Posted: Thursday, January 04, 2024
Author: Alex Robertson, Broker | Licensed in OR
As the fiscal year winds down, you may find yourself in the fortunate position of having enjoyed a prosperous year on your ranch or farm or through other business ventures. Now, you're contemplating reinvesting in your property. This is a great position to be in, offering the potential opportunity to offset income for tax purposes and enhance the overall value and marketability of your property. However, this advantageous situation can also be a stressful one. You might be thinking: "What do I do?" "Where should I invest my capital?" "Can I buy that 1952 Topps Mickey Mantle that Matt Henningsen mentioned in his article: 'How to Grow a Sustainable Profit Through Analyzing Ranch Performance'?" Well, the Mantle card will not help you with property value or tax liability, so let's talk about some sensible capital improvements that I've seen firsthand help a ranch or farm property sell for higher.
For the Cattle Ranch…
Corrals and Cattle Facilities: In 2021, I witnessed a sale that underscores the value of upgrading your cattle-handling facilities. A ranch sold quickly and at a much higher price than comparable ranches after an old set of wood corrals for gathering, sorting, and working cattle was replaced by metal pipe corrals. This was a game-changer for this ranch. Ensuring a safe and reliable environment for unloading and loading cattle not only puts ranchers' and investors' minds at ease but also enhances the property's appeal. Don't discount the efficacy of prefabbed panels mounted on sturdy posts; they can yield similar benefits.
Fencing: In the realm of sensible improvements, upgrading fencing is a no-brainer. Well-maintained, straight, and secure fences are a universal preference. In regions like Eastern Oregon, where fences can date back a century, it's crucial to replace them if they no longer serve their purpose. An emerging concern now to consider is wildfire-proofing your fencing. There are some innovative solutions in fencing to preserve functionality post-wildfire, making this investment particularly valuable.
Optimizing Your Most Valuable Ground: Irrigated Acres…
Irrigation Improvements: The guiding principle here is "reduce.” Given the rising costs of labor and energy. It's prudent to focus on minimizing these factors. Energy-saving measures for irrigation systems, such as variable speed drives (VSD) for irrigation pumps, can significantly reduce operational expenses. For those unfamiliar with VSD, think of it as going from a one-speed bike to a 5-speed Huffy. Additionally, addressing leaky pipes and mainlines is a cost-effective approach to improve irrigation. When considering labor efficiency, opting for pivots and linears to replace wheel lines becomes a logical choice. Many farmers report that their new pivots pay for themselves in 5-6 years through reduced labor and increased production. Don't think I've forgotten about flood irrigators! Flood irrigators can also benefit by adopting more efficient methods, as evidenced by one client's success story of using set concrete check dams to replace his tarp dams which resulted in dramatically reducing irrigation time. This change was so effective that it only took him 90 minutes every other day to irrigate over 2000 acres. This turned out to be a huge selling point for the ranch.
A Suggestion for Equestrian Estates…
Arena Footing: While in Central Texas, you may be able to just run a disc over the native soil, and have excellent arena footing, the rest of us aren't as lucky. Especially those in Central and Eastern Oregon, where typically the soil can be so fine that dust is a real issue. Amending the natural soil with heavier sand or other specialized products, such as felt or fiber, can reduce dust, which in turn also reduces water consumption used for dust control. These changes provide safer footing for your high-dollar four-legged friend. Dust in some areas is unavoidable, but if you can eliminate dust, especially during showings, it will make your property a more attractive proposition to potential buyers.
For Recreational Properties…
Roads: First-time land buyers typically appreciate well-maintained access roads on the property. It does not need to be the Autobahn, just safe roads for UTVs, ATVs, or pickups. The low-hanging fruit for this improvement is the low-hanging branches of trees that impede vehicles on the roads. Addressing branches obstructing the roads will help you when showing however, tree trimming is hard to quantify as a capital improvement. A more significant capital improvement is to think about rock or gravel to improve existing roads, especially in erosion, steep grades, or flooding areas. These enhancements can reduce the wear and tear of your equipment, save time during property operations, and improve the property's marketability.
Lastly, the Home…
Roofing: Roofing issues often become sticking points in real estate transactions. In Central Oregon, with 300+ days of sunshine, dramatic temperature fluctuation, and four full seasons, roofs tend to wear out more quickly. What might be a 30-40 year roof in other areas may only last 20-30 years in Central and Eastern Oregon. Rolling shingles or deteriorating shingles with missing grit or fading metal roofs can detract from the house's quality and deter potential buyers. Additionally, no one wants to be in the house when a roof fails. Assessing your roof’s lifespan, and replacing it when necessary, will help maintain your home's value and protect the overall integrity of the dwelling.
Whether you plan to list your property on the market next spring, in the next five years, or never, all these capital improvements merit your consideration. It's worth noting that in a 1031 exchange, these investments could raise the basis of your relinquished property. Remember, every individual's financial situation and property is unique, it is always recommended to consult your accountant or a certified financial advisor to see what capital investment plan is best for your land. The Fay Ranches' motto has always been "Invest and Enjoy," and when you invest capital back into your land, you do just that.
