Posted: Thursday, May 18, 2023
Author: JW Robinson, Associate Broker | Licensed in WY
Renovating residential homes has been a hot topic for many years. Television has promoted the process of upgrading real estate through multiple shows across several networks. However, did you know upgrading and renovating farm and ranch properties has also become popular? The rising price of agricultural land has made it difficult for the average producer to afford more property. Agricultural producers are forced to lease property to have enough usable acreage to support their business. Over the last several years, I have worked with a growing number of young farm and ranch buyers. Many of these buyers have cleaned, developed, and remodeled ranch properties and relisted them for sale. However, there are several differences between flipping residential homes and upgrading and renovating ranch property. To understand ranch side, it is important to understand the people participating, the process, and the potential gains from a ranch upgrade.
First, it is important to understand the people involved in ranch renovation. In other words, who is doing the heavy lifting? Although not all, most of the people that I have seen renovate and upgrade ranches are under the age of 45. They also all have one thing in common; they love agriculture. It’s more than just their business and industry, it’s their lifestyle. These farmers and ranchers are hard-working, and it’s normal for them to work from daylight to dark. They have always been do-it-yourself workers, learning the skills from when they were young in 4-H, FFA, shop classes, college trade schools, and often from uncles, grandpas, dads, and neighbors. They understand welding, the use, and maintenance of tools, equipment, and heavy machinery, and have experience building shops and corals. They understand functional site plans and strategic layouts for working facilities. Therefore, their hard work ethic and skill set make a perfect opportunity to clean, develop, and produce a property to attract future land investors.
So why are these ag producers renovating ranches? It is important to understand the why behind their actions. With the growing costs of land, it is difficult for young ag investors to afford the land necessary for a long-term and sustainable operation. They are constantly battling to find land to lease and to develop partnerships with landowners. Their long-term goal for the business is to be self-sufficient rather than rely upon land owned by others. One option for growth and sustainability is to buy, upgrade and clean, and sell. They can then reinvest profits into a larger agricultural property. Everything about their operation can be moved except the land. They can move equipment and livestock, and they can even move their family. Although a move takes physical work, it is still a possible and probable way to grow. And because they dream of owning a sustainable ranch business, some young ag producers find it necessary to renovate and upgrade ranch properties.
Second, it is necessary to understand the process of renovating and upgrading ranches. How do you accomplish a DIY ranch renovation? The old saying states, “The money is made on the buy.” This rings especially true for upgrading agricultural land. The buyers are hunting for a reasonable purchase price to leave room for value-added projects over the next few years. This buyer not only needs a good purchase price but also, they need a production property. The property needs to assist their agricultural business sufficiently. This means finding a property with good water, grass, and production ground. After purchasing the right type of property, they look to the market to tell them how to do it. According to past sales, what do people in the local and national real estate market want in a ranch property? There is a popular book called “The Seven Habits of Highly Effective People” by Steven Covey. In the book, he refers to an illustration called “green and clean.” The story tells us that he contracted with his son to mow and care for the lawn. The contract simply stated that the lawn was to be kept ‘green and clean.’ The real estate market points to the process of DIY ranch renovating in the same manner. Many of the properties that can be found for a good purchase price are often delinquent in more than one way. They are dirty, unmaintained, and often an eye sore. The market indicates to the DIY renovator that they need to make it “green and clean” for it to be appealing to other buyers.
After the buy, the real process is cleaning, maintaining, and developing an appealing property.
Third, it is necessary to understand the potential gains in a DIY ranch renovation. What are the results of swapping ranch properties? The obvious answer to this question is monetary gain. The purpose behind the hard work, the late nights, and the early mornings is to find financial gain. Although not guaranteed success, many young farmers and ranchers have successfully renovated and upgraded ranches in partnership with banks such as the USDA, Farm Credit Services, and Ag America Lending. Their financial gain allows them to partner again on a larger farm or ranch. Ultimately, this helps them achieve their goal of a self-sustainable ag business, affording them to do what they love with their time, money, and energy. They are using ranch upgrading to build a long-term ag business while becoming savvy land investors. Another result of ranch renovating is the tax gains. Although the purpose of this article is not to give tax advice, many ranch renovators may find there are tax advantages in performing a 1031 tax exchange or receiving a tax benefit from selling their primary residence.
Finally, the renovation can often lead to more efficient operating costs. As functionality on the ranch improves, labor hours may decrease. As cleanliness on the ranch occurs, maintenance and wastefulness decrease. As developments on the ranch occur, systems become more efficient and less costly. The potential for gains on a ranch renovation offers diverse and helpful opportunities for ag businesses. Any gains resulting from the renovation bring the ag producers one step closer to being self-sufficient.
Many young farmers and ranchers around the United States continue to start small and slowly build their ag business through renovating properties and making wise land investments. The people participating are tough. It is not for the faint of heart, and the process is not simple. The work involved in being successful is significant. The gains are not guaranteed, and they can vary during turbulent markets. However, several have become significant landowners, and they operate self-sustaining ag businesses. Ranch renovators provide a glimpse into the heart of American opportunity.
