As an educated investor, you know that proper asset allocation is essential to portfolio diversification, and of course, real estate has always been a mainstay of a well-balanced portfolio. However, the recreational, agricultural, or working land niche market has only recently gained attention as an alternative to more traditional real estate assets. For decades, recreation and lifestyle have been a primary focus of new investment in western ranches. This is fueled in some measure by Hollywood’s romanticization of the American West in films such as A River Runs Through It, Legends of the Fall, and, most recently, Paramount’s Yellowstone. Still, ranch ownership represents more than what is portrayed on the big screen. When you purchase a ranch, not only are you acquiring a place to enjoy with family and friends but an asset with broad, deep, and resilient value.
Historically, western ranches were valued through the narrow, albeit objective view of how many cows the land can support, expressed in price per Animal Unit. For example, if Ranch A could support 100 cows year-round, and ranches in that area sold for $10,000.00 an Animal Unit, Ranch A should be worth $1,000,000.00. Financial modeling was straightforward, and the returns were predictable enough to pencil out a ranch purchase off the back of a cow. Back then, ranch ownership required skills and knowledge that were commonplace, and good help was easy to find. Today, ranch values continue to be loosely indexed to cows, expressed in price per acre, but modern ranch investment reveals multiple value layers, and price per acre now includes a whole lot more than just the practice of the bovine arts. From the revenue streams generated by agricultural operations to the quality of the opportunities to hunt and fish or the overwhelming emotional feeling created by a particular view, objective and subjective values are now strategically considered in forming an investment thesis for a ranch property. Additionally, nascent value layers like carbon credits generated from improved land management practices are now beginning to be realized. Sophisticated models are being employed to drive value-add projects on land holdings, unleashing exciting opportunities in the ranch asset space.