becomes somewhat of an "art" than a "science" to determine the discount. A seller should want to leave a little bit on the table to appeal to the buyer's senses and make the buyer feel like they are getting some value. Sometimes the discount is anywhere from 15-25% depending on the factors involved in the summation.
o)Title Insurance- It is very important to get a preliminary title report to determine the quality of the title on the subject property. If the selling broker already has one then ask for it prior to making the offer. If it is not available though, then once you have made an offer on a property the seller will typically provide you with a copy. It is not automatic so don't assume it. It needs to be addressed in an earnest money agreement. The title report will tell you about any liens or encumbrances on the property and might tell you whether there is access or not. If someone else is using the subject property or if the property line is not accurate, the Standard Title report will not protect you against loss. You need to walk the property and do the research to protect yourself. Call any title company to learn about title insurance—it's benefits and limitations.
I would be happy to help you in the purchase or sale of a property in either Oregon or Washington as I am familiar with most markets and most types of land—large or small. I have developed several projects and have been involved in timberland transactions up to several thousand acres in size.
I have prepared a rather simplified discussion of factors that are involved in buying acreage or selling acreage of any type. This information will hopefully help you in your journey. Please feel free to contact me at the information below. I look forward to meeting with you on the acreage that you are considering buying or selling!
James M. Worl
James M. Worl Investment Real Estate LLC
james@RealtyInvestorsToday.com or jmacworl@aol.com
PO Box 310
Colton, Or. 97017
360-751-1440
